SATURDAY EDITION

January 31st, 2015

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editorials

 
XOI Index : Arca Oil & Gas Index
Thomas Chaize  Jan 23  

The New Normal for Oil?
Doug Casey  Jan 14  

How Much Oil Goes Missing at $50/barrel?
Keith Schaefer  Jan 06  

A Russian Energy Reality
Ferdinand E. Banks  Dec 27  

Why Russia Will Halt the Ruble’s Slide and Keep Pumping Oil
Doug Casey  Dec 20  

»» more editorials in the archives

market data


Ux U3O8 Price (Uranium)Jan 26th, 2015
$36.75 +$0.25 www.uxc.com

»View Commitment of Traders.

expert analysis & newsletter briefs

Hemisphere Energy Corp.

"Hemisphere Energy Corp. announced a production and operational update. . .as realized heavy oil prices have fallen to below $35/bbl, management is taking the prudent path to optimize existing operations and postpone the majority of capital expenditures until commodity prices improve to more economical levels for heavy oil. . .we believe the company is well positioned to quickly ramp up drill operations as prices look to start improving in the latter half of the year." (1/28/15) - Michael Charlton, Industrial Alliance Securities

Rock Energy Inc.

"Rock Energy Inc.'s production averaged 5,350 boepd (97% oil) in Q4/14, 13% higher than Q3/14 production and in line with our estimate. . .production at Mantario averaged 3,500 boepd, and Viking production at Onward was over 900 boepd. . .we are maintaining our Buy recommendation." (1/28/15) - Nav Malik, Octagon Capital Corporation

Royal Dutch Shell Plc

"We expect Royal Dutch Shell Plc's downstream margins to receive a significant boost from thicker refining margins during Q4/14, primarily driven by an improved global refining environment and reduced exposure to less profitable downstream assets as a result of the divestment program. The company has been actively pursuing the divestment of its not-so-profitable downstream assets over the past few years, and it plans to continue doing so in the near future in order to increase the profitability of its overall portfolio." (1/28/15) - Trefis

Fission Uranium Corp.

"Fission Uranium Corp. blew the doors off with its 105 Mlb maiden resource for the Triple R (formerly Patterson Lake South) project. The deposit has a huge high-grade core. Fission has yet to define the limits of that deposit and it's launching another 20,000m winter drill program. I really like Fission. . .this is an opportunity for a major that isn't involved in uranium to instantly become one of the big players. The project is that large and it's going to grow. Fission keeps diluting the stock by drilling off the deposit, but you can't really blame the company when it can discover so many high-grade pounds for each dollar of drilling. At some point this deposit is going to be worth considerably more than the company's current market cap. Investors with the patience to wait out the game should be richly rewarded." (1/28/15) - The Gold Report Interview with Brien Lundin

Hemisphere Energy Corp.

"Hemisphere Energy Corp. announced a production and operational update. . .as realized heavy oil prices have fallen to below $35/bbl, management is taking the prudent path to optimize existing operations and postpone the majority of capital expenditures until commodity prices improve to more economical levels for heavy oil. . .we believe the company is well positioned to quickly ramp up drill operations as prices look to start improving in the latter half of the year." (1/28/15) - Michael Charlton, Industrial Alliance Securities


featured companies

Avanti Energy (TSX-V : AVN.V)
Enhancing Oil Production in Brazil and Colombia
[news ][website ]

Pan Orient Energy (TSX-V:CAN)
Canadian junior oil and natural gas company based in Calgary, Alberta.
[news ][website ]

Quantum Energy (QEGY.PK:OTC)
Development stage publicly traded diversified holding company with an emphasis in oil field development trading
[news ][website ]

Super Nova Minerals Corp. (SNP:CNSX, OTC:SNOVF)
Oil & gas exploration company focused on developing the Millford Bakken property
[news ][website ]

The Energy Report ()
Investment ideas for saavy investors
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Torchlight Energy (NASDAQ: TRCH)
Oil Drilling and Working Interest in Oil Projects
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from the publisher
  Robert J. Moriarty

Welcome to 321energy.



