Category: Energy

Wednesday, September 30, 2020

Indonesia Energy Corp (INDO)

INDO reports 1H Financials. Drilling delayed but story still intact

Indonesia Energy Corp Ltd is an oil and gas exploration and production company focused on Indonesia. It holds two oil and gas assets through its subsidiaries in Indonesia: one producing block (the Kruh Block) and one exploration block (the Citarum Block). The Kruh Block is located to the northwest of Pendopo, Pali, South Sumatra. The Citarum Block is located to the south of Jakarta.

Michael Heim, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

INDO reported 2020-1H results of $(0.48) per share. Results were below our expectations of $(0.08) due to higher-than-expected G&A costs. We believe some of these costs to be one-time in nature and reflect cost associated with marketing following INDO’s December 2019 IPO. Revenues and production levels were in line with expectations from the company’s few existing producing wells.


Drilling plans pushed back.  The company has not begun drilling in the Kruh Block due COVID-19 issues. Previously, management said it would drill the first of six wells in Kruh in September. Management now expects to drill one well in 2020, 4 in 2021, 6 in 2022 and 7 in 2023. Although there are delays, we still believe INDO’s plans to grow the company through the drill bit remain intact …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

 

Merger Activity in the Delaware Basin Puts a Spotlight on Smaller Players

 

Over the weekend, Devon Energy (DVN) agreed to acquire WPX Energy (WPX) in a transaction that valued WPX at $4.56 per share for a total value of $2.56 billion.  Under the terms of the deal, DVN will exchange 0.5165 shares of DVN for each share of WPX. Management has identified $575 million in annual cash flow improvements and expects the merger to be immediately accretive to both earnings and cash flow. The premium paid to acquire WPX was a modest 2.7% to the WPX closing price on Friday in a transaction that could be viewed as a merger of equals. Upon completion of the merger, Devon shareholders will own approximately 57% of the combined company, and WPX shareholders will own 43%.  The deal creates one of the largest oil producers in the Permian Basin. The shares of both companies were up over 10% in trading on Monday, with several analysts speculating that other energy companies could enter the bidding war.

 

 

According to the press release, the merger would build a dominant Delaware Basin acreage position totaling 400,000 net acres and accounting for nearly 60% of the combined company’s oil production. The Delaware Basin is located in West Texas and Southern New Mexico and is part of the Permian Basin.  It features highly permeable sandstone and limestone formations that benefit from hydraulic fracking stimulation. It is a multi-pay-zone formation featuring well-known layers such as Bone Springs and Wolf Camp, together referred to as Wolf Bone.  There are many companies actively drilling in the area, including major oil companies such as ExxonMobil and large independent companies such as Occidental Petroleum, Pioneer Natural Resources, Marathon Oil, and Devon Energy.  The area also includes smaller public and private drillers such as Torchlight Energy and Texland Petroleum LP.

Drilling in the area fell sharply this summer with a drop in oil prices. The idea of a merger during a down cycle is somewhat rare. Although it has been said that mergers in the energy industry always happen, they just take a different form.  During the up times, larger public companies try to accumulate positions by buying smaller public companies or by buying land from private owners.  New companies are formed that buy the odds-and-ends of larger players, who turn their attention to other areas.  During the downtimes, leveraged companies look to sell assets or go bankrupt, handing over assets to a creditor who tries to sell them.  Underleveraged public companies and private owners can often buy properties cheaply.  Mergers of equals tend to occur most often during down cycles.  Sometimes a company with great drilling prospects but high leverage combines with a company with a solid balance sheet but limited prospects.  If the new combined company can weather the down cycle because of the merger, it will be in a good position to prosper when energy prices rise. Other times, the merger comes due to a need to reduce operating costs.  The Devon-WPX seems to be an example of the latter and may be a reflection that management believes oil prices near $40 per barrel are the new norm.

As mentioned earlier, several analysts believe other energy companies could enter the bidding war for WPX, Devon, or perhaps both companies.  Chevron, who was unsuccessful in its bid for Anadarko, ended up acquiring Noble Energy.  It appears to continue to have an interest in the Permian Basin and might be interested in making another acquisition.  Perhaps the merger will cause a wave of mergers among mid and small size energy companies to lower operating costs.  Devon and WPX are surely not alone in thinking they must lower operating costs to compete in today’s low oil price environment. Mergers do not occur in a vacuum.  When management decides it needs to merge, it will send out feelers to several players. Often spurned suitors end up turning to their second choice.  Could there be a company that missed out on acquiring WPX that has already begun conversations with other companies?

 

Suggested Reading:

Dividends and the Appeal of Energy Stocks

Drilling In Unexploited Areas Brings Debate

Financial Markets Lifted Household Wealth to Record Levels

 

Enjoy Premium Channelchek Content at No Cost

 

Each event in our popular Virtual Road Shows Series has maximum capacity of 100 investors online. To take part, listen to and perhaps get your questions answered, see which virtual investor meeting intrigues you here.

