Oil is hanging in above the $90/barrel level, but with supplies at highs here in the states and the price action looking abysmal, many are calling for the mid-80s to be the next stop. That may be the case, especially with the situation in Europe and China, but there are some great plays out there where production in increasing and with that so too can the company's top and bottom lines. Positioning for growth during pullbacks has always been beneficial for us, and now seems like a prudent time to do so - but in moderation, one should not get carried away and use up all of their available firepower.
With volume of 9.85 million, Patriot Coal (PCX) closed at $2.42 down $0.24 (9.02%) in trading yesterday. The stock was settling down after a big move upwards from the sell-off which resulted from the bankruptcy rumors this week. The volatility probably looks inviting to day traders, but we must reiterate for our readers the need to stay away, and this is coming from one usually willing to pile on the risk, because the reward in this case just does not justify jumping in at this point in time. There is more bad news to come out, and it will pay to have been on the sidelines in the weeks and months to come.
Alpha Natural Resources (ANR) closed down $0.60 (5.10%) to finish the day at $11.17/share. Volume was 12.8 million but like Patriot Coal, Alpha had a pullback after a rebound from a sharp intraday sell-off earlier this week. The rebound was nothing more than a dead cat bounce at this point, and as soon as that fact changes we will let you know, because that is when it will be time to make our move into coal. Moving in before that would be a mistake as the trend is lower and we have barely scratched the surface of the disappointing news investors can expect moving forward.
Oil & Natural Gas
Chesapeake (CHK) was able to once again buck the trend in the markets yesterday as they rose $0.49 (3.25%) to close at $15.58/share. The company announced that they would look to sell their DJ Basin assets, about half a million acres in the US west, to shore up their balance sheet and fill holes in their cash flow issue. This is what we would classify as a non-core asset and the results from which were very marginal. And when compared to the rest of the portfolio these assets are not in the neighborhood of other plays. Also making the rounds is news that Blackrock has increased its holdings in the company, and for those who do not know, Blackrock is one of the largest and most respected investment companies out there. They have a deep bench and a history of finding value and earning high returns for their investors.
This all brings us to the Utica, where a number of companies have been hit hard with the drop in natural gas prices and now the drop in oil prices. It is a triple whammy when one considers that NGLs (natural gas liquids) are priced based upon oil, and all this has negatively impacted share prices over the past few months. Needless to say we are bullish all things Utica, but at this point we find ourselves buyers - in manageable sizes - of those beaten down players with acreage in the oil and wet gas plays of the Utica.
Gulfport Energy (GPOR) would be one of our picks and yesterday the company hit a new 52-week low as shares fell $1.16 (5.76%) to close at $18.97/share on volume of 860 thousand. The company has really been taken to the woodshed in the past few weeks and it had to do with the earnings calls and a deal with their Permian assets, but there are brighter days ahead for this play as they continue drilling in the Utica and bring online their oil sands play.
We also think that EV Energy Partners (EVEP) is a play worth looking into. We own both shares and options on this one and think it is trading at about half of what it is really worth after a monetization of the Utica assets. This is a conservative play which has been hammered due to their current high proportion of production geared towards natural gas, but that will all change soon enough. With long shut-in times in the Utica -- now in the neighborhood of the Eagle Ford -- it will take a bit longer to get news out regarding results, but this is one of the key investments in the entire play. The company has hedges in place and the distribution is safe going forward, so there is protection here and at these prices you are essentially getting the Utica for free.