Can Natural Gas Recover? BIR, CVE, GSPR, Bitcoin ETF, Carlson's Putin Interview
There was two main reasons I was bullish on Natural Gas, but these factors have vanished. I believed there was good odds we would have a more normal winter after a warm one last year, but we have had another warm one with only one cold spell so far that lasted about 5 days.
Forecast was a nasty winter, but NOAA predicted a warmer winter. February can be cold but there is only a few weeks left. A cold winter to drive gas demand is no longer in the cards.
My 2nd bullish factor was increasing liquid natural gas demand, LNG from Europe. U.S. has been increasing their exports and building new LNG plants. Then along comes Biden and puts a halt on new LNG exports. It is called a temporary pause, so it's short term effect is it bottles more gas up in the U.S. and lowers the price because it removes a bullish fundamental. This is just another election year ploy to lower energy prices. Imagine how disruptive this is too oil&gas companies planning LNG exports and building new LNG plants.
Natural Gas is now down around 20 year lows that it has seen 3 times in those past 20 years. It always recovers because what will happen now is oil&gas companies will shut down gas wells to lower supply and especially wells that are not economic at these prices. They can easily bring them back on stream later.
Natural Gas inventories are plentiful, a little above 5 year averages. Our only choice here is to be patient and prices will recover. Short term it has hammered natural gas stocks and shorts have been pounding them. Makes you wonder who knew the Biden announcement was coming.
I looked at the short trading on some gas stocks and there was heavy shorting ahead of the Biden announcement. Birchcliff, 44% of trades were shorts on the Jan 31 report and 60% in the Jan 15 report. And keep in mind that these are only reported short trades. Market makers, certain institutions and high frequency traders are exempt from reporting short trades. Other gas stocks on the Jan 31 report:
43% on Kelt Exploration KEL were short trades
25% for Canadian Natural gas CNG
21% for Cenovus Energy CVE (mostly oil production)
It appears the lower price stocks saw more shorting, probably because they could drive the price down easier. Birchcliff is my favourite gas play but it is not immune to gas prices this low.
Birchcliff Energy - - - - TSX:BIR - - - - - - - Recent Price - $5.10
Entry Price - $8.65 - - - - - Opinion – buy, average down to $6.40
Birchcliff CEO Chris Carlsen says the company is reducing its payment to shareholders in order to protect its balance sheet during what he says is a period of low natural gas prices. The company says it will pay a quarterly dividend of 10 cents per share, down from 20 cents per share. Birchcliff also says it now plans $240-million to $260-million in finding and development capital spending for the year, while annual average production is expected to remain relatively flat at 74,000 to 77,000 barrels of oil equivalent per day. The outlook compares with Birchcliff's preliminary estimate released in November for $260-million to $280-million in finding and development capital spending and annual average production of 77,000 to 79,000 boe/d for 2024.
Longer term, the outlook remains good.
Chris Carlson “Our updated five-year outlook targets disciplined production growth of 16 per cent over the period, with annual average production of approximately 87,500 boe/d [barrels of oil equivalent/day] in 2028, which would fully utilize the corporation's available existing processing and transportation capacity. Our five-year outlook provides for potential cumulative free funds flow generation of $870-million over the five-year period, which has the potential to result in substantial shareholder returns through common share dividends of approximately $535-million and cumulative excess free funds flow (after the payment of dividends) of approximately $335-million, based on our current pricing assumptions.”
Key highlights - 2024 F&D (finding and development) capital budget and guidance:
2024 F&D capital spending is expected to be $240-million to $260-million;
Annual average production of 74,000 to 77,000 boe/d expected in 2024;
2024 adjusted funds flow of approximately $340-million and free funds flow of $80-million to $100-million;
Approved 2024 annual base dividend of 40 cents per common share (approximately $107-million in aggregate);
Focused on balance sheet strength, with 2024 year-end total debt of $405-million to $425-million, which is anticipated to be less than one time forward annual adjusted funds flow;
Extendible revolving term credit facilities with an aggregate borrowing base of $850-million provide significant financial flexibility. The credit facilities have a maturity date of May 11, 2025, and do not contain any financial maintenance covenants.
The short position is at highs around 16 million shares and about 6% of the float as of January 31.
I will watch Natural Gas prices and Birchcliff stock for when I feel the time is right to average down. Currently at our $8.65 buy price the dividend yield is close to 5% and at the recent $5.00 price the yield is 8%.
