Category: Energy

Thursday, April 2, 2020

Energy Industry Report

Energy Sector Review and Outlook

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

Listen To The Analyst

Refer to end of report for Analyst Certification & Disclosures

• Energy investors looking for relief in 2020 drilled a dry hole.  The dual impact of the Coronavirus and a Saudi Arabia oil price war sent oil prices crashing down and with them, energy stocks. The XLE Energy Index fell 52% in the quarter ending March 31, far outpacing a 22% decline for the S&P 500 Index.
• Energy prices drop even further.   West Texas Intermediate (WTI) oil prices for the May 2020 futures contract began the year at $61.18 per barrel and finished the quarter at $20.13 per barrel, down 67%. Henry Hub natural gas prices for the May 2020 futures contract fared a bit better dropping 25% to a level of $1.60 per thousand cubic feet (mcf).
• A supply response is coming but it might not be in time to save small energy companies.   Needless to say, oil prices in the twenties is disastrous for domestic energy companies. Many companies claim to be able to break even at oil prices in the forties. Without an improvement in oil prices, many U.S. producers could be headed towards bankruptcy at a rate similar to what happened in 2016.
• Be selective but values are out there.    We believe investors should continue to be wary regarding energy stocks and focus on companies with good balance sheets. That said, there are compelling values within the group now that individual stock prices have fallen. We continue to believe energy prices will eventually return to higher levels with a return to more normal economic conditions and a supply response by domestic producers. We have adjusted our long-term oil and gas price assumption to $50/bbl and $2.50/mcf respectively, although we believe it may be several years before we reach those levels.

Exploration and Production: 2020-1Q Review and Outlook

Energy investors looking for relief in 2020 drilled a dry hole.  The dual impact of the Coronavirus and a Saudi Arabia oil price war sent oil prices crashing down and with them, energy stocks.  The XLE Energy Index fell 52% in the quarter ending March 31, far outpacing a 22% decline for the S&P 500 Index.  West Texas Intermediate (WTI) oil prices for the May 2020 futures contract began the year at $61.18 per barrel and finished the quarter at $20.13 per barrel, down 67%.  Henry Hub natural gas prices for the May 2020 futures contract fared a bit better dropping 25% to a level of $1.60 per thousand cubic feet (mcf).

The Coronavirus and its resulting global economic slowdown will undoubtedly lead to a decrease in the demand for oil.  Highways are empty, airlines are shutting down and factories are closing.  Estimates for the impact range from a decline of 2.5 million barrels of oil per day (MBOE/d) to 12 MBOE/d.  The upper end of the range would represent a 12% reduction in demand from pre-virus levels near 80 MBOE/d.  This is demand that will be gone forever, not just pushed back into future quarters. 

Complicating issues is the fact that Saudi Arabia and Russia are flooding the market with excess oil.  On March 6th, the bottom fell out when OPEC and Russia failed to agree to a production cut, and Saudi Arabia signaled it might ramp up production.  WTI prices fell $10.15 per barrel, or 24.59% to a level near $30 per barrel.  The decline marked the second biggest one-day decline on record and the largest since 1991.  Since March 6^th, oil prices have continued to slide as the Energy Information Administration (EIA) reports a growing stock of crude oil in storage.

 

Outlook

Needless to say, oil prices in the twenties is disastrous for domestic energy companies.  Many companies claim to be able to break even at oil prices in the forties.  However, none claim to be able to do so at prices in the twenties.  We have said in the past that U.S. producers have become the producers on margin.  They will be the first to react to changes in oil prices by adjusting drilling.  Already, many companies have announced that they have cancelled their drilling programs.

The United States has grown to become the largest producer of oil at 11 MBOE/d.  It has done so through horizontal drilling and fracking that accelerates initial production rates.  These techniques, however, also lead to sharper declines if new wells are not drilled.  Without new drilling, U.S. production could quickly slip back towards the 6 MBOE/day level of just ten years ago.

What is most disturbing about the recent drop in oil prices is that the market does not view the drop as temporary.  Looking at future month contracts, prices rise very slowly.  That means that the market believes Saudi Arabia is not bluffing about raising production and that OPEC and Russia won’t reach an agreement to cut production.  It also means the market believes the impact of the Coronavirus may continue well into the future.  It also means the market does not believe that there will be a quick supply response by U.S. producers.

