Oil futures are up on the heels of the successful Spanish debt sale, and this should be good news for today. We do feel that because it is almost all attributable to the debt sale's success that it will be short lived as there will be future debt sales which disappoint investors with low demand and other problems such as rising rates. It is the nature of today's markets, and until Europe does something, nothing short of a fire wall mind you, then the see-sawing markets will remain a constant -especially as it pertains to commodity markets.
Oil & Natural Gas
Chesapeake Energy (CHK) fell to $19.05 yesterday in trading only to rebound to close at $19.19/share. After the close the company came out and said that Chesapeake Oilfield Services will seek an IPO, something the market already knew but does show that the company is moving forward with adding liquidity to the balance sheet. It appears that the IPO will raise up to about $863 million. It will be interesting to see how this affects the company in trading today, but it ultimately does not change our opinion of the short-term prospects of the company. See press release here.
We have been doing a ton of research on the North American E&Ps, and really like SandRidge Energy (SD). Yes there is the debt issue and the cash flow issue, but the oil content is higher than peers and drilling costs are lower. If you take a long-term view of this it should perform well, and like Chesapeake and others who have cash flow issues they appear to be cash flow positive in the next few years. And yes, we think that they can bridge the gap until that day comes. We will be looking to start long-term positions on this one moving forward, but want to buy on days when it is down hard.
Kodiak Oil & Gas (KOG) is another we want to point out this morning as having a large percentage attributable to oil from its wells. The Bakken is one of the premier plays in the US and Kodiak is well positioned to capitalize on this. Their acreage position has increased in each of the past few years, and they have continued to experience success. Debt is accumulating, but their BOE/day numbers are increasing as well and we are quite happy with their estimated exit rate for the year. The company is also increasing rig counts in the area and should improve upon the costs of drilling.
Gold broke through the $1650 level early this morning and is trending higher, but still not near anywhere important in regards to a level where we know that the market is moving into bull territory. We are stuck in a trading range right now, and that is the reality. It will take good economic news from across both the Pacific and Atlantic to move gold higher, or an acknowledgement from the Fed that QE3 may be likely.
Silver is also trending higher this morning, however it is now falling after having broken through the $31.70/ounce level. We continue to favor silver holdings over gold holdings going forward.
Patriot Coal (PCX) was actually up yesterday, one of the few resource plays that finished higher on our screens. We point this out simply to show that maybe investors are about to push these higher short-term, but it will be short lived. We are taking a longer view of these issues and feel that there will be a better opportunity at lower prices going forward. The same can be said for Alpha Natural Resources (ANR) and these are two which we have previously talked about. Our guess is that the coal plays could fall another 20% before they would actually be buys, so we will stick to that and wait to be buyers near those levels rather than today's levels.