The news out of the Utica continues to surprise us as results in the wet gas window come in above some of our more bullish projects which we set out at the beginning of our research. We are happy to use regular trading money, retirement money or even college funds for children to invest in the area as there are numerous plays with varying degrees of risk/reward and some companies even offering healthy yields. Today we want to watch oil and the precious metals compound based on the news which will be coming out of Europe and all of the jobs numbers due out today.
Oil & Natural Gas
Yesterday saw Gulfport Energy (GPOR) rise as they announced the night before results from another Utica well. A small boutique firm initiated coverage on the shares and we saw strong volume of 2.3 million during yesterday's session. Shares fell off of their highs set early in trading yesterday, but shares were still able to close at $27.44/share after rising $1.73 (6.71%). We think that the shares are still undervalued, and for anyone thinking otherwise we would ask that they take a look at the transcript from the latest conference call. As we have said for some time now, this is a $50/share stock trading at a healthy discount to what we believe is not only the future value but also its current fair value. We think shares will continue to be one of the best performers in the Utica over the next few months and will continue to add exposure to our portfolios.
Even though investors in Chesapeake (CHK) have to be a bit disappointed that they have not found a sweet spot such as the one Gulfport finds itself in, they should rejoice in the news as it demonstrates that the Utica wet gas window does in fact contain some sweet spots which are very rich. With the company's massive acreage position we suspect that Chesapeake will in fact find one of these areas and probably over promote it - which shall be good news for everyone in the industry as more market participants recognize the economics of the play and better understand the geology. We are still bullish all things Utica, and that includes Chesapeake itself.
SandRidge Energy (SD) saw shares rise $0.27 (4.14%) to close at $6.79/share on volume of 12.9 million shares which pleasantly surprised us. The stock has been somewhat range-bound but we suspect that once Chesapeake does their JV in the Mississippian play, SandRidge itself should rally. Like Gulfport, the company has found a sweet spot and the shares trade at a nice discount to what we think would be a fair price based on the outlook for the company at this point. We think that $10/share is where we are going, so any purchases at these levels would look great if that is indeed achieved by the shares. We do not own any shares ourselves at this time, but certainly have no qualms with those who do.
AuRico Gold (AUQ) saw its shares fall $1.45 (20.74%) to close at $5.54/share yesterday on the news of their actual production cuts from their new mine. The market already knew that this was coming, but apparently were surprised by the production guidance now, which our mentor was rather surprised by. We bring this up because when it comes to trading he is a far better man, and with the price action yesterday he informed us that he was purchasing shares and now has a position. It is a company whose story investors have to like, as most of their production is within North America. We think the company will work their way through all of this and reverse the 30%+ fall in the share price year-to-date. These production issues are quite normal in the mining industry and it takes time to work through the problems. Better days are ahead, and for those looking for an attractive entry point in the precious metals arena we think AuRico is now probably the best bet long-term.
Paramount Gold & Silver (PZG) released their new results from exploration which details the deposits and they greatly increased their ounces in the ground over their previous compliant resources. Shares finished at the highs of the day yesterday, however still well off of their 52-week highs. With this stock we feel that investors need not worry about the dilution from capital raises required to move a project from exploration to development and production as this will never get that far. It is our opinion that we see this one taken out before that capital is needed and shareholders will be rewarded. In other words, the typical stock price action shall not apply here, and this weakness is more than likely an intriguing entry point.
Disclosure: I am long GPOR.