Neal Dingmann: Genuine Growth Still Lives in E&Ps

The Energy Report: Are you bullish on companies that have exposure to natural gas?

Neal Dingmann: To a degree, I am bullish. The market has changed in the last couple of years. When you're talking natural gas, you have to distinguish between dry gas and what they call the "wet gas" or natural gas liquids (NGLs). There are a lot of good companies out there that have both. One might not be all that bullish in the near term on dry gas, which is currently around $4.37 per thousand cubic feet (Tcf). But if those same companies have exposures to liquids, they can still make a tremendous return. I like companies in regions that have exposure to the liquids but, at some point, I believe the natural gas comeback may be sooner than many think.

TER: Do you have a forecast for oil and gas (O&G) commodities?

ND: For natural gas, our estimates are $4.38 per million cubic feet (Mcf) this year and $5.05/Mcf next year. For oil, $97.06/bbl this year and $97.76/bbl next year; so, you could see a little bigger move in natural gas given where it is today.

TER: But do you believe that the margins are there for growth?

ND: Absolutely. As long as companies have liquids or oil exposure to any extent, I think margins can be extremely good.

TER: Why do the liquids have greater margins than the dry?

ND: Because most NGLs are priced as a percentage of oil. Propane, for instance, is probably the lowest at around 25%–30%, all the way up to some natural gasoline at about 90% of the price of oil. So, unlike dry gas, which is going to be at a relatively low price right now, ethane, propane, butane and natural gasoline are essentially priced off the price of a barrel of oil today, which is much higher, marginally speaking.

TER: Why do companies even look for dry gas now?

ND: Obviously, it's tough for a public company to announce today that it's going to do an acquisition for purely dry gas. Private companies can afford to buy and wait until prices come back; public companies can't.

TER: So, public companies producing dry gas are doing it as a byproduct of some other commodity?

ND: That's most of what we're seeing today. The two key geographic areas with a fair number of associated liquids are the Marcellus Shale play in the East, or the Appalachian side, and the Eagle Ford Shale close to San Antonio.

TER: What should an investor look for today, in terms of a balance between oil and gas in a company?

ND: I like companies that are a little more than 50% when you combine the oil and liquids exposure. I believe dry gas should come back in one to three years. If a public company has enough oil/liquids exposure, it will have economic activity and drilling over the next two years to provide sufficient cash flows until gas comes back.

TER: What companies do you see with this balance?

ND: One of my top recommendations would be SandRidge Energy, Inc. (NYSE:SD), which is pretty unique with two primary oil plays—one in the Permian Basin and another in northwest Oklahoma. The company also has a very large conventional gas property in Texas, which could be a huge asset when prices come back. SandRidge is ramping-up production about 15%–20% this year and owns its drilling rigs. Because it is in the Permian and the Oklahoma area, service costs are much lower than in most unconventional areas. The company has some very high hedges, locked in with very economical prices, along with two solid oil plays and an incredibly large gas play.

Another is Magnum Hunter Resources Corp. (NYSE.A:MHR), which is in three of the hottest plays in the U.S.—the Marcellus around the Appalachian, the Eagle Ford in Texas and the Bakken in northern North Dakota. The company controls its own infrastructure, which is a key issue with a lot of small companies. The Marcellus acreage has a very high liquid content, but the company has several hundred-thousand-gas acres, which should do well when gas prices come back.

Magnum Hunter recently acquired NuLoch Resources Inc. (TSX.V:NLR), which has a very experienced team up in the Bakken. NuLoch has the potential to see production go from around 2,000 to 4,000 barrels per day (bpd) in a couple of years. That would be nearly all oil. The Eagle Ford has seen not only great liquid content from the wells, but also decreasing costs due to improved drilling practices. So, I expect not only the results to stay as high, or maybe go higher, but also anticipate the cost of those wells coming down, thus enhancing returns.

