What Are the Analysts Saying - Friday Aug 20, 2010

BMO Nesbitt in Canada had a different twist on their energy research today - telling investors what 22 global energy stocks NOT to own, and called the sector their only "four bomb" sector, a "consistent underperformer" (that kind of language doesn't inspire hope). The research is based on stock chart technicals, i.e. stocks well below their moving averages.

US stocks on the list included both service companies and producers. The only Canadian listed companies were Petrobank (PBG-TSX), Petrobakken (PBN-TSX), Trinidad Drilling (TDG-TSX) and Savanna Energy Services (SVY-TSX).

RBC Dominion has a statistic today showing US natural gas rig count is 32% above last year's levels, though still well below (25% or so) the 5 year average # of rigs. Hard to see any significant increase in natural gas prices with that - I only own small positions in a couple gas stocks.

What I find really strange is that the Canadian natural gas rig count is above the five year average, and above 2008 levels. Canadian natural gas prices have lowered A LOT more than US gas prices - the price differential is now $1.25/mcf. All that Montney drilling is creating big reserves but low cash flow for producers and their investors. Did I mention I only very small positions in only a couple gas stocks?

On the positive side, the chart of 2009 Canadian gas prices is almost identical year to date to 2010 - and at the end of the first week of September last year, natural gas prices and stocks started a big run.

First Energy Capital issued a report warning that heavy oil prices in Canada could go lower in the near term - which means the heavy oil differential is higher. Some of the reasons include:

-Husky and Suncor will have six weeks downtime at their respective upgraders, which will increase in the supply of heavy oil into the market.

-Shell's new Jackpine mine could bring 100,000 barrels a day onto the market with no new refinery capacity

– One of Enbridge's pipelines, which carries 190,000 barrels of crude oil connecting Chicago to Toledo and Sarnia, have been halted since July 26, 2010 due to a leak. With this pipeline out of commission, First Energy says that western Canadian shippers have no means to ship heavy crude to refineries in Ontario, Ohio or Pennsylvania.

Canadian heavy oil producers include Baytex (BTE-TSX), Black Pearl (PXX-TSX), Canadian Natural Resources (CNQ-TSX), Canadian Oil Sands (COS.UN-TSX) Cenovus (CVE-TSX), Emerge Oil and Gas (EME-TSX), Rock Energy (RE-TSX).

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