Energy Prospectus

Credit Suisse projects that Brent crude oil will trade above $60 per barrel in the second half of 2016.

http://www.bloomberg.com/news/articles/ ... since-2008

If you have a moment, could you please take a look at some of the recent member comments, and add your valuable comments? Thanks.

I am working on the newsletter today. Can you be more specific on what questions you want answered?

I have to run now, so may not get back here until Monday.

If gst can't sell Marcellus, can they cover preferred dividends? What is your best guess for oil's bottom and when? Thx.

Yes, GST should be able to keep paying dividends on the preferred stock even if they do not find a buyer for Marcellus/Utica.

My forecast model for GST assumes they do not sell Marcellus/Utica because I never assume sales until they are closed. GST is and will continue to generate enough cash flow from operations to cover all interest and dividend obligations. Gastar has some good hedges in place for 2016. 62% of forecast oil production is hedged at $77.71/bbl and 54% of forecast natural gas is hedged at $3.37/mcf. Gastar sells almost as much NGLs as it does oil. None of their NGLs are hedged. NGL prices cratered in 2015 and there are definite signs that NGL prices will be higher in 2016, primarily because a lot more industrial demand is coming on-line.

Near-term oil prices are set by the speculators that trade 90% of NYMEX futures contracts. Long-term oil prices are set by the fundamentals of supply/demand. OPEC production is a max today and Non-OPEC production is falling. Demand continues to move higher. My SWAG is that we are very close to the bottom for crude prices. The price will move higher when the speculators believe they have made enough money on the downside.

As I pointed out in my opening remarks at last week's luncheons, oil is much too valuable of a commodity to stay below finding & development costs of new supply for long.

As always, thanks so much for your input.

Pira Energy Group, a firm highly regarded for its energy price forecasts, says that it takes nine months for U.S. companies to bring new production on stream once it becomes profitable to drill again. Analysts have a wide range of opinions on what price level will be required to incentivize U.S. oil companies to invest in new wells again. Pira suggests that oil will climb to $70 by the end of 2016 to encourage producers to drill. That's double where oil price are today.

Full article: http://www.etf.com/sections/features-an ... nopaging=1

Clearly a significant part of the investment community does not share your views on the sustainability of GST preferred dividends, as the imputed dividend yield is approaching 25%. Hope you are right.

Is the V-Shaped Recovery Coming into Play?

“What is worrying me is not the price of today; it is what is happening in the industry,” Descalzi said to Bloomberg at the COP21 climate change conference in Le Bourget, France. “[The spending cuts] can create in the mid-term an imbalance between supply and demand.”

What Descalzi is referring to is, in a sense, an overreaction from the market that can result in spending declines overshooting their targets and taking out too much product from the market, leaving sudden availability on the demand side. That results in a sharp shift to the latter in the supply/demand equilibrium.

iea-demandCore Laboratories (ticker: CLB), a leader in production enhancement and reservoir description, has advised the market of the phenomena since the commodity downturn began. The “V-shaped recovery,” as management explains, could happen as early as 2016 due to the significant pullback on investments.

CLB management says a combination of factors will contribute to the recovery, including; U.S. production has rolled over, the supply/demand imbalance is tightening, the Middle East is already producing at maximum amounts, we’re in the early innings of the shale boom and decline curves from shale will ultimately spur a rapid investment to meet demand.

“The embedded declines from the withdrawal of capital spending could really kick in throughout the course of 2016,” said Tom Petrie, Chairman of Petrie Partners, in an interview on December 9 with CNBC. “That’s when you’ll start to see a real change in inventory, most likely in the second half of 2016.”

http://www.marketwatch.com/investing/index/dxy/charts

If the U.S. dollar index (go to link above) would fall back to 95, I think we'd see WTI back over $40/bbl.

Dan, let me sharpen my focus a little bit. What is the investment community failing to see that you do that has resulted in GST preferred securities trading at near-bankruptcy levels? I sense the answer is that oil prices will rebound significantly in 2016.

No. 1: I think GST over-reacts to natural gas prices because of the company name. More than 86% of their revenues come from oil sales and what they are doing in Oklahoma is all about oil.

No. 2: All of the small-caps are in the tank. GST is just part of the pack.

No. 3: I think the market is concerned that if they do not sell the Marcellus/Utica package, the company will have liquidity problems. If you look at slide 36 in the presentation Gastar made last week at Wells Fargo, you can see for yourself that they have no short-term liquidity issue.

By the end of December, Gastar should announce closure of the acquisition from Husky and results of the Meramec test well. I've not heard anything to make me think they will not close the Husky deal and based on everything that I've heard from the company, the Meramec well will be good news.

Unless oil prices stay below $40/bbl for a year, I don't see Gastar having a liquidity problem. One thing to remember is that they have drilled a lot of Hunton wells that should move a lot of oil to P1 reserves in the year-end reserve report. That's what Wells Fargo (their lead bank) will use to evaluate their credit facility. The Husky acquisition will also increase P1 reserves.

Take a look at slide 37 in Gastar's presentation and you can see that hedges insulate them better than most small-caps from the decline in oil & gas prices. BTW at 9/30/2015 Gastar's hedges had a cash value of $27.6 million and I am sure they are worth more than that today.

today's API numbers show a draw of 3.6mb. should be another up day tomorrow if eia continues to confirm as they have for several weeks.

man, did the eia confirm! down by 5.9mb--much greater than expected.