TER: Should investors be looking for data points or catalysts from the NuLoch projects?

ND: Absolutely, that acquisition hasn't officially closed yet. NuLoch is a good, but small, company with limited financial resources but a solid operational team. When combined with a company like Magnum, which has a much larger budget, it could really see explosive results.

TER: What other companies should investors consider?

ND: Chesapeake Energy Corp. (NYSE:CHK). People talk about Chesapeake being one of the largest gas producers in the U.S. The company still has a lot of gas going forward. But this year, Chesapeake has focused on more liquids plays with leading positions in the Bakken. It also has big acreage in Niobrara, the Marcellus and Eagle Ford and tends to be one of the lowest-cost producers in all those plays.

Investors are becoming more and more convinced that Chesapeake will follow through with its 25/25 mandate, which means growing production by 25% while simultaneously reducing debt exposure by 25%. It's a nice combination of a large company ramping-up production intelligently and, concurrently, decreasing its debt exposure on a percentage basis. There are other large companies out there that might be as good with similar production upside but, generally, when you have this production upside, you have a debt level that is continuing to expand on a percentage, or debt-to-cap basis. In the case of Chesapeake, we should see debt going down. Also, the company has been very good at putting its operational team expertise to use by finding these plays early, and then partnering with the right financial partner.

Another company is Swift Energy Company (NYSE:SFY). It was known mostly as a Gulf Coast company around the Lake Washington area. But it has more than 70,000 acres in Eagle Ford, which, as mentioned previously, is a very high liquid-concentrated area. Swift has a mandate and overall production should be up to about 25%–30% this year, sequentially—one of the highest in the industry. On top of that, Swift is able to keep its costs down with strong extended frack contracts with Weatherford International Ltd. (NYSE:WFT) on the wells. Also, the company has been in this play and around the Gulf Coast for some time and its acreage prices are a fraction of what some of the newer entrants have paid. Not only does Swift have the big advantage of having high growth, but also exceptionally low costs because it got in these plays early.

I think it is also important to highlight a small company, called Miller Petroleum Inc. (NASDAQ:MILL). Until a year ago, this Tennessee company was predominantly a small gas company with a little bit of associated oil. Miller Petroleum then came to the Cook Inlet in Alaska and bought some very attractive assets out of bankruptcy for a very, very cheap price. The company has tremendous running room, given its thousands of acres up in Alaska, where production could double or potentially triple in the next several quarters. Miller owns its own infrastructure in Alaska, and the state offers tax credits that could amount to as much as 60%–65% of capital invested. What's unique in Alaska is that oil prices have little to no differential to West Texas Intermediate (WTI) prices. So, with WTI at over $100/bbl, oil prices are extremely attractive. It's a very unique small company with tremendous assets—oil, plus natural gas in Alaska.

TER: But MILL has really lagged and is considerably lower than its peer group. Is that because its market cap is so small that the bigger mutual funds are unable to buy it?

ND: I believe that's a good bit of it. Its market cap is only about $200 million. Generally, for a lot of the mutual funds to get in, it has to have a minimum of a $500-million market cap. I believe that in the coming quarters, as we begin to see some production upside, you should start to see the stock price go in sync with that.

TER: What about international companies?

ND: We do have one that I think is very exceptional—TransAtlantic Petroleum Ltd. (TSX:TNP, NYSE:TAT), which has more than 1 million acres in Turkey. The commodity prices are very positive in that region. Gas is between $7 and $8, and oil is right around $100–$115. What's interesting is that TransAtlantic owns all of its services—not just rigs but frack trucks, completion trucks and seismic equipment. With that, the company's costs will stay well under what they would be if relying on foreign companies to provide those services. But clearly, it takes this company longer to set up operations because it still needs to bring in many services from the U.S.

