Catalyst check: Updating the progress of energy stocks on the Natural Resources Watchlist
At the beginning of June, The Gold Report assembled an all-star expert team to create a Natural Resources Watchlist, a promising portfolio of mining and energy companies with upcoming catalysts such as a maiden NI 43-101, funding from a strategic partner, a permitting milestone or a feasibility study. Keith Schaefer, editor and publisher of the Oil & Gas Investments Bulletin, and Rick Rule, CEO of Sprott US Holdings Inc., proposed five energy companies with many resources at play. A lot has happened since that discussion in Vancouver. The total portfolio is up 14% as of today. Let's check in to see how the individual energy stocks are faring.
TER: Keith, at our Vancouver roundtable you said you look for pure plays with leverage, and a great team that has built and sold a company before. With that said, you named four companies—two service companies and two producers—for the Watchlist portfolio. These companies had pending catalysts and upside potential.
One of your names, rdx Technologies Corp. (RDX:TSX.V), had two pending catalysts. The first was the sale of its Los Angeles facility for $5 million ($5M). Did that occur? And have you heard any updates on the franchising of the company's five fluid waste stream conversion facilities? The stock is down by almost half since April. Is the market waiting for proof of concept?
Keith Schaefer: Yes. The latest news didn't give any concrete news on developments, but the company has now said it’s going to give regular updates to the market. It says it will include a lot more details on new franchises. I continue to be hopeful.
TER: As of today, NXT Energy Solutions Inc. (SFD:TSX.V; NSFDF:OTCBB) and its reservoir discovery technology is up since June. Did one of the big contracts you were expecting come in?
KS: The stock has been up 50%, but that may be because the company has found a buyer, rather than because of a contract deal. This is one I am still watching.
TER: Your two producer picks were Chinook Energy Inc. (CKE:TSX.V) and Lynden Energy Corp. (LVL:TSX.V). As you predicted, Chinook announced that it sold its Tunisian assets for $127.7M to Medco Tunisia Petroleum Ltd. (a subsidiary of MedcoEnergi Internasional [ID:MEDC]). The deal effectively makes Chinook a domestic Canadian oil and natural gas company. What is your outlook now for this company?
KS: When the market didn't respond as positively as we expected, we realized the deal had already been priced in, and we sold. We have been selling oil and gas like mad in the last week and getting into service and cash. We are waiting for capitulation—for a spike down on big volume—to buy back in.
When the energy market changes, it changes fast. The market turned on a dime when the Weekly Natural Gas Storage Report came out on July 10. Some people are thinking we have enough storage. Combined with the realization that Iraqi insurgents are not going to impact the oil fields, both oil and gas prices are down. I think prices could go even lower.
TER: Lynden Energy, in the Permian Basin, was on the list due to the possible sale of its Wolfberry assets, as well as upcoming results from its first horizontal drill and first vertical well in Mitchell Ranch. Do you have updates on any of those catalysts?
KS: I am still waiting for results. But catalysts just aren't moving energy stocks right now.
TER: Rick, you named Devon Energy Corp. (DVN:NYSE) as your sensible pick. It has turned out to be a profitable pick, up nearly $5. The company recently announced a $2.3 billion sale of U.S. non-core assets as part of a portfolio shift. Was that the catalyst you were watching, and is there more to come?
Rick Rule: Devon will be able to redeploy those assets, and that will look good for a while. But I was more interested in the company as a play based on the continued strength in natural gas prices.
TER: Does the news of decreased net injections worry you?
RR: While micro-cap stocks can gain or lose 10% by inhaling or exhaling, a company like Devon, which has high liquidity and can continue to move forward, is not as impacted. I would put trailing stops in place, however.
TER: The other catalyst you said you anticipated was the return of normal insanity around mining stocks—at least halfway. Any signs that turnaround is on the way?
RR: Companies are getting financed and the market is improving, but there is no insanity in the market—yet.
TER: Sprott Global Resource Investments Ltd. is hosting a Natural Resource Symposium in Vancouver July 22–25, where you will be a featured speaker. Are attendees at events like this impacted by daily swings in the markets, or are they looking for longer-term insights? Do daily events affect what you will say from the stage later this month.
RR: Unlike most investor conferences, the attendees pay to attend, so our loyalty is to the 500 people in the audience. The 45 exhibitors were all qualified by the major speakers, and are there to share information. But wisdom is not exclusively delivered from on high. I know a lot of the people who will be attending, and these are seasoned investors. There is a lot to be learned from fellow attendees. These are people who are in it for the long term.
TER: Thank you both for your time.
Rick Rule, CEO of Sprott US Holdings Inc., began his career in the securities business in 1974. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. His company has built a national reputation on taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry and water industries. Rule writes a free, thrice-weekly e-letter, Sprott's Thoughts.
Keith Schaefer is editor and publisher of the Oil & Gas Investments Bulletin, which finds, researches and profiles growing oil and gas companies that Schaefer buys himself, so Bulletin subscribers know he has his own money on the line. He identifies oil and gas companies that have high or potentially high growth rates and that are covered by several research analysts. He has a degree in journalism and has worked for several Canadian dailies but has spent over 15 years assisting public resource companies in raising exploration and expansion capital.
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1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
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3) Keith Schaefer: I own, or my family owns, shares of the following companies mentioned in this interview: rdx Technologies Corp., NXT Energy Solutions, Chinook Energy Inc. and Lynden Energy Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions.
4) Rick Rule: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. Sprott Funds owns shares of Devon Energy Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions.
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