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David W. Ingelson

The Daily Trade – Novus Energy Inc (NVS.V)

 Novus Energy (NVS), The Daily Trade, Watch List
Feb 182012
 
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Company: Novus Energy Inc

Sector: Energy E&P

Market Cap (M): $169 (Fully Diluted at $212 Million)

Website: http://www.novusenergy.ca/

Company Profile:

Novus’ strategy is acquisitions in high netback properties, along with organic growth through the drill bit. They target:

  • Light oil resource plays with significant original oil-in-place
  • Application of horizontal multi-stage fracture technology to increase oil recovery
  • Focus on well delineated, low geological risk reserves
  • Lands to possess large aerial extent to support large-scale, repeatable drilling programs

Novus is targeting resource plays, primarily light oil, in the Viking and Cardium. These are low geological risk reserves with large original oil in place. Drilling in 2012 continues to be focused in the Dodsland Viking, in SW Saskatchewan. The Viking is a highly delineated reservoir with low geological risk. Production is high netback, light oil and drilling costs are lower than comparable plays due to the shallow depth of 750 metres. As of February 2012, Novus has 119 Sections in the Dodsland Viking, and 610 risked drilling locations, which downspaced to 16 wells per section (as other competitors in the area have successfully done), could increase to 1220. Average Viking well EURs for the company were increased to ~45,000 boes/well providing a solid base for increased production. The Cardium offers high-impact drilling opportunities for light oil. Novus’ drilling program is concentrated at Wapiti, Alberta in 50% – 80% working interest wells.

Fundamental Analysis:

In 2012, Novus is forecasting an average of 3,300 boe/d of production, 84%  oil and liquids weighted, with an exit of 4,500 boe/d weighted 85% towards oil and liquids. Novus also has a Reserve Life Index of 14.0 years on a proved plus probable basis and 8.5 years on a proven basis.

Novus’ NAV/Fully Diluted Share is $1.64. Book value is $0.69 per share, and the P/E is currently only 16.7x, which considering the company’s growth profile and take-out potential, seems relatively cheap. It should also be noted that in the last year, there has been insider buying of over $500k in stock.

With an enterprise value of around $230 million, they are currently trading at only $51k / flowing boepd based on expected 2012 exit production, which is significantly less than other juniors in the area.

The company’s balance sheet is also relatively clean. Forecast net debt to cash flow at year end 2012 is only 1.2 times.

I do wonder about some of their land position though, as some sections appear on the outside edge of the Dodsland play, and may not achieve the same results as more players with more centralized core positions.

Technical Analysis:

With a recent bearish trend, I expect some psychological support around the $1.00 mark, and further support around $0.80. Resistance is around $1.10. Watch for the 50 day to cross over the 200 day as a bullish indicator. RSI is high, and MACD recently crossed to the downside.

Seasonality:

According to EquityClock, the seasonality trend for Oil E&Ps begins around January 30th and ends around April 13th. Though a little late on this buy, it is still very prospective.

Analyst Expectations:

Novus’ February 2012 presentation, available on their website, shows the following analyst projections:

Canaccord Genuity -Buy -$1.50 -February 8, 2012
CIBC World Markets -Sector Perform – $1.30 -February 8, 2012
Cormark Securities Inc. – Buy – $1.60 – February 8, 2012
Desjardins Securities – Buy – $1.75 February 9, 2012
Fraser Mackenzie – Strong Buy – $1.40 – February 8, 2012
GMP Securities L.P. – Buy – $2.00 – February 8, 2012
Haywood Securities Inc. – Sector Out Perform – $1.55 – January 11, 2012
Northland Capital – Sector Out Perform – $2.00 – February 9, 2012
Paradigm Capital – Buy – $1.50 – February 9, 2012
Raymond James Ltd. – Out Perform – $1.50 – February 9, 2012
Stifel Nicolaus – Hold – $1.20 – February 8, 2012
TD Securities – Buy – $1.70 – February 9, 2012

Obviously, the analysts see a lot of upside to this company, with projected price increases from 20% to 100%.

Trading Strategy:

I like this stock as a 1-2 year hold. I think the $1.00 mark is a good place to begin accumulating a position, but given the overall bearish trend in the last 2 weeks, I will likely buy only 30-50% of my total expected position now. If the stock breaks down to $0.80 I will buy a stronger position, and if strong support is shown around the $1.00 will look to continue buying on the way up.

 

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 The Daily Trade – Novus Energy Inc (NVS.V)  Posted by David W. Ingelson at 14:07  No Responses »  Tagged with: ,

The Daily Trade – Crescent Point Energy Corp. (CPG) – 20120217

 Crescent Point (CPG), Watch List
Feb 172012
 
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Yesterday, Crescent Point announced that it will spend $427-million to buy properties from PetroBakken Energy Ltd. so it can boost production in the prolific Bakken oil field in southern Saskatchewan.