TransAtlantic recently closed on a couple of large acquisitions. The company has two primary areas. One is Thrace Basin, northwest of Istanbul, which is predominantly natural gas. A number of wells are starting to be drilled and fracked there and it is taking off exponentially. Another area is southeast Turkey, almost on the Iraqi-Syrian border, where a fair amount of oil drilling is expected. Between the combination of Thrace and southeast Turkey, we believe production is somewhere around 5,000 bpd. We believe production could reach 10,000 bpd this year and 20,000 bpd next year. Compared to domestic companies, its production model could be one of the leaders.

TER: You forecast that TransAltantic could ramp-up production by more than 200% this year. Is that correct?

ND: Absolutely. Most people would probably agree that the reserves are in the ground on the massive acres the company holds. Obviously, the questions are always: Can the company get it out of the ground? And how soon can it get it out of the ground? We believe that because the services are all there and most of the processes are in place, we should now see the benefit of all that. You saw production begin this year somewhere around 4,000 bpd, and we could see an exit rate well north of 10,000 bpd.

TER: You mentioned that TransAtlantic has its own infrastructure. Does that all come under the heading of Viking International?

ND: It does. Viking International is a subsidiary of TransAtlantic, which is trading at about $2.87/share or about a $1 billion market cap. Some might argue that one-third or even more of that market cap is comprised of the book value of Viking International.

TER: Has the stock lagged thus far because it hasn't begun the growth part of its production?

ND: That's likely the reason. Usually, most mutual or hedge funds are able to come in and acquire a company like this at $1 billion. The plan would be to ramp-up that production to somewhere around 20,000–40,000 bpd. That would put it on the radar of a lot of the majors and some of these other large foreign players looking for a large oil or gas play. At that point, the company would probably sell to one of the large E&P companies, which would be very positive for shareholders.

TER: Could Turkey be considered a geopolitically risky area, and is there a risk discount trading in this stock currently?

ND: You've brought up a good point. With any company not primarily a domestic, there is always going to be some discount in the stock price for potential geopolitical risk. The objective for investors is to determine the appropriate discount. Today, due to potential turmoil in parts of the Middle East and other areas, there may be some over discounting of TransAtlantic's stock price. When some of this other turmoil starts to die down again, you may start to see investors come back in a larger way.

TER: Thank you for your time.

4 Value Menu Stocks to Buy The list is very short, but there are some bargains out there

It seems that authentic bargain stocks are once again becoming an endangered species. Two weeks ago, when the blue-chip market indexes hit bottom for this recent “correction,” we had a pretty good menu of cheap stocks and mutual funds to choose from. But the Dow’s wicked 666-point rally since then has sharply narrowed the buy list.

Lest you think I may be sifting with too fine a screen, I should add that I’m not alone in my complaint. On Friday, Ben Inker, the well-regarded asset-allocation specialist at GMO in Boston (a money-management firm with $107 billion under its wing) gave a sobering talk at an investment conference sponsored by Babson College.

According to Inker’s calculations, the market as a whole would have to drop 29% to bring it back to fair value. He estimates fair value by using a formula that incorporates 10 years’ worth of earnings and a desired “real” (inflation-adjusted) return of 5.7%.

At current levels, Inker says, the market is priced to deliver only a 3.8% annualized real return — including dividends and capital appreciation — over the next seven years.

If the broad market is overvalued, as Inker and others (such as Yale Professor Robert Shiller) argue, it follows that relatively few investments will pass muster as cheap stocks to buy at today’s prices.

There’s a silver lining in this cloud, though: A select group of very high-quality companies continue to be unusually cheap. I’m referring to cheap stocks such as:

• Bank of New York Mellon (NYSE: BK) — Buy below $31
• Johnson & Johnson (NYSE: JNJ) — Buy below $62.50
• Microsoft (NASDAQ: MSFT) — Buy below $28
• Procter & Gamble (NYSE: PG) — Buy below $64

Over the next 12 months, I project that an equal-dollar package of these four will generate a total return of 15%-25%. And over the next decade, I’m confident this quartet will leave the major market indexes behind in a cloud of dust.