 

Sources:

https://seekingalpha.com/news/3617564-devon-energy-buys-wpx-energy-in-all-stock-deal, Carl Surran, Seeking Alpha, September 28, 2020

https://www.dallasnews.com/business/energy/2020/08/08/drilling-drops-to-15-year-low-in-permian-basin-and-other-us-oil-patches/, The Dallas Morning News, August 8, 2020

https://www.houstonchronicle.com/business/article/Drilling-Down-Independents-keep-Permian-Basin-15158660.php, Sergio Chapa, Houston Chronicle, March 30, 2020

https://www.hartenergy.com/exclusives/permian-operators-delivering-strong-production-182945, Ariana Hurtado, Hart Energy, October 17, 2019

https://www.themiddlemarket.com/news/m-a-wrap-devon-wpx-cleveland-cliffs-clearlake-ta-ivanti-bain-capital, Demitri Diakantonis & Mary Kathleen Flynn, Mergers & Acquisitions, September 28, 2020

https://www.themiddlemarket.com/articles/devon-acquires-wpx-as-permian-investors-push-for-m-a, Mergers & Acquisitions, September 28, 2020

 

Hydroelectricity is Losing its Status as the King of Renewable Energy

 

Hydroelectricity has long been the dominant renewable energy source in the world. In total, 1,292 gigawatts of capacity have been installed in the world, an amount larger than the total generating capacity of the United States. The Brookings Institute reports that 35 countries in the world receive more than 50% of their electricity from hydropower. The chart below shows that hydroelectricity represented approximately 75% of global renewable energy.

 

 

In recent years, solar and wind energy has become more affordable, so much so that almost all new proposed renewable generation is solar or wind. The second chart shows that solar and wind represent 79% of proposed generation in the United States in 2020. Other renewable energy such as hydro, biofuel, wave and tidal, and geothermal represent less than 1%.

 

 

So how did hydroelectricity lose its status as the king of renewable energy? And, more importantly, does hydroelctricity still have a role to play in a rapidly changing generation environment?

 

The Case for Hydroelectricity

• Large generation plants are capital intensive but the investment has already been made. Hydro power plants are expensive to build. The U.S. Energy Information Administration in 2016 estimated that Hydro costs $5,312 per kilowatt, more than double the cost of solar and five times that of natural gas. However, once built, operating costs are low. The average hydro power plant production expense is half that of a nuclear power plant and only 25% of that of a natural gas turbine. It would not make sense to shut down hydro generators, at least not for economic reasons. Existing plants will continue to provide inexpensive power for many more decades.
• Smaller hydro projects may still make sense. In recent years, engineers have begun to look at adding turbines to existing dam structures that do not generate electricity. These include dams built to create lakes for recreation or flood control. These turbines would be smaller in scale than those used in previous hydroelectric projects. The costs of the project would be more economical since the dams would have already been built. They will also be less disruptive to the environment than projects involving new dam construction. Giulio Boccaletti, who runs the water program at the Nature Conservancy, expects the world to double its hydropower capacity over the next twenty years.
• It is important to maintain a diversified generation portfolio. Generations plants are expensive and meant to last for decades. The economics of plants can change dramatically over the life of a plant. Currently economics favor wind and solar. However, these economics can change. Technological changes could, in theory, make hydroelectricity more efficient in the future. Therefore, maintaining a hydroelectric presence is important.
• Hydroelectricity compliments other renewable fuels. Hydroelectricity has one large advantage over other renewable fuels. It provides a steady stream of power regardless of day-to-day changes in weather conditions. Solar power requires sunshine and wind power requires wind. Those conditions may not match up with times of peak power demand. Hydropower runs steadily night or day, in good weather or bad. It can provide a steady based of power until advances are made to allow power to be stored. In fact, plants can even control the amount of power generated by regulating the flow of water through the system

 

The Case Against Hydroelectricity

• Hydroelectricity disrupts animal migration patterns. Dams interfere with animal migration patterns. Expensive fish ladders can only partially mitigate the interference of fish migration patterns. In addition, dams create reservoirs of water that are more stagnant than normal river water. As a result, the reservoir will have higher amounts of sediment and nutrients that cultivate algae and crowd out other river animal and plant-life.
• Hydroelectricity disrupts water oxygen levels. Studies have shown that dams can deprive water of oxygen levels that leave oxygen-free dead zones that can’t support fish and plant life deeper than a few feet below the surface. New turbines are being built to address oxygen levels in water but would be expensive to replace.
• Risk of damage and flooding. Dams are frequently located upstream from major population centers. Although the risk of failure is low, there have been almost 50 incidents of major dam failure since the modern era of hydropower.
• Hydropower depends on seasonal weather conditions. Although immune from daily weather patterns, hydroelectric power is somewhat dependent upon rainfall and snow buildup. Electric pricing in the Northwest can fluctuate from year to year depending on the winter’s snowpack making it difficult for manufacturing companies to make investment decisions.

 

Conclusions

Existing hydroelectric power plants will continue to run and provide reliable, cheap electricity for the foreseeable future. New large hydro projects are unlikely to be built in the United States due to environmental and economic reasons. Eventually, hydro’s reign as the king of renewable fuels may come to an end.

