Today’s buyout of Ryland Oil (RYL-TSX) by Crescent Point Energy (CPG-TSX) is a good example of how large “resource plays” can get valued by investors.  CPG paid $121.8 million, or roughly $0.45/share for Ryland.

But back in 2006, when the mania of the emerging Bakken oil play in North Dakota and southern Saskatchewan was at a peak, Ryland soared from 10 cents to $4 in months.

A “resource play” is the industry term for a property that is large and has the potential to host many “repeatable” wells – have the same production as the initial discovery well – dozens or hundreds of low-risk wells.

The new shale plays in North America are “resource plays”.  And the Bakken, the Cardium, the Viking, the Shaunavon formations in Alberta and Saskatchewan are also considered resource plays.   One of my key criteria for investing is – does the company have a large land base around a discovery.

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The Next Six Weeks Will Be Critical

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These geological formations have shown they can be very consistent for miles or tens of miles, so the market, in its current psychology, is (very) often willing to price in future growth long in front of a well ever being drilled.  Raw land in resource plays – not a single well on them – can make stock prices fly.  As the Cardium play in Alberta gained momentum in the last half of 2009, many moribound gas weighted producers were rescued by the fact they had large land positions there – causing their stocks to move up 50% or better in weeks without any drill results!

Petrobakken’s (PBN-TSX) purchase of Result Energy (RTE-TSX) in early 2010 is another example of a highly valued land play that was bought out. Result had a land position in the Alberta Cardium play. Cardium land positions were going for as much as $4000 per acre in early 2010.  Petrobakken was buying much of that land, and many analysts went negative on that stock afterwards, saying the company had overcapitalized its assets, or, in English, paid too much for the raw land to get a profit out over full cycle costs.

Ryland had small production of 150 bopd of light oil, but had 475 square miles, or sections, of land in various locations in the Bakken play in SE Saskatchewan, though most of it was in what is called the Flat Lake area near the US border.

The way oil and gas analysts at the brokerage firms value this type of transaction goes like this:  assign a value for the production first, which reading analyst reports this morning, estimated it at $100,000 per flowing barrel.  That equals about $15 million in value (150 x $100,000).

So $121.8 million – $15 million = $106.8 million for land value – divide that by 475 sections = $224,842 per section, or $351/acre.

For Crescent Point, that could be very cheap as Enerplus (ERF.UN-TSX) just paid $750,000 per section for land just northwest of Flat Lake.  Ryland’s price may have been cheaper because it had some GORRs (Gross Over-Riding Royalties) that could be onerous on cash flow on many of its properties.

Other junior oil players with land in the Flat Lake area near Ryland include (in alphabetical order)

Atikwa Resources, (ATK-TSXv), just north of Flat Lake at Roncott

Nuloch Resources (NLR.A-TSXv), east at Tableland (and on North Dakota side)

Spartan Resources (SPE-TSX), just east of Flat Lake

Torquay Resources (TOC.A-TSXv), just southwest along the US border

I do not own stock in any of these companies, though I am researching one very diligently right now.

It’s been a crazy week for gold, oil and the SP500 again…. Since the market top in April we have seen large moves almost EVERY day in the market. I would say this is one of the toughest times for traders as you must be very quick to enter and exit if you want to lock in any profits. Good news is that things should start to smooth out in the next week or so if stock kick into rally mode.

Below is a quick video I did for you showing how I see the market, what I think is about to do and what to be aware of. I recommend you Gold Bugs skip over this report because on Sunday I wrote about how gold kept making new highs this year and how prices were about to drop again. And it was only a few minutes after I sent that report out before the emails started to flood my inbox from individuals around the world telling me how wrong I was saying gold is about to sell off. I knew gold was a crowded trade but not to the point that people are willing to fight you just because you mention its looking ready for a correction…. Which is actually a good thing for gold to do right now….

