Month: November 2011

Nov. 8 (Bloomberg) — Cypriot Foreign Minister Erato Kozakou-Markoulli talks about the impact of the sovereign-debt crisis on the country’s economy. She speaks with Francine Lacqua on Bloomberg Television’s “On The Move.” (Source: Bloomberg)

This is what’s in the news for Tuesday, November 8th. Reuters reports that Hewlett-Packard (NYSE:HPQ) is looking to sell Palm’s webOS mobile software platform, a deal that could bring hundreds of millions of dollars but less than the $1.2B that HP paid last year. The Wall Street Journal reports that Google (NASDAQ:GOOG) Executive Chairman Eric Schmidt said the Internet search giant remains committed to offering its Android mobile operating system for free to its handset manufacturing partners. Finally, Bloomberg reports that most of the biggest solar equipment makers may disappear in the next few years as plunging prices erode margins and drive the weakest out of business, says Trina Solar (NYSE:TSL) CEO Jifan Gao, who said that from now until 2015 is the first phase, when about two-thirds of the players will be shaken out.

Nov. 8 (Bloomberg) — Christopher Wood, equity strategist at CLSA Asia-Pacific Markets, talks about Europe’s sovereign debt crisis and its implications for Asian stocks. Wood also discusses Federal Reserve monetary policy. He speaks from San Francisco with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Forget Shale Gas: Shale Oil is the New Energy Boom in the United States

by David Fessler, Investment U Senior Analyst
Tuesday, November 8, 2011: Issue #1638

The natural gas industry in the United States finds itself in a bit of a quandary of late. For the last four or five years, it rapidly developed shale gas plays like the Barnett, the Marcellus and the Haynesville.

Horizontal drilling and hydraulic fracking technology transformed the entire sector here in the United States. It allows natural gas extraction from tight shale plays that were once thought to be uneconomical to develop.

But the big drilling spree in the aforementioned plays has come with an ironic price. It created a glut of gas, keeping prices so low as to make it nearly unprofitable to continue to expand production in the plays.

Changing Horse in the Middle of the Stream

The good news is that many of the natural gas exploration and production companies quickly adapted. They transformed themselves into oil exploration and production companies.

Oil prices, unlike those of natural gas, have remained relatively high, driven by continuing strong demand from India and China, and uncertainty regarding supplies emanating from the Middle East.

It turns out the same hydraulic fracking and horizontal drilling can be used on shale oil deposits, like the Bakken formation in North Dakota and Montana, and the Eagle Ford deposit in Texas. But there’s another, rapidly developing shale oil play.

From Cattle Ranchers to Oil Barons

It all started “Home on the Range,” as the classic western ballad goes. Back in the late 1800s and early 1900s, Colorado’s El Paso County was prime ranchland for grazing cattle. Ranch houses were at least three to four miles apart.

Going to town was an all day affair. It entailed several hours driving on dusty pothole-filled roads. And oilrigs? They were something you saw in a picture book on Texas at the local library.

Fast-forward 100 years or so. The quiet windswept prairies in Colorado, Wyoming, South Dakota and Nebraska are now humming with drilling rigs.

Oil lease negotiators are swarming all over El Paso County in Colorado, and just about everywhere else in the region. They’re all snapping up land in one of the newest oil shale plays, the Niobrara. It’s a good bet some of the cattle ranchers’ descendents are suddenly finding themselves with millions in the bank from oil leases.

The Niobra Shale Formation Geography

The Niobrara Shale formation covers parts of four western states – Wyoming, Colorado, South Dakota and Nebraska:

Geologists have known about the oil in Niobrara for about 80 years. But no one ever thought it could be recovered economically… until now. Like the Barnett, Fayetteville, Marcellus, Haynesville and Bakken – the Niobrara is another shale play that’s been known about for some time.

But it’s only recently that some of the major exploration and production companies shifted capital and drill rigs to explore the Niobrara.

And it’s only since the advent of hydraulic fracking and horizontal drilling that it’s possible for this formation to be exploited for the oil and natural gas it contains.

According to El Paso County assessor Mark Lowderman, there have been over 2,200 leases signed with oil companies since 2009.

Ranchers Welcoming Oil Companies

The Niobrara geology offers some challenges for oil companies looking to develop the play. Many areas are especially environmentally sensitive, adding to the difficulties in the development.

But with the prospect of receiving several thousand dollars per day from a well with decent flows, many ranchers are welcoming the oil companies with open arms.

Oil drilling fever has been spurred on by all the enthusiasm over the more well-established Bakken play in North Dakota and Montana, and parts of the Eagle Ford in Texas.

Shale Oil Reserves “Larger Than Previously Thought”

All the drilling seems to be paying off. In 2010, the United States saw the highest domestic oil production since 2004. Much of the increase to the current level of 5.5 million barrels per day has come from shale oil with North Dakota (Bakken) posting the largest increase in oil production last year.