 

Don’t Miss This Free Event Today, September 23rd:

 

Sources:

https://www.ge.com/news/reports/breath-of-life-these-water-turbines-help-revive-dead-zones-in-rivers, Brendan Coffey, October 16, 2019

https://www.ucsusa.org/resources/environmental-impacts-hydroelectric-power, Union of Concerned Scientists, March 5, 2013

https://time.com/3978215/hydropower-us-growth/, Justin Worland, Time, July 31, 2015

http://zebu.uoregon.edu/1998/ph162/l14.html,

https://www.brookings.edu/blog/future-development/2019/05/01/managing-financial-risks-from-hydropower/, Luciano Canale, Gazmend Daci, Hilda Shijaku, and Christoph Ungerer, Brooking Institute, MaY 1, 2009

http://www.wvic.com/Content/Facts_About_Hydropower.cfm, Wisconsin Valley Improvement Company

Tuesday, September 22, 2020

Energy Fuels (UUUU)(EFR:CA)

UUUU to Participate in Government Funded Rare Earths Initiative

As of April 24, 2020, Noble Capital Markets research on Energy Fuels is published under ticker symbols (UUUU and EFR:CA). The price target is in USD and based on ticker symbol UUUU. Research reports dated prior to April 24, 2020 may not follow these guidelines and could account for a variance in the price target.

Energy Fuels is the largest uranium producer in the U.S. and holds more production capacity and uranium resources than any other U.S. producer. The Company also produces vanadium. Headquartered in Colorado, Energy Fuels holds three of America’s key uranium production centers: the White Mesa Mill in Utah, the Nichols Ranch ISR Facility in Wyoming, and the Alta Mesa ISR Facility in Texas. The producing White Mesa Mill is the only conventional uranium mill in the U.S. and has a licensed capacity of 8 million pounds of U3O8 per year. Nichols Ranch is in production and has a licensed capacity of 2 million pounds of U3O8 per year. Alta Mesa is currently on standby. Energy Fuels also owns several licensed and developed uranium and vanadium mines on standby and other projects in development.

Mark Reichman, Senior Research Analyst of Natural Resources, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Evaluating rare earth oxides from coal-based resources. Energy Fuels is expected to receive a grant, for which it applied in June 2020, from the U.S. Department of Energy’s Office of Fossil Energy and the National Energy Technology Laboratory to collaborate with Pennsylvania State University to evaluate and develop a conceptual design to commercially produce mixed rare earth oxides from coal-based resources. Depending on the outcome, the Department of Energy has an option to award a contract funding the development of a feasibility study.


Advancing the company’s rare earth strategy.  In our view, the initiative offers an exceptional opportunity for Energy Fuels to advance its rare earth strategy and, if successful, the potential for future collaboration with the U.S. government, including other agencies such as the Department of Defense. Additionally, producing rare earth oxides from coal-based resources would expand the available …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

Energy Fuels & Team from Penn State University Selected by U.S. Department of Energy to Develop Design for the Production of Rare Earth Elements from Coal-Based Resources

 

LAKEWOOD, Colo., Sept. 21, 2020 /CNW/ – Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) (“Energy Fuels” or the “Company”) is pleased to announce that it has been advised by the U.S. Department of Energy (“DOE”) Office of Fossil Energy (“FE”) and the National Energy Technology Laboratory (“NETL”) of their intent to award a contract to Energy Fuels, working with a team from Penn State, to evaluate and develop a conceptual design to allow for the commercial production of mixed rare earth oxides (“REO”) from coal-based resources in an environmentally benign fashion. Furthermore, the DOE has the option to award Energy Fuels a contract for the completion of a feasibility study on this initiative.

The DOE has already demonstrated the technical feasibility of extracting rare earth elements (“REE”) from coal and coal-based resources, including coal refuse, over/under burden materials, power generation ash and the like. The DOE wishes to accelerate the advancement of commercially viable technologies to produce rare earth elements from these coal-based resources. Energy Fuels applied for this grant in June 2020, as REEs contained in these coal-based resources are similar to the REEs contained in other materials the Company is currently evaluating in its REE program.

The first phase of DOE funding will allow Energy Fuels and the team from Penn State to complete a detailed conceptual design and flowsheet for the potential commercial operation of a facility that produces REOs from coal-based resources. Following this phase, the DOE will conduct a merit evaluation and determine whether to award the funding for the development of a feasibility study.

Mark S. Chalmers, President and CEO of Energy Fuels stated: “We are excited to have the opportunity to work with the DOE office of Fossil Energy, the National Energy Technology Laboratory, and Penn State on this important rare earth initiative. Energy Fuels has been carrying out substantial work over the past year to explore the potential for implementing a commercial rare earth recovery and processing program at our White Mesa Mill. This initiative to produce REOs from coal-based resources is complementary to our ongoing efforts and will potentially broaden the sources of REE feedstock available to us in the future. We also hope this project opens the door for us to work with the the DOE and other agencies on future rare earth initiatives.

“Rare earths are used in a host of advanced and everyday technologies, including cell phones, computers, renewable energy generation, batteries, automobiles, and military applications. However, the U.S. does not currently have a fully integrated rare earth supply chain. Therefore, the government has made it a priority to assist in the development of domestic sources of rare earth production. With this award, we are excited to play a role in this effort, while also pursuing our other complementary rare earth initiatives.”