U.S. producers can withstand temporary dips into the forties, thirties or even twenties.  Many companies hedged part of their production when oil prices rose last year.  Two years of oil prices below $40 would be another story.  Companies have operating and financial costs to consider.  Companies that have tapped their lines of credit could see that credit reduced or eliminated leaving management with few options now that energy stock prices have fallen.  Without an improvement in oil prices, many U.S. producers could be headed towards bankruptcy at a rate similar to what happened in 2016.

 

Recommendations

We believe investors should continue to be wary regarding energy stocks.  Investors would be wise to focus energy investment towards companies with little to no debt.  A large hedge position may provide a lifeline.  Low lifting costs per barrel remain important.  A supportive ownership group with a long investment time frame is also important. 

That said, there are compelling values within the group now that individual stock prices have fallen.  We continue to believe energy prices will eventually return to higher levels with a return to more normal economic conditions and a supply response by domestic producers.  We have adjusted our long-term oil and gas price assumption to $50/bbl and $2.50/mcf respectively, although we believe it may be several years before we reach those levels.  Our individual stock net asset values and price targets are based off of our long-term energy price assumptions.

 

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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87

WARNING

This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of
transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..

RESEARCH ANALYST CERTIFICATION

Independence Of View
All views expressed in this report accurately reflect my personal views about the subject securities or issuers.

Receipt of Compensation
No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public
appearance and/or research report.

Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

NOBLE RATINGS DEFINITIONS	% OF SECURITIES COVERED	% IB CLIENTS
Outperform: potential return is >15% above the current price	93%	48%
Market Perform: potential return is -15% to 15% of the current price	7%	6%
Underperform: potential return is >15% below the current price	0%	0%

NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same. Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.

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Report ID: 11365

Wednesday, March 18, 2020

Energy Fuels Inc. (UUUU)

Full Year Loss Greater than Expected Due to Inventory Impairment

Energy Fuels Inc together with its subsidiary is engaged in the extraction and recovery of uranium properties in the United States. The company operates in two segments, ISR Uranium and Conventional Uranium. It conducts its ISR activities through its Nichols Ranch Project, located in northeast Wyoming. It conducts its conventional uranium extraction and recovery activities through its White Mesa Mill. In addition, the group also owns uranium and uranium, vanadium properties and projects in various stages of exploration, permitting, and evaluation. Energy Fuels derives most of the income through the sale of Uranium.

Mark Reichman, Senior Research Analyst, Noble Capital Markets, Inc.

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

Full year 2019 results. Energy Fuels reported fourth quarter and full year 2019 losses per share of ($0.10) and ($0.40), respectively. We had predicted fourth quarter and full year losses of ($0.06) and ($0.36) per share. The variance to our estimate was due, in part, to an inventory impairment charge that was partially offset by higher revenues and lower expense.


Government purchase program.  President Trump’s 2021 budget proposal includes $150 million to fund a strategic uranium reserve to provide assurance of uranium supplies and to support U.S. nuclear fuel cycle capabilities through the domestic production and conversion of uranium. Assuming no changes by the time an appropriations bill is signed into law by September 30, purchases could begin in fiscal year 2021 which begins October 1. Industry participants are awaiting more details on the program and…









Get the full report on Channelchek desktop.

This 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. 

Wednesday, March 18, 2020

Energy Fuels Inc. (UUUU)

Full Year Loss Greater than Expected Due to Inventory Impairment

Energy Fuels Inc together with its subsidiary is engaged in the extraction and recovery of uranium properties in the United States. The company operates in two segments, ISR Uranium and Conventional Uranium. It conducts its ISR activities through its Nichols Ranch Project, located in northeast Wyoming. It conducts its conventional uranium extraction and recovery activities through its White Mesa Mill. In addition, the group also owns uranium and uranium, vanadium properties and projects in various stages of exploration, permitting, and evaluation. Energy Fuels derives most of the income through the sale of Uranium.

Mark Reichman, Senior Research Analyst, Noble Capital Markets, Inc.

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

Full year 2019 results. Energy Fuels reported fourth quarter and full year 2019 losses per share of ($0.10) and ($0.40), respectively. We had predicted fourth quarter and full year losses of ($0.06) and ($0.36) per share. The variance to our estimate was due, in part, to an inventory impairment charge that was partially offset by higher revenues and lower expense.


Government purchase program.  President Trump’s 2021 budget proposal includes $150 million to fund a strategic uranium reserve to provide assurance of uranium supplies and to support U.S. nuclear fuel cycle capabilities through the domestic production and conversion of uranium. Assuming no changes by the time an appropriations bill is signed into law by September 30, purchases could begin in fiscal year 2021 which begins October 1. Industry participants are awaiting more details on the program and…









Get the full report on Channelchek desktop.