Crescent Point said the Saskatchewan deal will add 2,900 barrels of oil production a day, 10.5 million barrels of proved and probable reserves, and approximately 16k acres of exploration lands in the core of the Saskatchewan side of the Bakken field, which extends into North Dakota and Montana.

To pay for the purchase, Crescent Point said it will sell 11.6 million shares, priced at $45.25 each, to a group of underwriters led by BMO Nesbitt Burns, Canadian Imperial Bank of Commerce and Scotia Capital Inc. to raise gross proceeds of $525-million.

The underwriters have the option to buy a further 1.7 million shares if demand warrants, boosting the proceeds to $604-million.

To me, given the recent Crescent Point & Wild Stream share deal, plus this share disposition to raise funds for another acquisition, just continues to show that management is adding reserves by using CPG’s high share price, which would normally be a very negative sign. At the same time, however, there was insider buying of $230k worth of CPG stock, so perhaps management sees more future gains.

In conclusion,  I believe Crescent Point management is doing an excellent job in adding value using this high share price, which rewards investors who were in at the right time, but I still believe that new investors should wait until a better time to get in on Crescent Point stock, or add shares through the Wild Stream deal.

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The Daily Trade – Canadian Natural Resources Limited (CNQ) – 20120215

 Canadian Natural (CNQ), The Daily Trade
Feb 152012
 
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Unfortunately, as sometimes happens with a purchase based on bad news, that bad news is followed by more bad news. Yesterday, Canadian Natural announced that their 110,000 barrel a day upgrading plant would be down until mid- to late March to fix a fractionator unit, or 2-3 weeks longer than initial expectations.

The extended shutdown has force Canadian Natural to cut its 2012 production target for Horizon to 93,000-103,000 barrels a day from the previous forecast of 105,000-115,000 bpd.

Now, as this was a value buy for me, let’s look if the market’s reaction to these announcements make any sense. The Closing price on February 6th, before the announcement of Horizon downtime, was $40.50. This would give Canadian Natural a market cap of around $44.34 billion. At market close on February 14th at $36.36, the market cap had decreased to $39.81 billion, a loss of almost $4.5 billion or 10.3%.

 

Over this period, the S&P/TSX capped energy index dropped nearly 3%, so let’s first include that into our calculation as accounting for around $1.3 billion of the market cap loss. That leaves $3.2 billion in projected loss to be accounted for by the 5-7 week outage. Let’s be overly pessimistic and use 8 weeks of outages for our calculations.

8 weeks, or 56 days of downtime on a 110,000 boed facility = 6,160,000 barrels of production.

In Canadian Natural’s May, 2011 Horizon presentation, Canadian Natural shows that their best quarterly operating costs in 2010 were $32.27 per barrel with an average of $36.36. Their full production expectations are a cost of $25-35 per barrel, and I am going to use $30 / barrel for my calculations, which I feel is very conservative.

Light synthetic crude for March delivery was quoted at $2-$3.50 a barrel under benchmark West Texas Intermediate on February 14th afternoon, the smallest discount in more than a month, compared with $18.50 a barrel under WTI a day earlier.

Since this price differential mainly decreased due to the Horizon outage, and the February 6th market cap would have assumed a continuation of the differential for sometime, let’s use a $15 differential in our calculations. In reality, the decreased differential will help Canadian Natural once output resumes, as the glut in supply of Synthetic crude should be removed as both Syncrude and Horizon are down for maintenance and refiners will use up their high supplies.

Now, the simple calculation of short-term loss to Canadian Natural is the $100 WTI minus the $15 Differential for Synthetic = $85/barrel, minus the $30 per barrel operating cost = a loss of $55 per barrel. $55 / barrel multiplied by 6,160,000 barrels of production is a loss of around $339 million. Of course, in reality, this is just deferred production, but given the long-life of the project there is not much point in doing an NPV calculation and we will just assume a $340 million loss.

Therefore, from a valuation perspective, we’re looking at the markets taking $3.2 billion off the market cap of the company for what will likely amount to less than a $340 million loss in production. I would imagine the actual loss to be in the $200-300 million range, since I used overly pessimistic criteria in my forecast. Now, consider the $18.50 increase in the price of SCO relative to WTI (which I believe was also a knee-jerk reaction and will probably move down to a $12-15 differential) and you can see that the expected loss will be even less since Canadian Natural will likely command a higher price for their SCO once production resumes.

Of course, this unexpected downtime leads to an increased risk that the Horizon project will prove to be unreliable in the future and that there are design issues that may lead to further downtime in the future so one must price in additional risk for that…but $3 billion worth!?!? I don’t think so. Also remember that this downtime may allow for other maintenance activities to proceed which will shorten future downtime for planned maintenance, reducing the actual number of days of loss in the longer term.