 

About Energy Fuels: Energy Fuels is a leading US-based uranium mining company, supplying U3O8 to major nuclear utilities. The Company also produces vanadium from certain of its projects, as market conditions warrant, and is evaluating the potential to implement a commercial rare earth recovery and processing program at its White Mesa Mill. Its corporate offices are near Denver, Colorado, and all of its assets and employees are in the United States. Energy Fuels holds three of America’s key uranium production centers, the White Mesa Mill in Utah, the Nichols Ranch in-situ recovery (“ISR”) Project in Wyoming, and the Alta Mesa ISR Project in Texas. The White Mesa Mill is the only conventional uranium mill operating in the U.S. today, has a licensed capacity of over 8 million pounds of U3O8 per year, and has the ability to produce vanadium when market conditions warrant. The Nichols Ranch ISR Project is on standby and has a licensed capacity of 2 million pounds of U3O8 per year. The Alta Mesa ISR Project is also on standby and has a licensed capacity of 1.5 million pounds of U3O8 per year. In addition to the above production facilities, Energy Fuels also has one of the largest NI 43-101 compliant uranium resource portfolios in the U.S., and several uranium and uranium/vanadium mining projects on standby and in various stages of permitting and development. The primary trading market for Energy Fuels’ common shares is the NYSE American under the trading symbol “UUUU”, and the Company’s common shares are also listed on the Toronto Stock Exchange under the trading symbol “EFR.” Energy Fuels’ website is www.energyfuels.com.

 

Cautionary Notes: This news release contains certain “Forward Looking Information” and “Forward Looking Statements” within the meaning of applicable United States and Canadian securities legislation, which may include, but is not limited to, statements with respect to: any expectation that DOE will in fact award a contract to Energy Fuels to evaluate and develop a conceptual design to allow for the commercial production of mixed REOs from coal-based resources, as advised by DOE; any expectation that DOE may award Energy Fuels a contract for the completion of a feasibility study on this initiative; any expectation that this initiative may be complementary to Energy Fuels’ ongoing efforts or will potentially broaden the sources of REO feedstock available to Energy Fuels in the future; any expectation that this project may open the door for Energy Fuels to work with the DOE and other agencies on future rare earth initiatives, or that Energy Fuels may play a substantial role in the U.S. government’s priority to assist in the development of domestic sources of rare earth production; and any expectation regarding the ability of Energy Fuels to implement a commercial rare earth recovery and processing program. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “plans,” “expects,” “does not expect,” “is expected,” “is likely,” “budgets,” “scheduled,” “estimates,” “forecasts,” “intends,” “anticipates,” “does not anticipate,” or “believes,” or variations of such words and phrases, or state that certain actions, events or results “may,” “could,” “would,” “might” or “will be taken,” “occur,” “be achieved” or “have the potential to.” All statements, other than statements of historical fact, herein are considered to be forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements express or implied by the forward-looking statements. Factors that could cause actual results to differ materially from those anticipated in these forward-looking statements include risks associated with: any expectation that DOE will in fact award a contract to Energy Fuels to evaluate and develop a conceptual design to allow for the commercial production of mixed REOs from coal-based resources, as advised by DOE; any expectation that DOE may award Energy Fuels a contract for the completion of a feasibility study on this initiative; any expectation that this initiative may be complementary to Energy Fuels’ ongoing efforts or will potentially broaden the sources of REO feedstock available to Energy Fuels in the future; any expectation that this project may open the door for Energy Fuels to work with the DOE and other agencies on future rare earth initiatives, or that Energy Fuels may play a substantial role in the U.S. government’s priority to assist in the development of domestic sources of rare earth production; any expectation regarding the ability of Energy Fuels to implement a commercial rare earth recovery and processing program; and the other factors described under the caption “Risk Factors” in the Company’s most recently filed Annual Report on Form 10-K, which is available for review on EDGAR at www.sec.gov/edgar.shtml, on SEDAR at www.sedar.com, and on the Company’s website at www.energyfuels.com. Forward-looking statements contained herein are made as of the date of this news release, and the Company disclaims, other than as required by law, any obligation to update any forward-looking statements whether as a result of new information, results, future events, circumstances, or if management’s estimates or opinions should change, or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader is cautioned not to place undue reliance on forward-looking statements. The Company assumes no obligation to update the information in this communication, except as otherwise required by law.

SOURCE Energy Fuels Inc.

For further information: Energy Fuels Inc., Curtis Moore – VP – Marketing & Corporate Development, (303) 974-2140 or Toll free: (888) 864-2125, investorinfo@energyfuels.com, www.energyfuels.com

 

Dividends and the Appeal of Energy Stocks

 

Energy stocks have had a tough 2020.  The Energy Select Sector SPDR (XLE) is down 46% in 2020 versus a 5% increase in the S&P 500 Composite Index.  The decline has meant that many energy stocks now offer dividend yields above 5%, an attractive rate compared to low bond yields.  Energy stocks have always been a volatile group subject to the cyclicality associated with energy price booms and busts.  Clearly, we are in the middle of a bust cycle with West Texas Intermediate (WTI) oil prices having fallen 40% year to date.  The cure to a bust cycle comes when producers stop drilling so that supply and demand realign, and energy prices rise.  For energy companies able to withstand short-term cash flow issues, management will often maintain existing dividend levels in anticipation of improving cash flow.  That seems to be the case for energy companies like Chevron and Exxon Mobil, which have maintained their dividend and currently have dividend yields of 6% and 9%, respectively.  Other energy companies such as Royal Dutch Shell and BP Amoco have decided to cut their dividend and put that capital into developing renewable assets and other non-energy investments.

