zman’s Energy Brain

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Archive for March 1st, 2007

Addax Petroleum – A Good Old Fashioned Growth Story

Posted by zmann on March 1, 2007

Background:

Massive Production Growth History:

  • Acquired 4 concessions in Nigeria producing 8,800 boepd form Ashland Petroleum (ASH) in 1998.
  • Increased gross production 65,600 boepd by 2005.
  • Averaged 90,050 bopd.
  • Exited 2006 at 116,000 bopd.
  • Nigeria represents the vast majority of current production but the company is using it’s African connections and operating expertise to take advantage of other regional opportunities.
  • Other areas of exploration:
  • Cameroon,
  • Gabon (now producing 18,000+ bopd),
  • Iraq, Kurdish region (2 large wells and counting)- don’t wince at the country, these guys know how to play here too and the Kurd’s are desperate to increase oil production
  • Sao Tome (offshore Nigeria)

Strategy:

  • Exploit neglected oil fields in Africa, going where being a US company would have it’s disadvantages (employ mostly locals to help dissuade retaliation from militant groups),
  • Exploration: offshore W. Africa, onshore Middle East

Strong Outlook: Production targets of 130,000 and 145,000 bopd for 2007 and 2008 respectively.

axc-prod-growth.JPG

Street Consensus Estimates: 2006A $2.04, 2007E $3.36 which puts them at less than 10x forward earnings on a stock with 40% expected production growth.

  • Note 1: AXC is afforded some protection from oil price declines due to the high quality of a majority of their crude which trades at a premium to Brent.
  • Note 2: As cost recovery is fulfilled earnings growth will decelerate but this is also mitigated by their movement into new plays.

Show me another E&P with this kind of growth expected in 2007 in this market cap range and I”ll take a hard look at buying it. I haven’t seen it but I’d love to.

Catalysts:

Sao Tome Exploration – First well with operator APC should spud in 1H07. This is a very high potential region (see Sao Tome section below).

Iraq Exploitation/Exploration – second Taq Taq well (TT-05) tested at 26,550 bopd from two zones totalling roughly 400 feet of pay. Flow rates were restricted by the capacity of the testing conditions (trucked oil).

  • TTo6 now drilling quite a bit further away as the try to delineate the size of the field.

Gabon development- additional production comes on line 1Q07.

Reserves:

2006: 2P reserves (proved + probable) increased 80% to 353.7 mm boe.

  • Only booked 40 mm barrels from Iraq. Oil in place (STOOIP) is thought to be roughly 2 BILLION barrels, so the recoverable reserves here are significant to AXC’s bases.

That’s nearly 2.5 barrels per share not counting most of Iraq!Reserve engineers: Netherland Sewell -top notch, conservative firm.

A Little More Detail:Nigeria:

  • 13 oil fields produce the bulk of AXC’s current production, and the majority of this is offshore. They have multiple exploration concessions.
  • Nigerian government wants to go “no flare” by 2008-2010. Very large natural gas production potential.
  • New Exploration Concession: OML 67 Okwok Field – 67 mmbls reserves acquired June 2006. 40% participating interest. Shallow water field, they announced “medium to light quality crude, in a high quality reservoir. Nice producers, nothing earth shattering.
  • Next round of Nigerian oil licences: mid March, 2007.

Sao Tome – Three Deepwater Exploration Blocks (JDZ Blocks 2,3,4) – adjacent to several discoveries. Evaluation of seismic ongoing.

One of the keys to finding oil is drilling in the right neighborhood. Sounds simple but it’s very true and AXC’s three JDZ are in a very good neighborhood for oil. They’re ontrend with three fields with aggregate reserves of 2 billion barrels. Drilling will commence in 2008.

  • #2 – AXC 14.33% participating interest (PI), Sinopec operates. Petroleum Geo Services seismic survey led reservoir engineers to estimated reserves of 1 billion barrels on the block. Block 2 is adjacent to the 700 mm bbl Akpo field among others.
  • #3 – AXC 15% PI, APC operates.
  • #4 – AXC 38.3% PI and operates.
  • Note: Chevron drilled a well on Block#1 in May 2006 and, as of January, it was classified an oil discovery with further exploration to quickly follow.

Cameroon – Ngosso property offshore Cameroon. 60% wi. Will drill 2 wells later this year.

Gabon – Maghena property onshore. Capacity had been restricted to 5,000 bopd; exited 2006 at 18,000 bopd.

New export system capacity is 20,000 bopd going to 30,000 bopd by mid 2007.

Iraq (Kurdistan Region) – Taq Taq prospect.

First well (TT-04) results announced November 2006. Partners with Genel, a private, Turkish oil company.

  • 29,790 bopd light crude flow test from 3 intervals.
  • Over1,500 feet of pay!
  • Tests were constrained by surface equipment.

Kurdistan minister of natural resources called it “great achievement” and looked forward to initial production in 2007. This guy is planning to increase Kurdistan’s oil production by 1 mm bopd over the next few years!

