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This Week in Energy: Why Now is a Great Time to be Getting into Oil Stocks

By James Stafford | Fri, 28 June 2013 18:49 | 0

Methane in our drinking water; Obama’s cleverly vague Keystone blurb; the less-than-groundbreaking handing over of power in Qatar; and the latest energy enlightenment from this week’s premium newsletter …

Is fracking making our drinking water unsafe? Depends who you ask. This week there are dueling reports out about drinking water near fracking sites. There’s only so far one can skew the science. In this case, everyone agrees that the level of methane in drinking water near drilling sites in Pennsylvania is higher than it should be. What they disagree on is the origins of that methane.

The study getting the most play is a Duke University endeavor that purports to show that water wells close to gas-drilling sites in Pennsylvania have methane levels more than six times higher than in wells further away. The study concludes that these methane levels indicate more frequent leaks due to the increase in natural gas production—in this case from the prolific Marcellus Shale. 

The overall conclusions of the report show no evidence of leaks of chemicals used in fracking, but link the elevated gas levels to an increase in drilling.

Of course, the oil and gas industry has its own scientists doing their own research. Their take on Pennsylvania’s tainted drinking water is that the methane found in the water more likely came from shallow sources that naturally migrated to water wells—not from fracking in the deep. 

“Methane is common in Susquehanna county water wells and is best correlated with topography and groundwater geochemistry, rather than shale-gas extraction activities,” according to a study commissioned by Cabot Oil & Gas Corp., which drills in Marcellus.

This coincides with a flurry of media activity attempting to obsessively interpret a whole minute and a half of speech by Obama on Keystone XL. We will refrain here from offering our own interpretation because we believe the statement was meant to be vague and actually has no meaning—yet. But it was amusing to watch all the key media players here line up to offer their wildly varying takes on this brief sound bite, with Forbes certain it means a green light for keystone, and Bloomberg certain it spells the death of the pipeline. Everyone’s interpretation is based on what they want the outcome to be. (Remind us to commend the speechwriter here—it’s brilliant). This is what Obama said (and we’ll let you add your own interpretation):

“Our energy strategy must be about more than just producing more oil. And, by the way, it's certainly got to be about more than just building one pipeline.

Now, I know there's been, for example, a lot of controversy surrounding the proposal to build a pipeline, the Keystone pipeline, that would carry oil from Canadian tar sands down to refineries in the Gulf. And the State Department is going through the final stages of evaluating the proposal. That's how it's always been done. But I do want to be clear:
Allowing the Keystone pipeline to be built requires a finding that doing so would be in our nation's interest. And our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution. The net effects of the pipeline's impact on our climate will be absolutely critical to determining whether this project is allowed to go forward. It's relevant.”

Elsewhere, we take you to the petro-monarchy of Qatar, where the big “corporate” news is that the Emir of Qatar, Hamad bin Khalifa al-Thani, has abdicated the throne and handed over power to … his son, Tamim bin Hamad al-Thani. Despite the Western world’s lauding of this move as a magnanimous move with the monarchy’s modernization in mind, we urge you to consider this a non-story along those lines. It’s a cosmetic change that serves a single purpose—gaining (more) kudos in the West at a time when Qatar is under increasing scrutiny over its meddling in Syria (and elsewhere where the Muslim Brotherhood is doing its bidding).

This week’s analysis is a geopolitical roundup from our Inside Intelligence section and you can see the full report below.

Finally, don’t’ miss this week’s premium newsletter offerings, which include everything from hot stock picks, advances in deepwater drilling and our take on coal gasification and more.

Our trader, Dan dicker believes that even amidst the market turmoil we are seeing that now is a great time to be getting into Oil stocks. Here is a little part of his letter today to our Premium subscribers:

Why Now is a Great Time to be Getting into Oil Stocks

This week’s market action seemed to prove two very old trader’s axioms – ONE – the market will do precisely what will cause the most people the most pain and TWO – a trader should always look first to buy strength and sell weakness.  Both of these axioms convince me that now is the time to load up on two oil companies:  Noble Energy (NBL) and EOG Resources (EOG). 

First, let’s take axiom number one:  After dropping almost 800 Dow points immediately after the FOMC meeting, a rash of bad announcements followed on Chinese growth and our own GDP projections.  Without the steady juice of Quantitative Easing ready to continue to take up the liquidity slack, most traders became convinced that this sell off was the beginning of another, more serious melt down and it was hardly likely to come storming back more than 500 Dow points.  Were the majority of traders likely short at the bottom on Tuesday?  You know that they were.

While there was volatility weakness in stocks, there’s been no weakness in oil and WTI prices are again threatening $100 a barrel – all while most of the other hard and soft commodities like copper, gold, iron and most of the grains continue to track near mid-term lows.  Is there a more simple principle of trading than to always buy strength and sell weakness?  If that’s right, now is a great time to be getting into oil stocks. 

The two stocks I’m going to highlight to you today I’ve recommended in the past, and for good reason – they are mid-cap energy E+P’s that don’t rely upon their dividends for valuation.  Dividend payers are going to be far more sensitive in our new volatile interest rate environment and not where we’d most like to be.  In addition, if their cost of recovery is good, these companies are going to be able to monetize a very high and sticky price for oil, which will translate into better share values.  And finally, these stocks have barely moved at all from their very strong share prices despite last week’s sell-off – that’s the kind of strength you want to see – and buy. 

To read Dan’s report in full start a no risk 30 day free trial to Oilprice.com Premium. This week we also have other interesting reports in our various intelligence and opportunities sections:

Inside Opportunities – takes a look at ultra-deepwater plays and in particular drill ships which are currently in great demand that we believe will only increase in the future.
In the report we look at:

•    3 companies very well positioned to profit from the deepwater drilling boom
•    New technological developments in offshore drilling
•    Detailed analysis of the drillship sector
•    And more….

The Executive Report – looks at underground coal gasification technology and assesses the risks and rewards to companies, the environment and investors.
The report looks at:

•    Why the shale boom is good for underground coal gasification.
•    How far away is underground coal gasification from being commercially viable.
•    What underground coal gasification is and how it works.
•    Does UGC really have the potential to rival nat gas and conventional crude oil.
•    A breakdown of countries working on developing UGC technology.
•    Which company we like for potential investors in the sector.

To read the above reports and find out more about the benefits premium offers subscribers – click here.

That’s it for this week. I hope you enjoy the below intelligence notes and have a great weekend.

James Stafford
Editor, Oilprice.com

About the author

Contributor
James Stafford
Company: Oilprice.com
Position: Editor

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