A September report from the U.S. National Petroleum Council (NPC) said that U.S. shale oil reserves are “proving to be much larger than previously thought.” The NPC indicated that shale oil production could rise to as much as three million barrels per day “depending on access to new plays and continued technology development.”

That’s significant, but still nowhere near enough to wean the country off foreign oil. But it’ll provide a significant chunk of our current consumption of 19 million barrels per day.

While there are a number of majors like EOG Resources, Inc. (NYSE: EOG) and Chesapeake Energy Corporation (NYSE: CHK) drilling in the Niobrara, many smaller operators are signing leases and drilling wells, too.

Keep an eye on the Niobrara. It’s another hot new play in shale oil, and could be a significant contributor to U.S. oil production in the years ahead.

Good investing,

David Fessler

Article by Investment U

Nov. 8 (Bloomberg) — Joergen Moeller, visiting senior research fellow at the Institute of Southeast Asian Studies, talks about Italian Prime Minister Silvio Berlusconi’s struggle to stay in power. He speaks from Singapore with Linzie Janis on Bloomberg Television “First Look.”

The Shale Oil and Gas Tech Angle

by Justin Dove, Investment U Research
Tuesday, November 8, 2011

We’ve talked about the major players in shale and even the oilfield services companies that are likely to reap the benefits of the unconventional oil and gas boom.

But eventually everyone knows about those players and there aren’t many buy-low opportunities. Investors swoon, causing valuations to inflate as it becomes “the next big thing.”

So investors have to dig deeper into unfolding trends to uncover hidden opportunities.

One such opportunity may present itself in the area of surveying software for shale drillers. As unconventional drilling continues to ramp up, the need to use geophysical surveying software should also increase.

As the easier wells become occupied, it’s quite possible that many prospective drillers will lean more heavily on seismic data to try and avoid the costs of drilling unsuccessful wells.

August M&A

One hint that an industry is on the up and up is when its leading companies get swallowed up by the big boys who are looking for better growth.

In August, a leading information technology firm, IHS Inc. (NYSE: IHS), acquired the top seismic data software company, Seismic Micro-Technology (SMT). Back in 1985, Chevron (NYSE: CVX) was the first energy company to license SMT’s KINGDOM software. By 2000, 23 of the top 50 oil and gas operators were using SMT software.

Now it’s used in 95 countries and has offices around the world.

In SMT’s press release following the acquisition, IHS Chairman and CEO Jerre Stead said:

“KINGDOM brings a particular strength in geophysical interpretation and when combined with our IHS PETRA offering and its strength in geologic interpretation, it will offer our customers a geosciences workflow solution that is unmatched in the current marketplace.”

IHS is a fairly big company though. It’s certainly not a direct play on energy. In fact, energy is just one of four of it’s main analytics domains – the other three being product lifecycle, security, and environmental.

Other Companies in Shale Oil and Gas Tech

For more direct plays, investors may want to look at publicly traded oil and gas tech companies, such as:

• Norway’s Petroleum Geo-Services ASA (OTC: PGSVY.PK)

• Texas-based Global Geophysical Services, Inc. (NYSE: GGS)

• France’s Compagnie Générale de Géophysique-Veritas S.A. (NYSE: CGV)

• Texas-based ION Geophysical Corporation (NYSE: IO)

While the two Texas-based companies are more likely to benefit from the U.S. shale oil and gas boom, ramped up offshore activity in the North Sea and elsewhere in the world is sure to help business for the European counterparts.

Bottom Line

It’s not too late to take advantage of companies involved in the shale oil and gas trend in North America. Investors will just have to get more creative and figure out other industries or sectors that will benefit from the ramped up shale activity.

Some of the companies listed aren’t even profitable yet, and IHS has a P/E in the 30s, which isn’t exactly cheap. So the oil and gas technology sector is no sure thing, but hopefully this helps steer investors into the kind of out-of-the-box thinking that can make lots of money.

Good investing,

Justin Dove

Article by Investment U

London Gold Market Report
from Ben Traynor
BullionVault
Monday 8 November, 08:15 EST

THE DOLLAR gold price climbed to $1796 an ounce Tuesday morning London time – 2.3% up on last Friday’s close – as stocks rallied and government bonds sold off ahead of a key budget vote in Italy.

The previous day, gold hit its highest level in nearly seven weeks during Monday’s US trading, when it rose to $1798 per ounce.

“[The gold price] continues to grind higher and targets the all-time high around $1921,” says Commerzbank technical analyst Axel Rudolph.

The silver price hovered around $34.85 per ounce on Tuesday morning – 2% up on last week’s close – while other industrial commodities were also broadly flat.

Yields on 10-Year Italian government bonds meantime hit 6.74%– their highest level since 1997.
Italian bond yields “are really reaching very dangerous levels,” reckons Alessandro Giansanti, credit market strategist at ING in Amsterdam.

“If we move above 7% it will become a completely different challenge for Italy to find non-domestic buyers.”