To be honest I’m still in aw about how mean and rude some people can be when all I am trying to do is help educate and help everyone see the market from a technical point of view without any bias… Thank goodness I’m a positive thinker and find most things funny or can put a positive spin on things like seeing gold drop $35 so far this week 

Anyway… here is my video recap of this weeks price action.

Video Recap for those who don’t want to watch the full 8 minutes:

- Gold still looks bullish, but on the edge of a Very Sharp Correction
- Oil looks about ready to make a run higher
- US Dollar looks to be forming a Head & Shoulders Reversal pattern
- SP500 is at a critical point Rally or Crash
- If the US Dollar drops it should trigger higher gold, oil and stocks
- We are entering earning season and stocks tend to rally into the news

Click To View Video:

http://www.futurestradingsignals.com/trading-education/gold-oil-us-dollar-sp500-technical-trading-video/

Chris Vermeulen
www.FuturesTradingSignals.com
www.TheGoldAndOilGuy.com

Few investors realize that one sector of the heavy oil market is the most profitable oil in all of North America – it’s called cold flow heavy oil.  Think of it as light heavy oil, thick and gooey enough that it needs a pump to get out of the ground, but no so thick that it needs expensive heating to make it flow – hence the name cold flow.

And the recent BP disaster in the Gulf of Mexico will only help Canadian heavy oil prices.  If production from the Gulf is slowly curtailed, US refineries will look to Canada even more for supply.

When I say cold flow heavy oil is the most profitable, I mean that producers get more dollars of profit out for every dollar they put in to get the oil, than from other types of oil. For every dollar producers put in the ground to get the oil, they get anywhere from $3-$7 back (or more) – compared to $2-$4 for most light oil, generally speaking.

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The Oil Story No One is Talking About

Everywhere you turn these days, it seems, there’s a negative story about the oil exploration industry.

And no doubt – some of the negativity is justified.

But I’m not interested in that.  I’m interested in something potentially more powerful.

I’ve uncovered a scenario playing out in the oil and gas exploration industry that will change the game forever.

More importantly…I’ve also discovered a handful of companies poised to soar as a direct result of this developing story.

Now…you won’t hear about any of this on the evening news broadcasts…and you won’t read about it in your local paper.

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(This is called the Recycle Ratio – the netback over the finding and development costs.  Investors should always ask the management teams what their recycle ratio is on their production!)

This profitability is due to two factors:

1. The heavy oil in Canada is shallow so it doesn’t cost much to get out
2. US refineries love Canadian crude as Mexico and Venezuela heavy oil production declines, and that strong demand – even before BP’s disaster – is keeping heavy oil prices in Canada strong

And Canada has more of this oil than anyone else in the world.  There is thought to be enough heavy oil and bitumen in North America to rival Saudi Arabia – estimated at more than three Trillion barrels¹.  Now, cold flow oil is only a small part of this number, but the graphic below gives investors a sense of the immense value in the ground…

^{Chart reference: http://www.petroleumequities.com/HeavyOilReport.htm}

Yet only a few junior and intermediate producers focus on cold flow heavy oil.  I think that will change.

My subscribers just received a 12 page report detailing the opportunity, along with three junior producers who are growing their profitable heavy oil production quickly.

Like liquid rich or wet gas stocks I wrote about earlier this month, this sector of the energy market is not well understood or recognized by retail investors.  But unlike those stocks, heavy oil stocks are not unloved.  The analysts and funds have discovered their high profitability, and these stocks are rarely cheap on a valuation basis.  But they do get rewarded quickly for their growth.

As well, new technology is continually lowering costs and increasing profit margins; even a small per barrel savings will leverage into huge profits because of the colossal size of these deposits.

Investors will see many new opportunities for profit for many years as this massive Canadian resource gets developed.

JODI is the Joint Oil Data Initiative. A project run by the International Energy Agency and a consortium of partners, collecting data on oil demand and supply around the world.

Every month, JODI polls nearly 100 nations asking about their crude production, imports, stockpiles and refinery pulls. The result is one of the most comprehensive snapshots of the global oil market.