To me, the company is even more oversold than when I made my last post and this represents an even greater opportunity to accumulate stock than I expected, notwithstanding the potential for the overall market to go into a small correction in the short-term. I will continue accumulating small increases to my position over the coming weeks as more news comes out and the overall market picture becomes more clear. The major risks continue to be a correction in the market as a whole, and more bad news. I believe the energy sector is a good sector to be in even if the market does correct, and the effect of further bad news being limited given the extent of selling that has already occurred.

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The Daily Trade – Canadian Natural Resources Limited (CNQ)

 Canadian Natural (CNQ), The Daily Trade, Watch List
Feb 082012
 
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Company: Canadian Natural Resources Limited

Sector: Energy E&P

Market Cap (M): $42,170

Website: http://cnrl.com

Company Profile:

Canadian Natural is the second largest independent natural gas producer in Canada, and has the largest undeveloped land base in the natural gas regions of NE BC and NW Alberta. They are the largest heavy oil producer in Canada, and produce a mix of light and heavy oils, as well as in-situ oil sands, and upgraded light synthetic mined oil sands. Their Horizon Oil Sands property has six (6) billion barrels of resource potential, and the project is expected to produce up to 250k boed of light, sweet crude for 40+ years. Canadian Natural also has North Sea production, and international opportunities in offshore Cote d’Ivoire and Gabon.

Fundamental Analysis:

Canadian Natural has shown a history of growth in production, reserves, cash flow, and pre-tax NAV on a per share basis over the last decade. In 2012, Canadian Natural is forecasting 1,265 – 1,334 MMcf/d of Natural Gas production, and 464 – 504 Mbbl/d of Crude Oil and Natural Gas Liquids production. They’re also budgeting for over $7 billion in Capex for 2012, including over $2.3 billion on their Horizon Oil Sands project.

The price of Western Canadian Crude Select is trading at one of the worst historical differentials right now, hitting US $61.41 on Monday while WTI continues to trade in the high $90′s. There are two main reasons for this, one being pipeline capacity, and the other being high inventories with refiners at Cushing. This is punishing companies like Canadian Natural in the near-term, but I would expect this differential to narrow again over time as the market sorts out pipeline and shipping capacity, rewarding the long-term investor. Approval of the Keystone XL pipeline would also greatly support Canadian Natural’s share price in my opinion, and is looking more and more likely to happen as Republicans try to take approval away from Obama and put it with the Federal Energy Regulatory Commission.

Canadian Natural just announced that production at Horizon was down due to issues with the upgrader, which may take 2-3 weeks to resolve. It is expected that this will not impact production guidance, but obviously it increases the question of how reliably the Horizon project can operate, especially after the 2011 fire at the project.  This shut-down, along with the scheduled maintenance at Syncrude, will take over 200k boed of Synthetic off the market for at least 2 weeks, with Syncrude’s maintenance taking 100k+ boed off the market for a month. This should help narrow the crack spread on synthetic and help Canadian Natural once they are back on-line. This is why I view their current difficulties as providing a strong buying opportunity from a value standpoint.

Technical Analysis:

This 2 Year Chart shows the strength of CNQ’s chart since October 2011. Of course, this recent news about the Horizon project shut-in caused the price to break through the channel support, but I believe this will be shown to be a false break down based on the news, and in the next couple of weeks as the issue is resolved, the price will recover back above this trend line. You’ll also notice that the RI has neared 30, which usually represents an excellent buying opportunity. We can also see that Canadian Natural reached $50 back in March of 2011, and I believe there is the potential for this price to be reached again depending on overall market fundamentals in the next 2 years.

Though we’ve breached the trend line, I expect the 50 day MA to provide support making this an interesting buying opportunity.

Seasonality:

According to EquityClock, the seasonality trend for Oil E&Ps begins around January 30th and ends around April 13th. Combined with the technical analysis above, this may be a good time to look at accumulating shares.

Analyst Expectations:

Out of 22 Analysts surveyed by Reuters.com, 6 have CNQ rated as a buy, 11 as Outperform, and 5 as a Hold. Both RBC and CanAccord Genuity have Canadian Natural on their focus buy lists, and target prices are in the $52 price range.

Trading Strategy:

I am going to start accumulating a position around these levels with a long-term view in mind. I will likely dump some stock on a seasonal trend basis depending on how the market acts over the coming months, but look to hold at least 50% of my position for the longer term in hopes of eventually achieving the expected $50 valuation.

