Primeline Energy Holdings Inc V.PEH

weekend write-up

[value1]

WTI $46.90 -25c, Brent $49.08 -67c, Diff $2.18 -42c, NG $2.65 -1c 

Oil price

So, the market got it right and the Fed decided that rates would stay unchanged, having said what they did it looks like next year now before they think again. And it is what they said that caused the oil market to move so sharply after the announcement. Initially crude rose sharply as the idea of a weaker dollar excited traders but when the release was read to them it transpired that the reason that there was no change was because of worries about world economic growth. The Fed also stated that low oil prices ‘are a negative, especially for emerging markets’ and were not worried so much about the greenback.
On the downside Kuwait poured more cold water on any recovery by saying that whilst they were ‘confident that the oil market would balance itself, but that this would take time’ thus not showing any support for change, at least until the December 4th meeting. The fact that prices will probably end modestly up on the week is more of analysts reading into the three reports that have come out recently. As reported here, if you believe in the EIA or Opec you have to remain bearish, if you think that the IEA are right things do look quite a lot better for next year. Technically we had a go at $48 WTI but need to breach it properly before the next leg of a potential bull market is established.

Primeline Energy Holdings

Primeline has been even more out of favour than most other energy stocks lately obviously due to its location in China. However this seems to me more than just being a rather broad brush treatment when you look at the market in any detail. The company is selling gas at a reasonable price and getting paid for it, and long term government policy led support for gas means pricing and other dynamics make it one of the best end markets in the world. The company has $50m in cash and is about to spud an exploration well which it is very optimistic about. McDaniel says that its COS is as high as 78% which is extremely positive. If it should come in, any gas could very quickly be tied in as there is spare capacity in the pipeline. Another stock that I suspect has been overdone on the downside, with one well to drill and probably two more behind it the shares are looking incredibly attractive.