Perhaps equally interesting to the data itself, JODI publishes a bi-yearly evaluation of how good participating nations have been in providing data on their energy markets.

The system is simple. Countries are marked on three categories: whether or not they submitted all information, whether or not they got the information in to JODI on time, and the completeness of the provided information. As in elementary school, participants are given a happy, neutral or sad face in each of these areas (guess they ran out of gold stars).

Openness in energy markets has always been a big issue. For years there have been accusations that Gulf nations, for example, incorrectly report their reserves in order to receive higher production quotas from OPEC. Making it very tough to figure out what’s happening with global oil supply and demand.

The JODI evaluation offers an interesting view on who’s being “naughty or nice” when it comes to reporting. Here’s the latest, covering the period July to December, 2009.

Some important petro-nations like Mexico, Nigeria, Norway, Saudi Arabia and Kuwait get three smiley faces, indicating a fair degree of openness about their oil market activities.

Nations that were not so forthcoming include Yemen, Vietnam, United Arab Emirates, Malaysia, Greece and Egypt. Interestingly, emerging market powers China, India and Russia submitted data on time but failed to provide the full spectrum of requested information. Perhaps some things they still don’t want the outside world to know?

The JODI initiative is an ambitious and worthwhile one. Hopefully more nations play ball over the coming months and years.

Here’s to the JODI folks,

Dave Forest
dforest@piercepoints.com

Copyright 2009 Resource Publishers Inc.

Note:

The information provided in this newsletter is based on the independent research of Dave Forest and Notela Resource Advisors Ltd. and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade any securities or commodities named herein. Information contained in this newsletter is obtained from sources believed to be reliable, but is in no way assured. All materials and related graphics provided in this newsletter and any other materials which are referenced herein are provided “as is” without warranty of any kind, either express or implied. No assurance of any kind is implied or possible where projections of future conditions are attempted. Readers using the information contained herein are solely responsible for verifying the accuracy thereof and for their own actions and investment decisions. Neither Dave Forest nor Notela Resource Advisors Ltd., make any representations about the suitability of the information delivered in this newsletter or any other materials that are referenced herein for any purpose whatsoever. The information contained in this newsletter does not constitute investment advice and neither Dave Forest nor Notela Resource Advisors Ltd. are registered with any securities regulatory authority to provide investment advice. Readers are cautioned to consult with a qualified registered securities adviser prior to making any investment decisions. The information contained in this newsletter has not been reviewed or authorized by any of the companies mentioned herein.

Places like Thailand and its southeast Asian neighbors have seen phenomenal demand growth over the last several years. Total has said they’re in Thailand for gas. (Part of the reason I believe Thai shale gas may become an interesting play over the coming years.)

Asian LNG demand has also been strong. Japan, China and Korea have helped pick up (a little of) the slack in the LNG market created by booming U.S. shale gas production displacing LNG imports.

But a developing gas market brings challenges. Especially when it comes to pricing.

In parts of the world where gas demand is low, any company discovering natural gas is usually forced to sell on long-term contracts, often at relatively low prices. (Leading to the old oilman’s joke that the only thing in frontier exploration worse than a dry hole is a gas discovery. A dry hole you can plug and abandon. If you find gas, the host government usually wants you to foot the bill and test it. Even if there’s no hope of selling the gas profitably.)

But in areas where significant amounts of gas are discovered, increased demand usually follows. Gas-fired power plants are built. Industrial facilities spring up.

And as demand ramps up, pricing gets more complex. With more users vying for supply, prices become a key control on rationing and allocating supplies. Those who need the gas most are generally willing to pay more. Supply goes to the highest bidder. If people need it really badly, prices spike and exploration activity increases. Hopefully growing output.

Today, we’re seeing signs of maturing in the Asian gas market. Pricing is becoming more complex as demand grows and different users jockey for supply.

