We talked with Sprott Asset Management analyst Eric Nuttall. With bloated natural gas storage levels, Natural and CBM gas stocks have gotten crushed. Is there relief in sight? What are the fundamentals which might drive natural gas prices, and subsequently stock prices, much higher, and is this a good time to invest? Part Two covers more of his favorites.
StockInterview: What unconventional companies are you following?
Eric Nuttall: We are keenly following the drilling progress of EnCana (NYSE: ECA; Toronto: ECA) in the Columbia River Basin in Washington State. For an investor looking for a lower risk, relatively lower rate of return, EnCana is a great way for an investor to gain exposure to natural gas. They have around 95 percent of their 2007 natural gas hedged at slightly over $7 per mcf, so are protected from today's brutalized spot price. Another is Calfrac (TSX: CFW), which is down 45 percent from its peak, and is now 10X 2007 earnings estimates. They are heavily exposed to CBM, and with a recovery in natural gas prices, the stock should recovery nicely.
StockInterview: And some of the others we talked about, such as Ember, Real Resources and Pacific Asia China Energy. Do you have any updates?
Eric Nuttall: Ember Resources (TSX: EBR) has gotten absolutely crushed. They have an active drilling program for the second half of the year. To fund it, they will likely need to seek further equity financing. This has created an overhang on the stock. Until they are able to execute some form of a financing, the stock might stay weak in the short-term. Real Resources (TSX: RER) has been executing well on their drilling program. Once a pipeline is completed in the next month, production should jump 37 percent to 16,500 Boe/d. The company sits on 450,000 net undeveloped acres, prospective for a variety of targets including Devonian Nisku, 190 Bakken light oil locations, and up to 1.1Tcf of recoverable CBM as assigned by Sproule. When trading at 3.5X 2007 cashflow, the stock presents a good opportunity. Pacific China Asia Energy (TSX: PCE) recently released data on three core holes revealing pretty good gas contents and seam thicknesses, as expected. The question still remains whether wells will produce at an economic rate, which you only know by drilling test wells. I think that's scheduled for later this year or early next. They sit on what appears to be a very prospective land spread, and simply need the time to drill, and attempt to achieve economic rates across their acreage.
James Finch contributes to StockInterview.com and other publications. Visit http://www.stockinterview.com to download your free copy of "Investing in the Great Uranium Bull Market: A Practical Investor's Guide to Uranium Stocks." You can always write to James Finch at jfinch@stockinterview.com
