Catalytic Events Move Energy Stocks
While high-volume stocks often seem to move on market momentum alone, small- and midcaps usually rise and fall in tandem with their own newsflow. Jocelyn August of Sagient Research Systems has found this to be true in the drug and medical device fields, on which the firm has long been focused, but it's just as applicable to the natural resources industries, including oil and gas. In this exclusive interview with The Energy Report, August discusses which looming catalysts may send a select group of energy stocks higher—or lower.
Companies Mentioned: ATP Oil and Gas Corp. - BP Plc. - Ivanhoe Energy Inc. - McMoRan Exploration Co. - Noble Energy Inc.
The Energy Report: Jocelyn, you are following catalysts that affect resource stocks. What should energy resource investors be watching for?
Jocelyn August: We have done an impact study for the natural resource sector and have identified many large-impact events in the energy sector. Similar to drug and device development, you can follow a timeline for the development of an energy resource project from the planning stages to exploration. The catalysts are very similar across these sectors. Companies in both spaces must test their products (energy companies conduct preliminary economic assessments and feasibility studies), report completions (of drilling programs, for example) and announce results. Those types of events significantly impact share prices for these companies. We recently completed a Q2/12 Outlook Report for natural resources, in which we discussed three upcoming energy catalysts for the second quarter.
TER: Are development timelines for oil and gas wells shorter than those for drugs?
JA: It depends. Location and permitting can create delays. But in many cases, an energy company can develop a well pretty quickly, within a couple of years, and then move on to different wells. Identifying different locations to tap before initiating the first drilling campaign in an area can speed the process along.
TER: What are some companies with major news on the horizon?
JA: In the energy sector, one company we think is particularly interesting is McMoRan Exploration Co. (MMR:NYSE). This company has been in the news a lot because of its Davy Jones No. 1 well. Last week, it announced another development milestone for that well. The Davy Jones well has produced several large moves for McMoRan over the course of its development, particularly because it is a smaller-cap company. But it's also because Davy Jones is one of the first ultra-deep gas wells in the Gulf of Mexico. Therefore, this project is an example for other companies doing similar development, and it's been particularly interesting to watch. On April 9, McMoRan reported an update on the well. It had reached technical completion, and the well engineering had been completed for the start of commercial production, which it had been predicting for Q212.
TER: McMoRan's stock went down 9% after the announcement. Why?
JA: The announcement included negative news, which the company elaborated on in a subsequent conference call. In March, McMoRan announced a blockage in the well that prevented it from obtaining a measurable flow rate. The April 9 announcement reported that the company was unable to clear this blockage. Then, in their April 17 Q1 earnings call, the company said it has decided to workover the well in order to increase the size of the hole, instead of just trying to clear the blockage. McMoRan did get a permit for this workover, so once that is completed, it should have a measurable flow rate. But it's still hard for the company to predict how much the well is going to be producing and what the timeline will be for commercial production. We think commercial production is probably not going to happen in Q2/12. If it is, it will be late in Q2/12 or maybe early Q3/12. It's been a particularly interesting company to watch because it has had so many market-moving events over the last couple of years with regard to this well.
TER: What other companies are catching your interest?
JA: We are particularly interested in longer-term catalysts. ATP Oil and Gas Corp. (ATPG:NASDAQ) is going to begin exploratory drilling on the Shimshon license area in offshore Israel. It's an interesting company because it has been focusing more on the Gulf of Mexico, but after all of the upheaval in 2010 following the BP Plc (BP:NYSE; BP:LSE) spill, I think ATP was looking to diversify into some other areas. So it acquired this Shimshon license. It will be very interesting to see what it finds in terms of its exploration because the license is located within the Levantine, which is turning out to be a very rich hydrocarbon area. Noble Energy Inc. (NBL:NYSE) also has a couple of different prospects in that area that may achieve production this year, with pretty large potential.
TER: Any other hot spots on your radar?
JA: Ivanhoe Energy Inc. (IE:TSX; IVAN:NASDAQ) expects to complete a well and release some test results for an exploration program in the Nyalga Basin in Mongolia. The first exploration program the company drilled and tested didn't encounter enough oil, so it moved it to a different location in Mongolia to test another well. We'll see what it finds in that area.
TER: Thank you very much.
JA: Thank you for having me.
Jocelyn August is currently the senior analyst and product manager for CatalystTracker, a proprietary research product focused on identifying and analyzing the events that will materially impact publicly traded companies. In her five years at Sagient, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the Catalyst Impact Study: Natural Resources Sector. Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. Jocelyn received a Masters in Business Administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a Bachelor of Arts in Sociology.
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DISCLOSURE: 1) George S. Mack of The Energy Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
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June 3rd, 2020
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