Companies Mentioned: Abraxas Petroleum Corp. - BP Plc. - Canyon Services Group Inc. - Chesapeake Energy Corp. - Chevron Corporation - Clean Energy Fuels Corp. - ConocoPhillips - Devon Energy - Encana Corporation - GMX Resources Inc. - Royal Dutch Shell Plc - Tetra Technologies Inc. - Weatherford International Ltd. - Westport Innovations Inc. - Yamana Gold Inc.
The Energy Report: Frank, when people hear "penny stocks" they usually take those words quite literally and think in terms of stocks certainly trading under a dollar, if not under two bits. Your definition, as editor of Penny Stock Specialist, is a little broader. Tell us why.
Frank Curzio: Sure. Penny Stock Specialist is more of an under-$10 newsletter. We do have some penny stocks in there, but you may see some large caps that trade under $10 as well. About 80% is in small caps. In May, most small caps were trading at their most expensive valuations to large caps in more than three decades. That was before we saw seven straight weeks of declines. I may lean toward recommending even more mid- to larger-cap companies going forward.
TER: You follow the energy industry in a broad context, which includes everything from small oil and gas exploration companies to international majors as well as various types of service and technology companies related to energy production. Can you give us a brief overview of how you see the energy arena now compared to your last interview with us in October?
FC: There have been a lot of major changes. I do like oil right now. Most analysts and people I talk to see lower prices in the short term. But, looking at the long-term picture I think oil is getting more difficult to find. The political landscape is more challenging than ever. That is probably why every major oil company is spending billions of dollars buying shale gas assets in North America. Short term, we may see oil prices push under $90/barrel (bbl.), especially with the political motivation to release oil from the strategic oil reserves, a step that is only supposed to be taken under extreme emergency conditions.
The last time we released any significant oil from strategic oil reserves was 2005 during Hurricane Katrina. That was an emergency. Also during the Gulf War. That was an emergency, but oil at $100/bbl. is not an emergency. So, it seems more like another short-term stimulus package aimed at pushing the price of oil under $90/bbl. ahead of an election year. But longer term, I like oil and I think it goes a lot higher from here.
TER: So, what do you think the prospects are for developing any significant new reserves in the U.S. at this point? Probably not great.
FC: No, it's not great. The majors are using a big chunk of their capital expenditures buying up shale gas assets across the U.S. That tells me they are looking to transition into natural gas. I think if they could find oil they would use that capital expenditure (capex) to continue drilling to find more. Longer term, I think oil is going to be more difficult to find. And that's going to reflect in supply and demand, making the price go a lot higher.
TER: So, it appears that natural gas is the game of the day. Give us a little summary of what you think is going on there since we had the big peak in gas prices back in 2005 and 2006 and then another, lower peak in 2008. What's in the future?
FC: I think we all know by now we have a huge supply of natural gas. It's keeping prices below $5 thousand cubic feet (Tcf) at current demand levels, with roughly 80 years of supply. However, I think demand's going to pick up sharply. I think liquefied natural gas (LNG) is a major factor as we begin to export natural gas to huge growth markets like India and China. This may take a decade, or even longer, but eventually it's going to happen. Natural gas use for electricity production continues to grow each year. Right now it accounts for 23% of electricity generation in the U.S., with coal at 45%. In 15 years, I would not be surprised to see these percentages reversed. Finally, many truck companies including UPS, Huntsman and Ryder, are transitioning their truck fleets from diesel to natural gas. More than 5 million heavy duty diesel trucks in the U.S. could convert. I see all of these trends accelerating over the coming 5 to 15 years. That will increase demand and cut into supply, resulting in higher natural gas prices over the long term.
Posts
No comments:
Post a Comment