This 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, March 13, 2020

Genie Energy Ltd. (GNE)

Quarterly results reflect growing pains

Genie Energy Ltd, through its subsidiaries, operates as a retail energy provider; and an oil and gas exploration company. Its segments are Genie Retail Energy (GRE) which is the key revenue generator, Genie Energy Services (GES), and Genie Oil and Gas (GOGAS). GRE owns and operates retail energy providers (REPs), including IDT Energy, Residents Energy, Town Square Energy, and Mirabito. Its REP businesses resell electricity and natural gas to residential and small business customers in the Eastern and Midwestern United States. GES designs, manufactures and distributes solar panels and also offers energy brokerage and advisory services. GOGAS is an oil and gas exploration company that owns an interest in a contracted drilling services operation and interest in Afek Oil and Gas (Afek).

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

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

Results for 4Q and 2019 were below expectations. Genie Energy reported 4Q and 2019 EPS of $0.00 and $0.18 versus our estimates of $0.18 and $0.28. Adjusted EBITDA ($ million) were $0.8 and $10.1 versus our estimates of $11.0 and $23.2. No one line item explained the shortfall. Revenue was a few million below forecast. Operating costs were a few million above forecast. Genie’s expansion into international operations incurred slightly larger losses than expected. Genie’s Energy Services was disappointing.


The good news is that the company continues to grow. Global RCE (Retail Consumer Equivalent) units rose 45% year over year as the company expanded into Japan and Texas. It is not unusual for energy marketing companies to report first year losses when moving into new areas as evidenced by adjusted 2019 ebitda for Genie International of $(10.7) vs $(4.2). Management believes it will reach critical mass to turn profitable in the U.K. and Scandinavia in 2020 and…






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, March 13, 2020

Genie Energy Ltd. (GNE)

Quarterly results reflect growing pains

Genie Energy Ltd, through its subsidiaries, operates as a retail energy provider; and an oil and gas exploration company. Its segments are Genie Retail Energy (GRE) which is the key revenue generator, Genie Energy Services (GES), and Genie Oil and Gas (GOGAS). GRE owns and operates retail energy providers (REPs), including IDT Energy, Residents Energy, Town Square Energy, and Mirabito. Its REP businesses resell electricity and natural gas to residential and small business customers in the Eastern and Midwestern United States. GES designs, manufactures and distributes solar panels and also offers energy brokerage and advisory services. GOGAS is an oil and gas exploration company that owns an interest in a contracted drilling services operation and interest in Afek Oil and Gas (Afek).

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

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

Results for 4Q and 2019 were below expectations. Genie Energy reported 4Q and 2019 EPS of $0.00 and $0.18 versus our estimates of $0.18 and $0.28. Adjusted EBITDA ($ million) were $0.8 and $10.1 versus our estimates of $11.0 and $23.2. No one line item explained the shortfall. Revenue was a few million below forecast. Operating costs were a few million above forecast. Genie’s expansion into international operations incurred slightly larger losses than expected. Genie’s Energy Services was disappointing.


The good news is that the company continues to grow. Global RCE (Retail Consumer Equivalent) units rose 45% year over year as the company expanded into Japan and Texas. It is not unusual for energy marketing companies to report first year losses when moving into new areas as evidenced by adjusted 2019 ebitda for Genie International of $(10.7) vs $(4.2). Management believes it will reach critical mass to turn profitable in the U.K. and Scandinavia in 2020 and…






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. 

Oil Prices Have Been Cut in Half Since the Beginning of the Year Including a 25% Drop Last Friday

(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)

West Texas Intermediate (WTI) oil prices ended 2019 on an up note soaring above $60 per barrel.  Then the virus hit.  Since then, oil prices have crashed.  At first, they drifted slowly lower into the forties.  But on Friday, the bottom fell out when OPEC and Russia failed to agree to a production cut, and Saudi Arabia signaled it might ramp up production.  WTI prices fell $10.15 per barrel, or 24.59%, marking the second-biggest one-day decline on record and the largest since 1991.  Ali Khedery of Dragoman Ventures thinks prices could go to $20 due to a supply glut, a sentiment echoed by Goldman Sachs analysts.