TT-05 same as above but likely downdip as it’s less pay. Excellent test rate announced today.

TT-06 step out is drilling now.

Participating interest here 45%

Separate prospect, Kewa Chirmila, will be drilled this summer.

In short: I like these guys as a long term hold. Production growth for their size is best in show and they appear extremely undervalued to their reserves and potential.

Posted in Uncategorized | 4 Comments »

Thursday Morning – Oil Review / Gas Preview

Posted by zmann on March 1, 2007

The market is in for another wild ride today so look for any picks in comments once things get rolling.

Brief Oil Review: My comments from this morning are in italics

  • Crude Oil – Street Expectations: Up 1.9 million barrels. The change in crude inventories could easily be lower than Street expectations due to the partial week closure of the HSC and potentially could be a small draw on inventories. Actual: up 1.4 mm barrels.

    • Comment: if the Houston Ship Channel was closed last Thursday and Friday this could easily account for the smaller than expected number. I’d also note that the HSC has been closed at least three days this week which is lending some support to curde at present.
  • Gasoline: Down 1.8 million barrels. With all the refinery outages and an increasing number of local shortages gasoline is moving towards center stage as a key determinant of oil prices. Blending component consumption could easily make this number larger than this which would lend support to crude prices on a normal day. I think the amount of fear in the market will require a much bigger draw than the 1.8 mm barrel expectation to rally/support crude. Actual: 1.9 mm barrels.

    • Comment: Crude sold off after the number but rallied later (along with everything else) on Bernanke’s stable economy comments.
  • Erroneous Comment Watch: from Bloomberg: ``The demand is there and that will underpin prices,” said Angus Geddes, chief executive officer of Fat Prophets in Sydney. “Inventories for gasoline in the U.S. have dropped to 12-month lows so that’s having a positive impact on prices.”
  • Comment: Not Even If I Stand On My Head To Read This Chart (Aussie Perspective) Do I Get “Inventories at 12-month Lows”! Come on Bloomberg!

gasoline-stocks-030107.JPG

Maybe the following chart was what he was worried about.

days-supply-030107.JPG

  • The above chart could be a problem if you’re a bear as it definitely would lend strength to gasoline prices. That is if they hadn’t already priced this in. Retail level gasoline prices are up 10% ($0.22) nationwide over the last month and have risen even faster in areas in close proximity to one of the handful of refineries currently experiencing technical difficulties.
  • Voice Of Reason Watch: “While prices will rise into the summer, the pace of recent gains, and a likely increase in gasoline production, could see the market pull back as much as $4 a barrel before moving higher. We have a slew of clients wanting to buy into this market and we’re telling them to wait. Refineries are going to start coming back on line and you’re still going to be well within the normal range for gasoline supplies.” ~ Bloomberg quoting Excel Futures CEO Mark Waggoner.
  • Distillate: Down 2.8 million barrels. I think this is probably a bit light but I’m not sure a “low ball” miss here will prompt much of a rally (at least much of a sustainable one) in heating oil or crude oil this late in the heating season. Actual: 3.8 mm barrel draw.

    • Comment: I think they (the surveyed traders and analysts) deliberately bagged the number to get a miss here. History will tell you that draws at the end of the heating season are not strictly linear to HDDs. These guys aren’t stupid they’re just bagging it!

Switching To Natural Gas:

Withdrawal To Decline On Warmer Weather, Nearly Cut In Half From Last Week:

  • My estimate: 130 Bcf withdrawal. While gas-weighted degree days fell from 246 in the prior week to 194 last week it was still quite a bit cooler than the CPC original forecast, especially in the New England and Mid-Atlantic regions. Like I said on Monday, this would cause me to bump up my withdrawal estimate. Note I’m expecting a small build in the West region.

gas-storage-030107a.JPG

Consensus: 140 Bcf withdrawal. Anything over this and I’d expect gas to drift in between $7.25 and $7.50. Closer to my number and you’re likely to get a test of $7.

Odds & Ends

It’s Starting To Warm Up… from the International Herald Tribune: The weather “will turn very warm for much of the area that had one of the coldest Februarys on record,” said Joe Bastardi, lead forecaster at AccuWeather in State College, Pennsylvania. “By the 10th, a major warm-up should be well entrenched over the southern and central plains and the Ohio Valley to the mid- Atlantic.”

…But El Nino May Be Shifting To La Nina Potentially Bringing More Heat And Hurricanes This Summer. A La Nina event appears to be forming. This could be supportive of natural prices as it generally brings more hurricanes and heat to the eastern seaboard and drought in the west. The actual impact depends on if it’s a strong or weak event and whether or not it forms at all or reverses as often happens. From a psychological standpoint it’s certainly gas bullish.

Analyst Watch: TK upgraded to overweight by JP Morgan. HES to outperform at FBR.

Snafu Watch: Imperial oil’s Toronto refinery is back to 50% of capacity.

Posted in Uncategorized | 126 Comments »