Commodities were strong, and the news out of China helps but we are focusing on those with growing production bases and have operational expertise which should allow share prices to increase regardless of these little blips which pop up from time to time. We are anxiously awaiting earnings season to get into full swing so that we can provide further insight on our recommended names and some companies which we have been scouting for readers over the past month or two. We have a few names we are excited about, but want to wait until we get a little bit more data on before bringing to center stage here.
Oil & Natural Gas
Yesterday Rex Energy (REXX) caught our eye as shares were up $0.56 (4.23%) and was one of the strongest Utica players during the session. The company reports earnings on November 6, 1012 and we would expect to hear some bullish statements on the Utica. The company has property in what appears to extremely fertile ground and we are anxiously awaiting for the company to start cranking out results. It is tough to say what the learning curve is going to be here, but with the company's experience in other shales we would expect them to be able to make adjustments rather quickly. One topic we would encourage investors to pay attention to in the Utica is how long various companies are resting their wells for. Generally we are looking at 90-days, but we have heard some players using 60-day periods and this is all important because it really slows down results and data gathering for future well techniques as you have to wait to gather all of the data you may want. We are long all things Utica.
Chesapeake Energy (CHK) will have their conference call today, and we are looking forward to listening to what the company has to say. We know they killed it in the Eagle Ford with big gains in production down there, and we fully expect the Utica to turn into a play just like the Eagle Ford. We hope that the company can or will state the average daily production of their Utica wells which are online or at a minimum the average IP rate for those wells they have drilled. The company has some really good plays it is developing right now and the key is for them to get as much of it, if not all of it to HBP (held-by-production) status. They are nearing that point in the Eagle Ford, and we suspect that they will begin ramping up drilling in the Utica to achieve this there as well. Chesapeake continues to forecast a decline in their year-over-year production of dry natural gas, so that remains bullish for natural gas prices moving forward. Also, we took a quick look at the press release and it appeared that the company also threw some hedges on their dry natural gas production again, much as we suspected that they would as they try to lock in prices and get guaranteed cash flow.
Yesterday was an interesting day for precious metals. We saw Yamana Gold (AUY) set a new 52-week high before finishing lower while Silver Wheaton (SLW) maintained its strength all day and set a new 52-week high. There was weakness however at Barrick Gold (ABX) as the company appears to be getting squeezed everywhere and it is impacting their margins. Their earnings report was quite disappointing, and with realized gold prices falling along with volume investors saw revenues declining while Barrick's mining costs rose pushing up the cost per ounce to mine by a couple percentage points.
This is why investors have been chased out of playing gold rallies as the price of gold increases so too does the price of the inputs to the mining process. It is almost like a no win situation for the miners and certainly not like the days of old where prices would rise and earnings would grow by multiples and not a few percentage points … or in the case of Barrick actually decline. It appears that these days investors wanting to play rising commodity prices in resource stocks need to focus more on oil stocks and other miners where the cost inputs are better contained. It is frustrating to be right on a sector's pricing power and wrong on the equity market direction at the same time, but it does happen from time to time. Right now, and in the current market, we would recommend of doing more of that which is working and less of that which is not - in other words, we want you to stick to those plays showing strength rather than weakness.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.