Just this week, the Asia-Pacific Economic Cooperation Business Advisory Council has urged Asian energy ministers to look at implementing an Asian gas futures market. APEC ministers are meeting next month in Japan.

Futures are needed in complex markets. The introduction of such a system would allow Asian gas users to queue up for supplies months in advance, allowing for proper planning and coordination.

Pricing evolution is also happening in India. Last week, the Indian government announced an unprecedented increase in the domestic sale price of gas. To around $4.20 per thousand cubic feet, up from a previous $2 per mcf.

India has been struggling with pricing for some time. The government doesn’t want to upset consumers who’ve grown used to $2 gas. But at the same time, the nation needs new supply. Higher prices are necessary to encourage exploration.

(As a side note, the government appears to be trying to play both sides of this coin. Although gas producers will now receive a higher price, it looks as if gas distribution companies will be barred from passing on the entire cost increase to end consumers. In effect, the government is simply shifting losses from one part of the supply chain to another.)

Countries like Argentina are facing similar issues. Price controls have killed domestic gas exploration. Turning the nation from a gas exporter to an importer. Something will have to give here, sooner or later.

These evolving markets can be great for investors. Using a little foresight, it’s easy to see areas ripe for price appreciation and liberalization. Buying in before the price increases makes for good returns. India’s Oil & Natural Gas Corp, for example, jumped 10% on news of the gas price hike.

Keep an eye on Asia. This is a gas market just getting started.

Here’s to gas-fired markets,

Dave Forest
dforest@piercepoints.com

Copyright 2009 Resource Publishers Inc.

Note:

The information provided in this newsletter is based on the independent research of Dave Forest and Notela Resource Advisors Ltd. and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade any securities or commodities named herein. Information contained in this newsletter is obtained from sources believed to be reliable, but is in no way assured. All materials and related graphics provided in this newsletter and any other materials which are referenced herein are provided “as is” without warranty of any kind, either express or implied. No assurance of any kind is implied or possible where projections of future conditions are attempted. Readers using the information contained herein are solely responsible for verifying the accuracy thereof and for their own actions and investment decisions. Neither Dave Forest nor Notela Resource Advisors Ltd., make any representations about the suitability of the information delivered in this newsletter or any other materials that are referenced herein for any purpose whatsoever. The information contained in this newsletter does not constitute investment advice and neither Dave Forest nor Notela Resource Advisors Ltd. are registered with any securities regulatory authority to provide investment advice. Readers are cautioned to consult with a qualified registered securities adviser prior to making any investment decisions. The information contained in this newsletter has not been reviewed or authorized by any of the companies mentioned herein.

Source: www.dailywealth.com

XNG:NYSE – which tracks large cap companies in the US natural gas industry – has been heading up for 12 months – in the directly opposite direction as UNG:NYSE, the high profile ETF that tracks the price of natural gas.  It has been going down for 12 months, and set a new 52 week low late last week.

How can two related natural gas charts go in opposite directions for so long?  Which one should investors look to try and make money?

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This Technological Revolution Allowed Me to

Earn Short-term Oil & Gas Profits of 146.1%

New technologies – at this very moment – are revolutionizing the oil and gas exploration industries.

But only a handful of people truly understand how the technology works.

This remarkable scenario creates an enormous, short-term profit opportunity each time

a company employs these new technologies successfully.

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Click here to read my full report that explains how to get started.

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UNG is supposed to track the natural gas commodity price in the US, based on the near month contract on the Henry Hub in Louisiana.

(There are several natural gas “hubs” where natural gas prices are quoted around the US, but the Henry Hub is what most media quote – and while there used to be a big difference between the regional hubs, increased pipeline capacity around the US has lowered those differences a lot.)

XNG measures the stock performance of a basket of large cap companies in the natural gas industry – but they are not all producers.  Some are pipeline, transportation and transmission companies.

Look at the two charts, which at first blush I would expect to mirror each other – the underlying commodity and the equities that should track that commodity:

So what gives with that?  Does one of these charts have to “give”, somehow?