The International Energy Agency believes global demand will be reduced by 2.5 million barrels/day in the first quarter due to the virus.  China alone represents 1.8 mb/d year over year.  OPEC had recommended a cut in production of 1.5 mb/d heading into last Thursday’s meeting, which would have offset much of the impact of the virus.  Instead, the meeting ended without a cut in production.  Importantly, previously agreed production levels are set to expire at the end of the month.  Many believe Saudi Arabia will increase its current production of 9.7 mb/d.  Saudi Arabia has the capacity to produce 12.5 mb/d. 

Needless to say, oil prices in the thirties would be disastrous for domestic energy companies.  Many companies claim to be able to break even at oil prices in the forties.  However, none claim to be able to do so at prices in the twenties.  We have said in the past that U.S. producers have become the producers on margin.  They will be the first to react to changes in oil prices by adjusting drilling.  We expect the response for U.S. producers to be quick with drilling coming to a virtual stand still.  The United States has grown to become the largest producer of oil at 11 mb/d.  It has done so through the use of horizontal drilling and fracking that accelerates initial production rates.  These techniques, however, also lead to sharper declines if new wells are not drilled.  Without new drilling, U.S. production could slip back towards the 6 mb/day level of just ten years ago.

What is most disturbing about the recent drop in oil prices is that the market does not view the drop as temporary.  Looking at future month contracts, prices rise very slowly and don’t cross back above $40 until almost 2022.  That means that the market believes Saudi Arabia is not bluffing about raising production and that OPEC and Russia won’t reach an agreement to cut production.  It also means the market does not believe that there will be a quick supply response by U.S. producers.

U.S. producers can withstand temporary dips into the forties, thirties or even twenties.  Many hedged part of their production when oil prices rose last year.  Two years of oil prices below $40 would be another story.  Companies have operating and financial costs to consider.  Companies that have tapped their lines of credit could see that credit reduced or eliminated leaving management with few options now that energy stock prices have fallen.  Without an improvement in oil prices, many U.S. producers could be headed towards bankruptcy at a rate similar to what happened in 2016.

Investors would be wise to focus energy investment towards companies with little to no debt.  A large hedge position may provide a lifeline.  Low lifting costs per barrel remain important.  A supportive ownership group with a long investment timeframe is also important. 

Suggested Reading:

Are
Oil Markets Overreacting to the Spread of Coronavirus?

Canadian Producer Is
Growing Through The Drill Bit, Even In a Low-Price Environment

 

Sources

https://www.cnbc.com/2020/03/08/oil-plummets-30percent-as-opec-deal-failure-sparks-price-war-fears.html, Pippa Stevens, CNBC, March 8, 2020

https://www.iea.org/reports/oil-market-report-march-2020, International Energy Agency, March 8, 2020

https://www.wsj.com/articles/u-s-shale-drillers-could-be-casualties-of-oil-price-war-11583769768, Collin Eaton and Rebecca Elliott, Wall Street Journal, March 9, 2020

https://www.marketwatch.com/story/why-us-shale-oil-producers-are-at-the-heart-of-the-saudi-russia-price-war-2020-03-09, William Watts, MarketWatch, March 9, 2020

Friday, February 21, 2020

Energy Services of America (ESOA)

Lower Revenue But Higher Margins

Energy Services of America Corporation is engaged in providing contracting services for energy-related companies. The company is primarily engaged in the construction, replacement, and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies. It services the gas, petroleum, power, chemical and automotive industries, and does incidental work such as water and sewer projects. Energy Service’s other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction.

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

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

Soft start to fiscal year. 1Q2020 EBITDA of $0.9 million was below our estimate due to a large project completion in 4Q2019 and limited larger projects behind it. Higher than expected gross margin of 9.1% partly offset the revenue fall off.

Adjusting FY2020 EBITDA to $7.1 million to reflect 1Q2020 operating results. Forecasted revenue of $110.1 million is lower, but EBITDA margin of 6.4% and gross margin of…

Get the full report on Channelchek desktop.

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, February 21, 2020

Energy Services of America (ESOA)

Lower Revenue But Higher Margins

Energy Services of America Corporation is engaged in providing contracting services for energy-related companies. The company is primarily engaged in the construction, replacement, and repair of natural gas pipelines and storage facilities for utility companies and private natural gas companies. It services the gas, petroleum, power, chemical and automotive industries, and does incidental work such as water and sewer projects. Energy Service’s other services include liquid pipeline construction, pump station construction, production facility construction, water and sewer pipeline installations, various maintenance and repair services and other services related to pipeline construction.