The different paths taken by the major oil companies has profound implications for investors.  If the drop in energy prices is part of a normal boom/bust cycle created over drilling, high-dividend-yielding energy stocks are attractive investments.  Many of the high-yield energy companies have ample liquidity and strong balance sheets that will allow them to maintain dividend levels for many years of low energy prices. The high yield, combined with the prospect of a rising stock price associated with the end of the bust cycle, could provide investors with large total returns. If, on the other hand, lower energy prices reflect a fundamental shift in oil prices, these stocks may ultimately be forced to throw in the towel and cut the dividend.  Those companies will be behind their competitors in shifting their attention towards other investments.

 

The case for energy stocks

• Supply is responding.  Drilling in the United States, which is the largest producer of oil, has screeched to a halt.  Baker Hughes reports that there were 254 rigs drilling in the United States as of September 11, 2020.  That is down from 886 rigs from a year ago.  The Energy (EIA) reports that U.S. crude oil production is down to 10,000 barrels per day from a level of 13,000 BPD at the beginning of the year.
• Bankruptcies are increasing.  Drilling that was lost due to companies reducing capital expenditures will return if oil prices improve.  Drilling associated with companies that have declared bankruptcy will not return quickly.  Haynes and Boone report a steady increase in the number of energy company bankruptcies since 2019 in response to lower energy prices.
• Demand will respond when the pandemic passes.  Part of the loss of energy demand is associated with weak global economic conditions due to COVID – 19.  As the spread of the virus abates through the development of a vaccine, it is reasonable to believe that the demand for oil will return.
• High returns can be made in a declining
  industry.  Charles Sizemore, chief investment officer of Sizemore Capital Management, compared the industry to the tobacco industry of 20 to 30 years ago.  Tobacco stocks provided strong returns to investors even as the industry shrank as the larger players maintained their dividends and acquired smaller players.

 

The case against energy stocks

• Demand is fundamentally changing.  Unlike past energy price cycles, this bust cycle is being caused by a fundamental shift in consumer habits that do not favor oil.  The growth in renewable energy has decreased the demand for oil to power generators.  The growth in electric vehicles could represent a similar shift away from oil demand to produce gasoline.  Business airline travel and daily commuting may never be the same as the world shifts towards video conferencing and away from in-person sales.
• Supply is fundamentally changing.  The cost of producing oil has become less expensive due to technological improvements in drilling and extraction.  OPEC and its allies realize that the shale boom in the United States will not go away at oil prices above $50/BBL and has increased production even though it knows that will drive oil prices lower.  Saudi Arabia has shown a new willingness to punish its allies that do not comply with production reduction targets.

 

Conclusion

As is usually the case, the truth probably lies somewhere in the middle.  There have been fundamental changes in both the supply and demand sides of the energy equation.  At the same time, temporary, abnormal events have amplified the impact of fundamental changes on energy pricing.  We anticipate improved oil prices but do not hold out much hope for a return to the days of oil prices above $60 per BBL.

 

Suggested Content:

Is
American Energy Dominance Relying on Immaculate Areas?

InPlay Oil C-Suite Series (Video)

Natural
Gas Storage Imbalances and Higher Prices

 

Subscribe to Channelchek’s YouTube Channel

Each event in our popular Virtual Road Shows Series has a maximum capacity of 100 investors online. To take part, listen to and perhaps get your questions answered, see which virtual investor meeting intrigues you here.

 

Source:

https://www.inquirer.com/business/dividends-yields-10-year-treasury-etf-vanguard-pimco-20200309.html, Erin Arvedlund, March 9, 2020

https://finance.yahoo.com/news/big-oil-goes-looking-career-040154761.html, Javier Blas, Bloomberg, September 14, 2020

https://money.usnews.com/investing/stock-market-news/slideshows/the-best-energy-stocks-to-buy-this-year, Ellen Chang, U.S. News, August 4, 2020

https://www.haynesboone.com/-/media/Files/Energy_Bankruptcy_Reports/Oil_Patch_Bankruptcy_Monitor, Haynes and Boone, August 31, 2020

 

Monday, September 14, 2020

Gevo, Inc. (GEVO)

Virtual Roadshow Should Highlight Improved Visibility

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Join today’s virtual roadshow with Gevo, Inc. (GEVO) @ 3:30PM EST. You can register for free at register.gotowebinar.com to hear from Pat Gruber, CEO. The interview should reinforce the recent business update that indicated that recent capital raises have reduced uncertainty and progress continues in moving forward on designing and financing the renewable fuel projects.


Current cash of ~$81 million creates near-term funding visibility.  Recent capital raises of $46 million from an equity offering and $16 million from warrant exercises have enhanced funding visibility. The added cash boost creates more visibility in funding the critical design and engineering work, including permitting, necessary to fully develop the initial three production plants to project …

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision. 

 

Excess Oil Inventory May Take Even Longer to Work Off

 

West Texas Intermediate oil prices fell 8% on Tuesday, dropping from $39 per barrel to $36.30/BBL.  Tuesday’s close was the lowest oil price close in three months.  The decline caps off a difficult ten-day period that started with oil prices entering the month of September at $42.76/BBL.  There is not a single reason for the decline but a series of announcements that point to oil supply increasing and demand rising at a slower rate than previously thought.