Could falling oil prices spark a financial crisis?


Nick Cunningham of Oilprice.com
admin@Oilprice.com
http://oilprice.com/
December 4th, 2014

The oil and gas boom in the United States was made possible by the extensive credit afforded to drillers. Not only has financing come from company shareholders and traditional banks, but hundreds of billions of dollars have also come from junk-bond investors looking for high returns.

Junk-bond debt in energy has reached $210 billion, which is about 16 percent of the $1.3 trillion junk-bond market. That is a dramatic rise from just 4 percent that energy debt represented 10 years ago.

As is the nature of the junk-bond market, lots of money flowed to companies with much riskier drilling prospects than, say, the oil majors. Maybe drillers were venturing into an uncertain shale play; maybe they didn't have a lot of cash on hand or were a small startup. Whatever the case may be, there is a reason that they couldn't offer "investment grade" bonds. In order to tap the bond market, these companies had to pay a hefty interest rate.

For investors, this offers the opportunity for high yield, which is why hundreds of billions of dollars helped finance companies in disparate parts of the country looking to drill in shale. When oil prices were high and production was relentlessly climbing, energy related junk bonds looked highly profitable.

But junk bonds pay high yields because they are high risk, and with oil prices dipping below $70 per barrel, companies that offered junk bonds may not have the revenue to pay back bond holders, potentially leading to steep losses in the coming weeks and months.

The situation will compound itself if oil prices stay low. The junk bond market may begin to shun risky drilling companies, cutting off access to capital. Without the ability to finance drilling, smaller or more indebted oil companies may not have a future. The Wall Street Journal profiled a few fund managers who are beginning to steer clear of smaller oil companies. Moody's Investors Service downgraded the oil and gas sector on November 25 to a "negative" outlook because of falling oil prices.

If oil prices stay at $65 per barrel for three years, 40 percent of all energy junk bonds could be looking at default, according to a recent JP Morgan estimate. While that is a long-term and uncertain scenario, the pain is being felt today. The FT reported that a third of energy debt issued in the junk-bond market is currently in "distressed" territory.

That begs the question; could a shakeout of the oil industry spark a broader financial crisis? Banks and other financial institutions could be overly exposed to energy debt. The Telegraph paints a dire scenario in which the debt bubble bursts because of low oil prices, leading to a cascading 2008-style financial collapse, at least in the junk bond market.

Such a scenario may be a bit overblown. Persistently low interest rates keep demand for junk bonds high, meaning oil companies will probably be able to restructure their debt and continue to access capital. Also, drillers will not immediately face an existential crisis because many have hedged themselves, locking in prices for a certain amount of production.

But a junk bond crisis could become more likely if oil prices stay low for an extended period of time. Once a few companies begin to default, the problem could quickly spread. Another variable is how quickly the U.S. Federal Reserve will raise interest rates, which could significantly affect the attractiveness of the junk bond market.

Local and regional banks could be highly exposed as well, especially if energy loans make up a large share of their lending portfolio. The Wall Street Journal pointed out that banks like Oklahoma-based BOK Financial – with 19 percent of its loan portfolio made up of energy loans – could be the most vulnerable. Moreover, an economic downturn in regions that depend heavily on energy, such as Texas or North Dakota, could see a broader decline in demand for loans of all kinds. That could add to the pain for local banks.

Low oil prices are not just a problem for oil companies. Investment funds, hungry for yield in a low interest rate environment, have poured money into oil and gas. To be sure, we are far from a crisis at this point, but if oil prices don't rebound, a lot of people are going to lose a lot of money.


Nick Cunningham of Oilprice.com
admin@Oilprice.com
http://oilprice.com/
December 4th, 2014



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January 31st, 2015

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