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

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

Soft start to fiscal year. 1Q2020 EBITDA of $0.9 million was below our estimate due to a large project completion in 4Q2019 and limited larger projects behind it. Higher than expected gross margin of 9.1% partly offset the revenue fall off.

Adjusting FY2020 EBITDA to $7.1 million to reflect 1Q2020 operating results. Forecasted revenue of $110.1 million is lower, but EBITDA margin of 6.4% and gross margin of…

Get the full report on Channelchek desktop.

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. 

Wednesday, February 12, 2020

Energy Fuels Inc. (UUUU)

Relief is in Sight

Energy Fuels Inc together with its subsidiary is engaged in the extraction and recovery of uranium properties in the United States. The company operates in two segments, ISR Uranium and Conventional Uranium. It conducts its ISR activities through its Nichols Ranch Project, located in northeast Wyoming. It conducts its conventional uranium extraction and recovery activities through its White Mesa Mill. In addition, the group also owns uranium and uranium, vanadium properties and projects in various stages of exploration, permitting, and evaluation. Energy Fuels derives most of the income through the sale of Uranium.

Mark Reichman, Senior Research Analyst, Noble Capital Markets, Inc.

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

Government purchase program. President Trump’s 2021 budget proposal includes $150 million to fund a strategic uranium reserve to provide assurance of uranium supplies and to support U.S. nuclear fuel cycle capabilities through the domestic production and conversion of uranium. Assuming no changes by the time an appropriations bill is signed into law by September 30, purchases could begin in fiscal year 2021 which begins October 1.

Step in the right direction. A government purchase program is consistent with several proposals by various industry groups, including the Nuclear Energy Institute (NEI) which were discussed in our research note dated…

Get the full report on Channelchek desktop.

This 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. 

Wednesday, February 12, 2020

Energy Fuels Inc. (UUUU)

Relief is in Sight

Energy Fuels Inc together with its subsidiary is engaged in the extraction and recovery of uranium properties in the United States. The company operates in two segments, ISR Uranium and Conventional Uranium. It conducts its ISR activities through its Nichols Ranch Project, located in northeast Wyoming. It conducts its conventional uranium extraction and recovery activities through its White Mesa Mill. In addition, the group also owns uranium and uranium, vanadium properties and projects in various stages of exploration, permitting, and evaluation. Energy Fuels derives most of the income through the sale of Uranium.

Mark Reichman, Senior Research Analyst, Noble Capital Markets, Inc.

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

Government purchase program. President Trump’s 2021 budget proposal includes $150 million to fund a strategic uranium reserve to provide assurance of uranium supplies and to support U.S. nuclear fuel cycle capabilities through the domestic production and conversion of uranium. Assuming no changes by the time an appropriations bill is signed into law by September 30, purchases could begin in fiscal year 2021 which begins October 1.

Step in the right direction. A government purchase program is consistent with several proposals by various industry groups, including the Nuclear Energy Institute (NEI) which were discussed in our research note dated…

Get the full report on Channelchek desktop.

This 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. 

Wednesday, January 8, 2020

Energy Industry Report

Exploration and Production: 2019 Review and Outlook

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

Refer to end of report for Analyst Certification & Disclosures

• End of a difficult year.  Energy stocks rallied in the fourth quarter and ended the year up 1.8%, well underperforming the broad market.  Weak results mirror the change in oil prices.  Oil prices rose from $54 per barrel to $62/BBL in the fourth quarter in response to an improved global economic outlook and growing tension in the Middle East but were down for the year. The oil futures curve indicates that the market does not expect a recent rise in spot prices to continue.  Natural gas prices were also weak in 2019.
• The outlook for energy stocks has improved but it is too early to turn positive.   We continue to believe that oil prices are locked in a range of $50-$65 per barrel, a range that puts pressure on energy companies with high debt positions.  Any movement outside that range will cause domestic producers to react by increasing/decreasing drilling and thus production which will eventually move prices back into the range. While too early to become positive on the group, we believe investors should maintain a modest exposure to energy stocks as a way to play any potential rise in energy prices.

Year and quarter in review

Exploration and production companies were glad to see the ball drop on 2019 and close out a frustrating year.  A strong performance in the fourth quarter (XLE E&P index rose 6.9%) offset declines in the second and third quarter and left the index in the green (up 1.8%) for the year.  Of course, this performance paled in comparison to the annual returns of the broader market (S&P 500 up 26.7% and the Russell 2000 up 18.7%).  As expected, the performance of the XLE mirrored oil prices, which rose in the first quarter, fell in the second and third, and then rose again in the fourth.  The rise in the February 2020 oil contract rose from $54 per barrel to $62/BBL in the fourth quarter in response to an improved global economic outlook and growing tension in the Middle East.