Inventories are rising. The American Petroleum Institute reported on Tuesday that U.S. crude stockpiles unexpectedly rose last week.  The country’s crude stockpiles rose by 3 million barrels in the week ending September 4, almost twice that expected by analysts.  The rise was the first increase in seven weeks. The higher inventories were confirmed on Thursday when the U.S. Energy Information Administration indicated that U.S. commercial crude inventories increased by 2.0 million.  Analysts had expected a 1.0 million decrease.  The EIA reports that inventories are running 14% above the trailing five-year average for this time of year.  The inventory buildup comes at an unfortunate time, with the summer driving season coming to an end.

OPEC is getting tired of production cuts.  On September 5, Saudi Arabia lowered its official selling price for October.  Remember that OPEC and allies agreed to a 9.7 million barrel per day cut to supply on May 1.  The reductions were decreased by almost 1 million bpd in June and another 1 million in August.  OPEC and allies meet on September 17 to discuss a continuation of production cuts. Saudi Arabia’s willingness to accept lower oil prices in October may be a sign that it is tiring of cutting production.  If true, the outcome of the next OPEC meeting may result in increased supply at a time when demand is becoming more uncertain.

The future of oil demand for vehicles may be coming into question. GM announced a 10-year alliance with Nikola Corp to build an electric truck. The alliance puts them in direct competition with Tesla and shows that the major car manufacturers do not plan to sit idle as Tesla attempts to gain market share.  GM is not alone among major auto manufacturers in announcing plans to develop electric vehicles.  Announcements like these may be a sign that the age of electric vehicles may be coming sooner than previously anticipated.

A global economic recovery coming from a Covid-19 vaccine may be further away. Countries in all parts of the world are reporting increased cases of Covid-19 as they prepare for an expected second wave of cases coming this fall.  On September 8, AstraZeneca announced that a vaccine study had been put on hold due to a suspected serious reaction in one of the participants.  The halt of a vaccine study is raising new questions about the ability of countries to open their economies.

China may be done restocking its inventories. China has been increasing oil imports through the summer.  The increase stopped in August, with China importing 11.23 bpd versus 12.13 bpd in July.  Warren Patterson, global head of commodities at ING, indicates that China restocked inventories and that Chinese buying appears to be absent from the market at the moment.

Oil prices turned negative in April after the market was hit by a double shot of OPEC production increases and pandemic-induced demand destruction.  Higher oil prices recovered over the summer due to OPEC production cuts and signs that economies were reopening.  Recent data seems to indicate that the optimism of the summer was misplaced.  With storage levels lower than in the spring, it’s unlikely that the market will see the oil price drop witnessed in April.  Instead, there could be a prolonged period of low prices as the market works off excess inventory slowly.

Take-Away

Not one, but a series of events, announcements, and seasonal norms caused oil prices to drop. There are a number of trends on the horizon that are also concerning in a world sitting near inventory capacity.

Suggested Reading:

Is American Energy Dominance Relying on Immaculate Areas?

More Frequent Travel Could Be the Actual Aftermath of the Pandemic

Natural Gas Storage Imbalances and Higher Prices

 

 

Sources:

https://www.cnbc.com/2020/09/08/oil-drops-to-multi-month-low-on-demand-fears.html?__twitter_impression=true&recirc=taboo, Pippa Stevens, CNBC, September 8, 2020

https://www.cnbc.com/2020/09/10/oil-markets-coronavirus-pandemic.html, Reuters, September 9, 2020

https://finance.yahoo.com/news/crude-oil-adjusting-weakening-fundamentals-115438419.html, Oke Hansen, FX Empire, September 10, 2020

https://www.marketwatch.com/story/oil-down-sharply-as-us-driving-season-comes-to-end-2020-09-08, Myra P. Saefong and William Watts, MarketWatch, September 8, 2020

https://www.foxbusiness.com/markets/oil-prices-tank-as-demand-drop-nears, Jonathan Garber, FoxBusiness, September 8, 2020

https://oilprice.com/Energy/Crude-Oil/Surprise-Crude-Build-Forces-Oil-Prices-Lower.html, Irina Slav, OilPrice.com, September 10, 2020

 

 

Drilling Into Unexploited Areas Brings an Arduous Debate

 

On September 1, 2020, the Trump Administration revised regulations governing the oil and gas drilling across more than 190 million acres of U.S. forest land.  The states most affected by increased drilling would be Colorado, Montana, Nevada, New Mexico, and Utah. The administration has hinted that it intends to push to open the door for drilling off the coasts of Florida and California if they win the November election.  Drilling off the coasts of Florida and California has been banned since 1969 following an oil spill off the coast of Santa Barbara. Earlier, on August 17, 2020, the administration announced plans to open 1.5 million acres of the Arctic National Wildlife Refuge (ANWR) to oil and gas drilling. Environmentalists derided the decisions claiming drilling will disrupt and harm wildlife.  The administration claims the impact will be minimal, and the steps taken are necessary to assure the nation’s energy dominance.  Is opening this land to drilling minimal and necessary, or will allowing drilling be harmful to the environment and unnecessary?