Italy’s Chamber of Deputies will take a vote on last year’s budget plan later on Tuesday, in what will be the first vote since three members of prime minister Silvio Berlusconi’s party defected to the opposition – and the first since six others publicly called on him to resign.

The vote is seen by many observers as a test of whether the government still has a majority, and thus whether it will be able to deliver reforms pledged by Berlusconi in a letter to European Union leaders last month.

“What we are expecting from Italy is that Italy will implement all the measures which have been announced in Silvio Berlusconi’s letter,” Jean-Claude Juncker, chairman of the Eurogroup of single currency finance ministers, said Monday.

“It’s essential now that Italy stick to its fiscal targets,” added Olli Rehn, European commissioner for economic and monetary affairs.

The European Commission is due to send representatives to Rome this week to monitor Italy’s progress on reforms.

Greece meantime remained without a government Tuesday lunchtime, as political parties continued to negotiate who should be the new prime minister. European leaders have asked Greece to commit in writing to the terms of its bailout, in order to receive the next tranche of funding, worth around €8 billion.

Japan has said it bought 10% of the €3 billion-worth of bonds auctioned by the European Financial Stability facility yesterday. Back in January, Japan bought 20% of a €5 billion issue of 5-Year EFSF bonds.

“The decision to buy fewer of the EFSF bonds reflects the government’s caution,” reckons Junko Nishioka, chief Japan economist at RBS Securities in Tokyo.

“The Euro’s been falling and there’s a risk it may drop even more.”

European finance ministers – who will hold a second day of meetings today – have pledged to implement a scaled-up rescue fund by next month.

“It’s all very well saying we’ve got a firewall,” said Britain’s chancellor George Osborne
“But the Eurozone now need to convincingly show the world that the firewall exists and it’s got sufficient resources in it.”

“This isn’t a crisis you can solve quickly,” warned Dutch finance minister Jan Kees de Jager on Monday.

“It is a monster with many heads.”

France meantime announced its second austerity package in less than three months yesterday. The measures are aimed at saving €7 billion next year, in an effort to meet a deficit target of 4.5% of GDP.

The new measures “should not alleviate any of the concerns some market participants have over the country’s triple-A rating,” warns a note from economists at Credit Suisse.

Ratings agency Moody’s last month warned that it was considering changing France’s credit outlook from ‘stable’ to ‘negative’. Were France to lose its AAA-status, it could compromise its position to aid other Eurozone members.

“While gold might be enjoying some safe-haven buying, we warn that should the Eurozone debt crisis result in a drying-up of the region’s money markets, all commodities will suffer, including gold,” says a note from Standard Bank commodities strategist Marc Ground.

China’s gold imports hit a record high in September – a six fold increase year-on-year – according to data from the Hong Kong government.

“In September we saw some bargain hunters come back into the market,” Janet Kong, managing director of research at Chinese investment bank CICC told the Financial Times, citing that months dip in the gold price.

“The [Shanghai Gold Exchange] physical premium is below zero this morning,” said a note from the Mitsui Precious Metals Hong Kong desk on Tuesday, adding that this indicates “that physical demand is almost non-existent at current price levels.”

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Nov. 8 (Bloomberg) — Jane Foley, a senior foreign-exchange strategist at Rabobank International, talks about the outlook for the euro amid Italian Prime Minister Silvio Berlusconi’s struggle to stay in power. She speaks from London with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

Nov. 8 (Bloomberg) — Jane King summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

By David Frank, Chief Market Analyst

Despite the losses through the second half of last week, the US Dollar Index saw its first weekly advance in over five weeks. It also was the Buck’s best performance (2.6 percent rally) since October 2008. The comparison in performance should represent an easy bridge to fundamentals. Three years ago, the market was dealing with the worst financial crisis and economic recession the world had seen since 1929.

Why is the Dollar rising? The first consideration is manipulation. The Japanese Finance Ministry’s effort to drive the value of its own currency down led to an incredible 3.2 percent rally for USDJPY. In plainer words, the dollar’s value increased.

Manipulation, the intervention or indirect through policy, is now common place. Efforts by Japan and Switzerland to push their respective currencies lower are common place. Direct intervention rarely meets lasting success. Why?  Because, this practice of manipulation, fights the elemental demands for safe harbor currencies. Even more problematic is consistent policy efforts. In the comparison between the US, Japanese and Swiss currencies, it should be noted that the Dollar is the weakest of the group of safe haven currencies. Why? The US Federal Reserve has instituted an unprecedented stimulus program.

The more active force behind the upswing in the US Dollar this week was the spread of financial trouble from Euro zone to the US itself. The fall of MF Global (once a FED Primary Dealer) was triggered by a large holding of bad European government debt. Should European banks who are parking more capital with the ECB and Fed while demanding more dollars to meet another crunch, this European problem can easily spill over to States. Should Italian government yields rise above 7 percent and then fall, we will see even more US banks with exposure issues. With all  this said, how long can the dollar continue to remain strong?

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