The market seems to be dismissing the long-term impact of the president’s political saber rattling with Iran.  We would note that future oil prices are below the current spot price.  Clearly the market has grown weary of the constant threats of war by both countries and discounts the probability of war.  Or, as we have discussed in the past, the market realizes the diminished role OPEC and the Middle East now have on West Texas Intermediate oil pricing. 

When companies report December quarter and year-end results next month, we expect most management to report an increase in their hedge position and an increase in their drilling budgets.  Most energy companies still set capital expenditures to stay within their operating cash flow but are anxious to turn on the spigots.  With higher prices and cash flow, look for modest increases in drilling. 

If energy investors are looking away from oil for relief, they won’t get any help from gas producers.  The February Henry Hub natural gas contract began the year near $3.00 per thousand cubic feet (mcf) and closed the year at $2.19 per mcf.  The year’s decline was largely felt in the last two months of the year when the contract fell $0.67 in response to mild weather. 

 

Outlook

As we look towards the new year, the outlook for energy stocks is improved but not yet positive.  We continue to believe that oil prices are essentially locked in a range of $50-$65 per barrel.  Any movement outside that range will cause domestic producers to react by increasing/decreasing drilling and thus production which will eventually move prices back into the range.  We view the current movement to the upper end of the range as driven largely by political events and thus temporary.

Unfortunately, at prices within the $50-$65 range, most small energy companies are struggling to operate within free cash flow.  They have cut operating costs, restructured debt, and focused on only the most profitable areas of production.  Those with high leverage are vulnerable to line of credit downgrades that could create financial strain. 

We favor energy companies with a large portfolio of drilling prospects and a strong balance sheet to fund future drilling or other expenditures.  We believe energy companies with strong financial positions could begin to consider share repurchases in 2020 if energy prices remain strong and stock prices have not responded.  While too early to become positive on the group, we believe investors should maintain a modest exposure to energy stocks as a way to play any potential rise in energy prices.

GENERAL DISCLAIMERS

All statements or opinions contained herein that include the words “we”, “us”, or “our” are solely the responsibility of Noble Capital Markets, Inc.(“Noble”) and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.

This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results. Noble accepts no liability for loss arising from the use of the material in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Noble. This report is not to be relied upon as a substitute for the exercising of independent judgement. Noble may have published, and may in the future publish, other research reports that are inconsistent with, and reach different conclusions from, the information provided in this report. Noble is under no obligation to bring to the attention of any recipient of this report, any past or future reports. Investors should only consider this report as single factor in making an investment decision.

IMPORTANT DISCLOSURES

This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or discussed to another party, without the written consent of Noble Capital Markets, Inc. (“Noble”). Noble seeks to update its research as appropriate, but may be unable to do so based upon various regulatory constraints. Research reports are not published at regular intervals; publication times and dates are based upon the analyst’s judgement. Noble professionals including traders, salespeople and investment bankers may provide written or oral market commentary, or discuss trading strategies to Noble clients and the Noble proprietary trading desk that reflect opinions that are contrary to the opinions expressed in this research report.
The majority of companies that Noble follows are emerging growth companies. Securities in these companies involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Noble research reports may not be suitable for some investors and as such, investors must take extra care and make their own determination of the appropriateness of an investment based upon risk tolerance, investment objectives and financial status.

Company Specific Disclosures

The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report.
Noble is not a market maker in any of the companies mentioned in this report. Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) with any or all of the companies mentioned in this report within the next 3 months

ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87

WARNING

This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of
transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..

RESEARCH ANALYST CERTIFICATION

Independence Of View
All views expressed in this report accurately reflect my personal views about the subject securities or issuers.

Receipt of Compensation
No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public
appearance and/or research report.

Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

NOBLE RATINGS DEFINITIONS	% OF SECURITIES COVERED	% IB CLIENTS
Outperform: potential return is >15% above the current price	86%	25%
Market Perform: potential return is -15% to 15% of the current price	14%	2%
Underperform: potential return is >15% below the current price	0%	0%

NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same. Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.