The stock chart actually looks pretty good because there is a morning doji star reversal pattern. I expect the stock will move up to fill the gap with help from short covering. This reversal pattern is the strongest and most reliable that I know off. The red down candles indicate the negative sentiment and selling. The doji star (the cross) indicates indecision by bulls and bears. The strong up white candle the next day indicates the indecision is resolved by the bulls.
If you buy an equal dollar amount around current prices it would average down our cost to around $6.40 and with the current $0.40 dividend it gives us a yield of 6.2%.
Cenovus - - - - TSX/NY:CVE - - - - Recent Price - Cdn$21.50
Entry Price Cdn$23.53 - - - - - - -Opinion buy under $21.00
Cenovus is an integrated energy company with oil and natural gas production operations in Canada and the Asia Pacific region, and upgrading, refining and marketing operations in Canada and the United States. Production is mostly oil and a lot of that is from oil sands, however the stock is down and the chart looks good. It has just bounced off strong support around $19.50 - $20. It is on my Millennium Index and the current yield is around 3%. It will also benefit longer term when the Trans Mountain pipeline finally comes on stream. That could be a year and worst case scenario is another 2 years.
One of our copper juniors announced some good drill results
GSP Resources - - - - - TSXV:GSPR - - - - - Recent Price - $0.10
Entry Price - $0.25 - - - - - Opinion – buy
Wednesday. GSPR released assay results of the recently completed surface diamond drill program at the Alwin mine project. All drill holes intersected Copper-Gold-Silver mineralization at shallow depths, with hole AM23-01 reporting some of the highest grades of copper and precious metals drilled at Alwin in the project's history.
Drillhole AM23-01 intersected 2.42% Cu, 47.0 g/t Ag and 0.57 g/t Au over 12.8m including a 5.7m interval averaging 5.21% Cu, 103.1 g/t Ag and 1.22 g/t Au. There is high grade potential here and polymetallic upside with significant gold and silver values. GSP's data compilation exercise completed in 2023 suggests that many of the historic drillholes in the pre-2008 exploration of the property did not include assays for gold and silver.
Other drill holes hit high grade copper but over smaller widths like AM23-03 with 5.7m of 3.77% copper and AM23-02 with 0.6m of 8.01%
GSP's President & CEO, Simon Dyakowski, commented: "Our team is excited to announce the assay results of the recently completed 2023 drill program. The primary objective of the 2023 drill program was achieved by successfully testing the Alwin 3D copper mineralization vein model. The 3D model was developed for the high-grade past producing Alwin Copper-Silver-Gold Mine using historic underground and surface drilling assay results. The focus of the 2023 drill program was to evaluate the upper and lower extents of the unmined historic 4 Zone and identify possible parallel or zone extensions.
The stock popped on the news on good volume and came right back down. Most likely shorting into the news spike as about half the volume came from the other trading platforms. There is good support around $0.10, the current price so is a good buy here.
Bitcoin ETF iSHARES Trust - - - Nasdaq:IBIT - - - -Recent Price - $26
I have been watching the new Bitcoin ETFs and I am going to use IBIT as a trading proxy on Bitcoin. It is taking over as the ETF with the most volume. I don't see it as a good buy here but will be watching for an opportunity.
Tucker Carlson the former popular Fox news host has done an interview with Russia President Putin. It will air tonight at 6PM and Carlson is already getting slammed by legacy media before the content of the interview is heard.
Ukraine's Zelensky has had numerous interviews but this is the first for Putin. We have only been hearing one side unless you have listened to some of the independent pod casters. Legacy media has become a propaganda outlet for far left governments and big Pharma. Governments have strong influence over Legacy media and are censoring the internet. The Trudeau government even pays a huge subsidy to CBC news and Big Pharma is about 75% of the advertising dollars for Legacy media. They cannot say much negative to the arms that feed them.
Carlson says
"Here's why we're doing it. First, because it's our job. We're in journalism. Our duty is to inform people. Two years into a war that's reshaping the entire world, most Americans are not informed. They have no real idea what's happening in this region, here in Russia or 600 miles away in Ukraine. But they should know, they're paying for much of it in ways they might not fully yet perceive. The war in Ukraine is a human disaster. It's left hundreds of thousands of people dead. An entire generation of young Ukrainians. And has depopulated the largest country in Europe. But the long-term effects are even more profound."
It will be interesting to hear if Carlson asks some tough questions.
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