 

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15 Stock Trading Tips – Part II

 Beginners, Education
Feb 032012
 
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15 Stock Trading Tips – Continued from Part I

8. Sell How You Buy

Traders and investors spend a lot of time researching stock purchases, and when done right, pick up excellent stocks at excellent times. The problem is that buying doesn’t make your profits, selling does. Put the same amount of time and effort into timing your exit as you did into making your entry. No matter what Ronco tells you, you can’t just set it and forget it.

9. Track Your Trades

Tracking your performance isn’t all about the gains and losses. Track your reasoning for buying a stock, why you bought it when you did, why you continue to think it will rise, and why you sell when you sell. Once your trade has been made, look back to see if it was the right call. Did your timing work as you expected? Was here something that you can learn for next time? A lot can be learned through your wins and losses, so take the time to make notes in a journal and then look back at how you did.

10. Research! Research! Research!

Think about how many hours it took you to earn the dollars you’re investing or trading, and then think about how many hours you’ve spent reviewing your investment or trade. Don’t put 300 hours of work on the line after after 30 minutes of watching BNN! I recommend putting at least 5-8 hours into researching a company before deciding whether it’s something you’d be interested in investing in. Realize that I probably only buy 10-20% of the stocks I review, so we’re talking about 25-80 hours of research before I find that winning investment. Then, it comes down to following the stock until I believe it’s the time to buy, meaning more hours tracking price, volume, news and technicals. The good thing about putting all of these hours into research is that you will become familiar with more companies, their strategies, and be able to more quickly identify the winners from the losers.

11. Develop a Focus

Don’t try to be a master of everything. Institutional firms have certain people focus on certain sectors, companies, or strategies, and you should do the same. I think it’s hilarious when amateur investors are trading stocks, bonds, futures, options, and ETFs across multiple sectors, in multiple countries, using multiple currencies, and multiple trading strategies. Yes, diversification can be very valuable, but don’t try to be a Master of the Universe or you’ll look like a Master Jackass. You’ll notice that my recommendations on TSXTrader.com focus on Canadian Stocks in those few sectors that I am knowledgeable about. I’ve dabbled in oil futures, but only because I spend so much time following oil prices while making my other investment decisions. In other words, choose a focus for your trading and seek your diversification using long-term, defensive methods. I diversify my total investment portfolio using ETFs & Real Estate, and keep my trading dollars focused on winning Canadian companies that I know and understand.

12. Stay Calm

Don’t make rash decisions. When news breaks, don’t get caught up in the market’s madness. Huge price changes are not always real, so don’t get faked out and lose your mind and your cash. Flash crashes happen. Terrible market opens happen. Yes, bubbles burst and bear markets can break hard – but it’s over days, not minutes. When the pressure picks up, step back and figure out your plan. Look at volumes, resistance levels, and all of those other factors that you would normally look at before making your trade.

13. Think Taxes

Taxes should be key considerations when choosing where to put your money. I will be making more  posts on tax considerations, but the two main things to think about are when you are going to be taxed, and at what rate. A main consideration is that you’re taxed on 25% of dividends, 50% of Capital Gains, and 100% of Interest and Income. Using your own expected tax rate, think about what you’d have to make in Capital Gains on a Growth Stock to meet the returns you’d receive on a safe, high yield dividend play. When it comes to timing, you also need to consider when you want to pay these taxes. The nice thing about long-term investments, is that you defer your tax payments. If you’re in a winner, you can let that money continue to accrue in an abstract form of “compounding.” An additional consideration is how you may trade your RRSP or TFSA accounts differently from your cash accounts to maximize the tax benefits of each form of account.

14. A Small Win is Better than a Big Loss

I’m definitely an advocate of letting your winners run, but that doesn’t mean you shouldn’t start taking money off the table if things are looking overbought or you believe there is the possibility of bad news. As my buddy Tommy always used to say at the poker table, a small win is better than a big loss. Look at your risk profile, and if it’s too much, take some money off the table. You don’t necessarily have to sell out of your entire position, but consider taking profits on 25% or 50% of your position to lower your overall risked cash.

15. Choose Wisely

This last tip somewhat sums up all of the above points. You don’t manage a mutual fund or an ETF, so you’re not being forced to buy or sell anything. Wait until you find the stock you want at the time you want it, and make the trades you believe in. Enjoy!

15 Stock Trading Tips – Continued from Part I

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 15 Stock Trading Tips – Part II  Posted by David W. Ingelson at 22:35  No Responses »  Tagged with: ,
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Disclaimer: All of the views expressed herein are the personal views of the author, and these views may be reflected in positions or transactions in his portfolio. Comments and opinions offered in this website are for information only.

They should not be considered as advice to purchase or to sell mentioned securities, and the author shall take no responsibility for losses that may occur. Data offered in this report is believed to be accurate, but is not guaranteed.

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