Noble Capital Markets, Inc.
225 NE Mizner Blvd. Suite 150
Boca Raton, FL 33432
561-994-1191

Noble Capital Markets, Inc. is a FINRA (Financial Industry Regulatory Authority) registered broker/dealer.
Noble Capital Markets, Inc. is an MSRB (Municipal Securities Rulemaking Board) registered broker/dealer.
Member – SIPC (Securities Investor Protection Corporation)
Report ID: 11091

Wednesday, January 8, 2020

Energy Industry Report

Exploration and Production: 2019 Review and Outlook

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

Refer to end of report for Analyst Certification & Disclosures

• End of a difficult year.  Energy stocks rallied in the fourth quarter and ended the year up 1.8%, well underperforming the broad market.  Weak results mirror the change in oil prices.  Oil prices rose from $54 per barrel to $62/BBL in the fourth quarter in response to an improved global economic outlook and growing tension in the Middle East but were down for the year. The oil futures curve indicates that the market does not expect a recent rise in spot prices to continue.  Natural gas prices were also weak in 2019.
• The outlook for energy stocks has improved but it is too early to turn positive.   We continue to believe that oil prices are locked in a range of $50-$65 per barrel, a range that puts pressure on energy companies with high debt positions.  Any movement outside that range will cause domestic producers to react by increasing/decreasing drilling and thus production which will eventually move prices back into the range. While too early to become positive on the group, we believe investors should maintain a modest exposure to energy stocks as a way to play any potential rise in energy prices.

Year and quarter in review

Exploration and production companies were glad to see the ball drop on 2019 and close out a frustrating year.  A strong performance in the fourth quarter (XLE E&P index rose 6.9%) offset declines in the second and third quarter and left the index in the green (up 1.8%) for the year.  Of course, this performance paled in comparison to the annual returns of the broader market (S&P 500 up 26.7% and the Russell 2000 up 18.7%).  As expected, the performance of the XLE mirrored oil prices, which rose in the first quarter, fell in the second and third, and then rose again in the fourth.  The rise in the February 2020 oil contract rose from $54 per barrel to $62/BBL in the fourth quarter in response to an improved global economic outlook and growing tension in the Middle East.

The market seems to be dismissing the long-term impact of the president’s political saber rattling with Iran.  We would note that future oil prices are below the current spot price.  Clearly the market has grown weary of the constant threats of war by both countries and discounts the probability of war.  Or, as we have discussed in the past, the market realizes the diminished role OPEC and the Middle East now have on West Texas Intermediate oil pricing. 

When companies report December quarter and year-end results next month, we expect most management to report an increase in their hedge position and an increase in their drilling budgets.  Most energy companies still set capital expenditures to stay within their operating cash flow but are anxious to turn on the spigots.  With higher prices and cash flow, look for modest increases in drilling. 

If energy investors are looking away from oil for relief, they won’t get any help from gas producers.  The February Henry Hub natural gas contract began the year near $3.00 per thousand cubic feet (mcf) and closed the year at $2.19 per mcf.  The year’s decline was largely felt in the last two months of the year when the contract fell $0.67 in response to mild weather. 

 

Outlook

As we look towards the new year, the outlook for energy stocks is improved but not yet positive.  We continue to believe that oil prices are essentially locked in a range of $50-$65 per barrel.  Any movement outside that range will cause domestic producers to react by increasing/decreasing drilling and thus production which will eventually move prices back into the range.  We view the current movement to the upper end of the range as driven largely by political events and thus temporary.

Unfortunately, at prices within the $50-$65 range, most small energy companies are struggling to operate within free cash flow.  They have cut operating costs, restructured debt, and focused on only the most profitable areas of production.  Those with high leverage are vulnerable to line of credit downgrades that could create financial strain. 

We favor energy companies with a large portfolio of drilling prospects and a strong balance sheet to fund future drilling or other expenditures.  We believe energy companies with strong financial positions could begin to consider share repurchases in 2020 if energy prices remain strong and stock prices have not responded.  While too early to become positive on the group, we believe investors should maintain a modest exposure to energy stocks as a way to play any potential rise in energy prices.

GENERAL DISCLAIMERS

All statements or opinions contained herein that include the words “we”, “us”, or “our” are solely the responsibility of Noble Capital Markets, Inc.(“Noble”) and do not necessarily reflect statements or opinions expressed by any person or party affiliated with the company mentioned in this report. Any opinions expressed herein are subject to change without notice. All information provided herein is based on public and non-public information believed to be accurate and reliable, but is not necessarily complete and cannot be guaranteed. No judgment is hereby expressed or should be implied as to the suitability of any security described herein for any specific investor or any specific investment portfolio. The decision to undertake any investment regarding the security mentioned herein should be made by each reader of this publication based on its own appraisal of the implications and risks of such decision.