 

 

Source: Department of Energy (DOE)

Arguments For (Opening Drilling is Necessary and Minimally Invasive)

The impact will be minimal. The area being opened in Alaska represents only 1.56 million acres out of a refuge that is 19.3 million acres.  That is less than 1% of the property.  A similar argument can be made for opening drilling off the coasts.  A constitutional amendment bans oil drilling in state waters, meaning proposed drilling must be roughly 3 miles off the Atlantic coast and 10 miles into the gulf.  That means any drilling rigs are unlikely to be visible from shore.  As far as the National Forest System goes, only 2.7% of the 193 million acres are currently leased for drilling, and new rules are unlikely to change that percentage by much.

 

 

The moves will boost the economy and create energy jobs.  The ANWR land sits on an estimated 7.7 to 11.8 billion barrels of oil. There are 3.6 billion barrels of oil below the Florida Coast and 10 billion barrels off the coast of California.  Proponents say increased Alaskan production could generate $1.1 billion over the next decade, helping the Alaskan economy, which is dependent on the energy industry for one-third of its jobs.  Opening U.S. Forest land could add 1,500 new wells.  The federal government would receive 12.5 percent of the royalties from oil and gas sold from wells on U.S. Forest land.

 

Arguments Against (Opening Drilling Is Unnecessary and Harmful)

It does not take much to disrupt wildlife. Oil spills from tanker accidents or pipeline breaks can be devastating. The impact on plants and animals can last for decades.  The noise and dust from road traffic needed to build and service power lines and drilling pads will disrupt animal migration patterns.  Drilling requires large amounts of water, sometimes in areas of limited water supply.

 

 

Source: Wikipedia, Arctic Refuge drilling controversy

Drilling in these areas is not economical anyways. Technological advances in drilling in shale formations have meant that domestic energy companies can produce oil and gas at lower costs. Lower costs combined with decreased demand resulting from a renewable energy push have led the United States to become a net exporter of energy.  The areas being opened to drilling are more costly to drill and do not have an existing infrastructure in place to move oil and gas to refineries or storage.  Opening land to drilling is unlikely to create the economic boom forecasted by proponents in the foreseeable future.

Summary

Opening areas to drilling has become a hot topic.  Opponents claim such moves will be disastrous to wildlife, while proponents say the moves simply address an overregulated environment. Most likely, the impact on either the environment or the economy will be muted, and the steps taken by the government will be largely symbolic. 

 

Sources:

https://www.houstonchronicle.com/business/energy/article/Trump-moves-to-open-up-drilling-in-national-15528688.php, James Osborne, Houston Chronicle, September 1, 2020

https://www.fool.com/investing/2020/08/17/trump-administration-to-approve-oil-drilling-in-al/, Mathew DiLallo, The Motley Fool, August 17, 2020

https://blogs.ei.columbia.edu/2017/12/06/arctic-national-wildlife-refuge-drilling-oil-impact-wildlife/, Sarah Fecht, State of the Planet, December 6, 2017

https://www.politico.com/news/2020/06/10/interior-drilling-florida-waters-november-election-310595, Ben Lefebvre, Politico, June 10, 2020

https://www.tampabay.com/news/environment/2020/08/29/oil-drilling-off-floridas-coast-looms-on-the-horizon-this-election-season/, Zachary T. Sampson, Tampa Bay Times, August 29, 2020

https://www.nrdc.org/experts/josh-axelrod/rule-speed-oil-drilling-national-forests-released, Joshua Axelrod & Samuel Eisenberg, NRDC, August 31, 2020

https://upload.wikimedia.org/wikipedia/commons/8/81/Northern_Alaska_National_Wildlife_Range_%28ANWR%29%2C_Coastal_Plain_1002_Area_%2841004364390%29.png, Our Daily Planet, December 01, 2019

 

Suggested Readings:

Hurricane Laura Shut Down Gulf Production with Barely Any Impact on Prices

Natural Gas Has a Sizeable Energy Role that is Waning

Eliminating the Con-Fusion

 

Barely an Impact on Oil Prices Despite Laura’s Wrath

Hurricane Laura ripped through the Gulf of Mexico this week forcing oil platforms to shut down.  The Category 4 storm caused 84% of the production in the Gulf to go offline after reaching sustained winds of 150 miles per hour.  Laura hit land on Wednesday night in the Lake Charles area, the heart of the domestic refinery business.  Over 45% of total U.S. petroleum refining capacity is located along the Gulf Coast. One would expect oil prices to rise on drop in supply.  Instead, oil price hovered in the $42 to $43 range.  The benign impact on oil prices reflects changing dynamics in the U.S. energy industry.

The Gulf is Less Important Due to Permian Basin Oil Production. Twenty years ago, production in the Gulf of Mexico represented almost one-third of domestic production.  The boom in production in shale plays such as the Permian Basin have greatly decreased the country’s reliance on the Gulf of Mexico for oil.  Now, the Gulf of Mexico represents only 17% of U.S. crude oil production.

 

Oil Inventories Were High. Petroleum product inventories were higher than normal before Hurricane Laura shut down oil refineries.  The EIA reports that U.S. commercial crude oil inventories are about 15% higher than the five-year average for this time of year.  The increase reflects a dramatic decrease in demand since the pandemic. Patrick De Haan, head of petroleum analysis at GasBuddy, estimates that gasoline demand, for example, is down 15% due to the effects of COVID-19.  We are beginning to see a reduction in supply and an increase in demand, but it may take at least a year to work down excess inventory. The temporary drop in production due to Hurricane Laura can easily be met by oil in inventory.