The short answer is “not really”, and it has to do with how the index is made up, and how some of the companies in the index do business (I’ve listed them alphabetically at the bottom of this article).

Two of them, Kinder Morgan (KMP-NYSE) and Williams (WMB-NYSE) are pipeline companies, not natural gas producers.  Now, the main reason the natural gas price is so low is because US production is increasing again after years of decline.  So it only makes sense that if you are pumping more gas out, the pipeline companies are making more money.

The stock price of Kinder Morgan was going up anyway, but as soon as their Rockies Express pipeline from Colorado to Ohio went live last fall, their stock took off even more.  They’re up more than 50% in the last 12 months.  Williams is almost a double.

Second, several of the producers in the index have been very high profile about transforming themselves into oil-weighted companies as fast as they can find deals and if need be, raise the money.  Apache Corp. (APA-NYSE) spent $5 billion in just one week in April 2010 buying two sets of oil assets in the Gulf of Mexico (Too bad for them it was before the BP spill).  Chesapeake (CHK-NYSE) has been very vocal since February that it wants to become a lot more oil weighted.

On February 25 2010, EOG Resources CEO Mark Papa said it “can no longer be considered primarily a natural gas company.” – and the stock jumped more than 25% in two months!

And of course XTO:NYSE is being bought out by Exxon (XOM:NYSE) for stock, so their stock will track Exxon – the largest independent oil company in the world – until that deal closes.  XTO stock has nothing to do with the price of natural gas now.

And lastly, several of the companies are integrated producers, meaning they not only produce the gas out of the ground, (called the upstream business) but also have pipelines and other infrastructure that deliver the gas to customers (called the downstream business).   As I mentioned with the pipeline companies – they’re doing a lot better.

So, for those reasons, the XNG stock index and the UNG commodity index – even though they’re both tracking different parts of the natural gas industry – don’t necessarily have to have a tight, direct relationship.

Investors could be tempted to look at XNG, and because stocks lead commodity prices – the market usually predicting where prices will be 9 weeks to 9 months out – as a barometer of where natural gas prices could be in the future.  But the XNG has pipeline companies, and several producers who are moving away from natural gas as fast as they can.  It’s not just natural gas producers.

So that investment hypothesis could be a costly mistake.

The XNG index is currently made up of:

APA – Apache Corp.

APC – Anadarko Petroleum Corp.

CHK – Chesapeake Energy Corp.

DVN – Devon Energy Corp.

EOG – EOG Resources

EP – El Paso Energy Corp.

GAS – Nicor Inc.

NBL – Noble Energy Inc.

NFG – National Fuel Gas Company

NI – NiSource Inc.

STR – Questar Corp.

SWN – Southwestern Energy Corp.

UPL – Ultra Petroleum

WMB-Williams Companies Inc.

XTO – XTO Energy

These are happenings, often small in and of themselves, which suggest a larger change rippling through the ether of a business, industry or nation.

There have been a number of signpost events in the geothermal sector recently.

A few months ago I discussed the emerging trend of advanced-stage geothermal projects being bought by major players in the sector such as Ormat.

Yesterday came another important indicator. Oil-field services major Schlumberger buying out California-based GeothermEx consultants.

GeothermEx is one of the top groups in the geothermal space doing project feasibility assessments. They have written reports on most of the major geothermal projects in the U.S. and abroad. The group will now become a wholly-owned subsidiary of Schlumberger.

The acquisition is an aggressive move by Schlumberger into the geothermal space. The company sees something they like here, and they want to be a big part of it.

This is just one more indication that the geothermal business is “ready for prime time”. Profitability in the sector is increasing, in large part due to recent tax incentives introduced by the U.S. government.

Increased profitability always drives an industry forward. The signs are telling us the drive is definitely on for geothermal.

Here’s to following the signs,

Dave Forest
dforest@piercepoints.com

Copyright 2009 Resource Publishers Inc.