This publication is intended for information purposes only and shall not constitute an offer to buy/sell or the solicitation of an offer to buy/sell any security mentioned in this report, nor shall there be any sale of the security herein in any state or domicile in which said offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or domicile. This publication and all information, comments, statements or opinions contained or expressed herein are applicable only as of the date of this publication and subject to change without prior notice. Past performance is not indicative of future results. Noble accepts no liability for loss arising from the use of the material in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Noble. This report is not to be relied upon as a substitute for the exercising of independent judgement. Noble may have published, and may in the future publish, other research reports that are inconsistent with, and reach different conclusions from, the information provided in this report. Noble is under no obligation to bring to the attention of any recipient of this report, any past or future reports. Investors should only consider this report as single factor in making an investment decision.

IMPORTANT DISCLOSURES

This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or discussed to another party, without the written consent of Noble Capital Markets, Inc. (“Noble”). Noble seeks to update its research as appropriate, but may be unable to do so based upon various regulatory constraints. Research reports are not published at regular intervals; publication times and dates are based upon the analyst’s judgement. Noble professionals including traders, salespeople and investment bankers may provide written or oral market commentary, or discuss trading strategies to Noble clients and the Noble proprietary trading desk that reflect opinions that are contrary to the opinions expressed in this research report.
The majority of companies that Noble follows are emerging growth companies. Securities in these companies involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Noble research reports may not be suitable for some investors and as such, investors must take extra care and make their own determination of the appropriateness of an investment based upon risk tolerance, investment objectives and financial status.

Company Specific Disclosures

The following disclosures relate to relationships between Noble and the company (the “Company”) covered by the Noble Research Division and referred to in this research report.
Noble is not a market maker in any of the companies mentioned in this report. Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) with any or all of the companies mentioned in this report within the next 3 months

ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
Named WSJ ‘Best on the Street’ Analyst and Forbes/StarMine’s “Best Brokerage Analyst.”
FINRA licenses 7, 24, 63, 87

WARNING

This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of
transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc..

RESEARCH ANALYST CERTIFICATION

Independence Of View
All views expressed in this report accurately reflect my personal views about the subject securities or issuers.

Receipt of Compensation
No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public
appearance and/or research report.

Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

NOBLE RATINGS DEFINITIONS	% OF SECURITIES COVERED	% IB CLIENTS
Outperform: potential return is >15% above the current price	86%	25%
Market Perform: potential return is -15% to 15% of the current price	14%	2%
Underperform: potential return is >15% below the current price	0%	0%

NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same. Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.

Noble Capital Markets, Inc.
225 NE Mizner Blvd. Suite 150
Boca Raton, FL 33432
561-994-1191

Noble Capital Markets, Inc. is a FINRA (Financial Industry Regulatory Authority) registered broker/dealer.
Noble Capital Markets, Inc. is an MSRB (Municipal Securities Rulemaking Board) registered broker/dealer.
Member – SIPC (Securities Investor Protection Corporation)
Report ID: 11091

Monday, December 30, 2019

Energy Fuels Inc. (UUUU)

Is Relief for the Uranium Industry Imminent?

Energy Fuels Inc together with its subsidiary is engaged in the extraction and recovery of uranium properties in the United States. The company operates in two segments, ISR Uranium and Conventional Uranium. It conducts its ISR activities through its Nichols Ranch Project, located in northeast Wyoming. It conducts its conventional uranium extraction and recovery activities through its White Mesa Mill. In addition, the group also owns uranium and uranium, vanadium properties and projects in various stages of exploration, permitting, and evaluation. Energy Fuels derives most of the income through the sale of Uranium.

Mark Reichman, Senior Research Analyst, Noble Capital Markets, Inc.

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

U.S. Nuclear Fuel Working Group recommendations. While it has been reported that the working group submitted recommendations to the President in November, they have not been made public. In our view, the President is more likely to make a policy decision and use the working group recommendations as the basis for decision-making rather than publishing the working group recommendations ahead of a decision.

Probable outcomes.  What seems most likely, at the very least, is a commitment by the U.S. government to purchase domestically mined uranium over a multi-year period to build reserves. However, the minimum price point is a crucial detail and we also believe that additional…

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This 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.