Producers Have Gotten Better at Restoring Production Quickly.  In the past, a major hurricane resulted in a major disruption in production.  The chart below shows the sudden drop off in production during Hurricanes Katrina and Rita in 2005 and Hurricanes Gustav and Ike in 2008.  However, note the limited impact of Hurricane Barry last year.  The smaller reduction in production may reflect the fact that Hurricane Barry was less severe than the earlier hurricanes.  However, it also reflects the fact that hurricane forecasts have improved allowing producers to prepare for the hurricane and return to production sooner.

 

 

Refineries Outside the Gulf Were Running Below Capacity.  Because of a drop in oil prices and oil demand following the economic impact of COVID-19, domestic oil production has decreased.  Lower production has meant that domestic refineries are running below capacity.  U.S. refineries were operating at 82% of capacity on August 21, 2020 according to the U.S. Energy Information Administration.  Refineries that are not shut down due to Hurricane Laura should be able to increase production and offset lost production in the Gulf.

 

Sources:

https://finance.yahoo.com/news/oil-gas-prices-slip-hurricane-115423327.html, Jonathan Garber, Fox Business, August 27, 2020

https://finance.yahoo.com/news/oil-industry-shuts-platforms-rigs-214017121.html, Cathy Bussewitz, Associated Press, August 26, 2020

https://www.marketwatch.com/story/oil-prices-edge-lower-shrugging-off-hurricane-lauras-landfall-2020-08-27, Myra P. Saefong and William Watts, MarketWatch, August 27, 2020

https://www.marketwatch.com/story/hurricane-laura-may-do-little-to-disturb-relative-calm-in-summer-gasoline-prices-2020-08-27, Myra P, Saefong, MarketWatch, August 27, 2020

https://www.wwno.org/post/hurricane-barry-caused-biggest-gulf-oil-drop-more-decade, Travis Lux, WWNO, October 9, 2020

https://www.eia.gov/petroleum/supply/weekly/pdf/highlights.pdf, EIA, August 21, 2020

 

Suggested Reading

OPEC Forecasts Lower Demand as Output Cuts Taper

Canadian Oil Production Drops To the Lowest Level Since 2016

Unexpected Lower Oil Inventories are a Dent in the Upward Trend

 

Main image source: The Weather Channel, 11:00 am CST, August 27, 2020

Wednesday, August 26, 2020

Gevo, Inc. (GEVO)

ATM Offering and Warrant Exercises Add Almost $60 Million.

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Existing ATM program tapped to issue 38.5 million shares at $1.30/share netting $46.1 million. Combined with existing cash of $21.1 million on August 20th per the prospectus, pro forma cash increases to ~$67.2 million, or slightly higher than expected.


Series A Warrant exercises further boost cash. On August 20th, Series 2020-A Warrants were exercised and 22.97 million shares were issued. Gross proceeds of $13.8 million should move pro forma cash into the $80 million range. Remaining Series 2020-A Warrants to issue …








Click to get the full report

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision. 

Monday, August 24, 2020

Gevo, Inc. (GEVO)

ATM Offering of $50 million Removes Funding Overhang.

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Equity offering adds $50 million and tempers near-term funding overhang. After the strong stock price move on Thursday, the existing ATM program was tapped to issue 38.5 million shares at $1.30/share, or a 29% discount. While the total share count increases to 89.8 million, pro forma cash increases to ~$69 million.


Likely warrant exercises could add ~$18 million and further temper near-term funding overhang. As we highlighted last week, the strong stock price move likely pushed many warrants holders to exercise early. If true, the warrant overhang would decline and pro forma cash would …








Click to get the full report

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision. 

Friday, August 21, 2020

Gevo, Inc. (GEVO)

Supply Portfolio Doubles and Industry Player Added

Gevo Inc is a renewable chemicals and biofuels company engaged in the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Its operating segments are the Gevo segment and the Gevo Development/Agri-Energy segment. By its segments, it is involved in research and development activities related to the future production of isobutanol, including the development of its biocatalysts, the production and sale of biojet fuel, its Retrofit process and the next generation of chemicals and biofuels that will be based on its isobutanol technology. Gevo Development/Agri-Energy is the key revenue generating segment which involves the operation of the Luverne Facility and production of ethanol, isobutanol and related products.

Poe Fratt, Senior Research Analyst, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Largest contract signed to date. Addition of major industry player adds credibility to renewable fuel concept. Yesterday morning, Gevo announced that a supply agreement for 25 million gallons/year (MPGY) was signed with a subsidiaryof Trafigura Group. The contract is the largest in Gevo’s history to date. Not only does the supply portfolio more than double to 42 MPGY, it moves the revenue potential above $1.5 billion. Trafigura’s leading position as a global commodity trader validates the technology and business strategy.


Licensing strategy also moving forward.  Earlier, a license agreement with Praj Industries Ltd. was signed to develop renewable transportation fuels in India. The collaboration is driven by carbon emission targets and national strategic goals, including …








Click to get the full report

This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst
certification and important disclosures included in the full report. 
NOTE: investment decisions should not be based upon the content of
this research summary.  Proper due diligence is required before
making any investment decision.