​Energy’s Ebb and Flow...

Patrick A. Howell  |

Overnight, the world seems to have corrected itself. There is an awful lot of positive news on the cable channels, blogospheres and investment conferences about market corrections. The S&P 500 is at a near breakeven level for 2016. The Dow is positive for 2016 after six weeks of gains, and positive in 11 of the last 13 sessions.

Likewise, energy has seemingly finally turned the corner. Crude oil trades above $40 a barrel for first time this year, after hitting a low of $20 a barrel since its high in 2014. Commodity prices seem to have stabilized, with commentators openly speculating that US markets could produce 600,000 barrels with 100,000 to 300,000 as a more realistic prospect.

As of today, major oil companies such as Chevron (CVX) have opened at 96.64 after a 52 week low of $69.58. Likewise, Freeport-McMoran (FSX) is at $10.78 after a 52 week low of $3.52. Some pundits speculate companies will be able to buy assets for nickels on the dollar.

Valero Energy Corp (VLO), Exxon Mobil (XON), Hess Corp (HES) and Noble Energy (NBL) also lead a prospective market turn around with 52 weeks highs, positive dividend yields and, in some cases, beating quarterly expectations.

Emerging markets in oil and gas are also up, reflecting this potential sea change in energy prospects. Last week’s 28th Roth Capital Conference featured some of the rising stars and returning stars who are out on the road telling their stories to accredited and institutional investors. Companies like Ring Energy, Inc. (REI), Lilis Energy, US Energy (USEI), Lucas Energy (LEI) and Earthstone Energy Inc. (ESTE) spoke on energy and industrial panels and in private presentations to investors.

Geographically, the biggest discoveries of the previous boom cycle were in Texas, North Dakota and the Gulf of Mexico. In 2014, Texas had total discoveries of 2.0 billion barrels, while North Dakota had discoveries of 1.6 billion barrels. West Texas Resources (WTXR) president J.D. Kerr "We are working on acquisitions that will represent our continuing efforts to identify unique and promising opportunities for the company during these challenging times in the oil and gas sector. It is our intention to opportunistically pursue additional acquisitions of oil and gas properties and build shareholder value while prices remain low."

John Brda, CEO of Torchlight Energy (TRCH), another Dallas Texas head quartered company, has said “Near term, I think its a total guess as to where the oil markets will end up towards the second half of 2016. We at Torchlight, however, are more interested in the Macro cycle that will play out in 2017 and beyond, as our largest project, The Orogrande Play, is truly a long term play for us. We have the potential of 2,500 plus horizontal well bores that could one day be drilled in the play. For Torchlight, the oil prices and the energy market as a whole, will hopefully rebound into the $50 range and beyond sometime in 2017 and go forward from there.”

Will oil and gas’ rally last? With a presidential election on the horizon, US and trade and tax laws to be rewritten, continued ambiguity on the Keystone Pipeline and off shore drilling and acquisitions by global players, the astute investor might be cautiously optimistic. Is $50 a barrel possible by January 2017? Seasonally demand is expected to go up to 2,000,000 barrels a day. How will investors react to the 50% rally of the last five weeks – will they sell or buy? How will the supply disruption in Nigeria and Kurdistan play into the global energy markets? So, energy ebbs and flows...



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