Jim Rogers: High Oil Prices, Nuclear Energy Are Here to Stay

Japan's nuclear disaster is going to increase demand for oil and natural gas and despite concerns surrounding nuclear energy, it's not going to disappear, says commodities investor Jim Rogers. Uranium and nuclear power stocks will be good buys again in a couple of years, and oil will be strong for a decade.

"Unless we find something to replace oil and coal, we have to have nuclear… whether we like it or not," Rogers tells CNBC.

Japanese stocks, meanwhile, are good buys as the country will recover from the earthquake and nuclear disaster.

Jim Rogers

"It's going to cause slowdown in the Japanese economy … eventually though they are going to have to rebuild and they will rebuild," Rogers says.

"I don't think Japan is going to fall off the face of the earth and I own Japan."

Oil prices have been high lately due to concerns that demand will rise due to the disaster in Japan as well as to ongoing unrest in the Middle East.

OPEC countries could report oil export revenues of over $1 trillion 2011, according to the International Energy Agency, the Financial Times reports.

For that to happen, oil prices would have to average over $100 a barrel for this year.

Oil prices are trading around $104 a barrel and are starting to chip away at consumer confidence in the U.S., which had been improving until March.

"Consumer confidence is starting to erode and high oil prices probably have something to do with it," says Olivier Jakob of Petromatrix in Switzerland, according to the Associated Press.

Gerald Celente on the Alex Jones Tv 30 March 2011

Gerald Celente : as we are looking to the war it is what we have said is going to be , The First Great War of The 21st Century Has Begun and there could be no doubt about it , the global Ponzi scheme is collapsing , when the bailouts begun in 2008 we said when the bailout bubble burst next they will take us to war it's history repeating itself the song is the same the tune is different , figure it out 1929 the panic of 08 , the Great Depression , the great recession , the only reason the recession hasn't turned worse in the United States is because of all that digital money they keep pumping into the system to keep the banks afloat and then you look at the currency wars going on today the next thing is trade wars and then real wars ...what's going on in the middle east and north Africa is actually going on in the UK

Bullish Technicals for Natural Gas

Apart from whether or not President Obama actually lays out a natural gas program in today's speech, my technical work on iPath DJ-UBS Natural Gas TR Sub-Idx ETN (GAZ) is "warning" me to expect higher prices regardless.

Let's notice that the March upleg from 6.85 to 9.05 has returned to its 50% support plateau (this morning), where it pivoted to the upside into a potent rally to 8.35 so far. Right now, my near-term work in natural gas futures, the U.S. Natural Gas ETF (UNG), and GAZ indicates that a new upleg likely started at this morning's lows.

A climb that sustains above 8.40 will be the first confirmation that a new upleg is in progress.

By Mike Paulenoff

11.4% of all U.S. homes are vacant

High residential vacancies are killing many housing markets, as foreclosed homes sit on the market and depress sale prices and property values.

The national vacancy rate at 11.4% according to a release Tuesday from the Census Bureau.

"Vacant homes equal more downward pressure on home prices," said Brad Hunter, chief economist for Metrostudy, a real estate information provider.

Maine had the highest proportion of empty housing stock, at 22.8%. Other states with gluts of empty houses included Vermont (20.5%), Florida (17.5%), Arizona (16.3%) and Alaska (15.9%).

The way the census calculates the vacancy rates, however, is problematic. It includes properties such as ski lodges, beach houses and pied-à-terres that many real estate statisticians would not.

10 fastest-growing U.S. cities

These are often summer homes or second homes, but census lumps them together with homes that have been sold but not occupied, empty homes for sale or rent, and homes used by migrant workers. Basically, anything other than a primary residence is considered vacant.

"You can only live in one home," said William Chapin of the Census Bureau's Housing Statistics Branch. "If you own five homes that you occasionally live in, four of them will be counted as vacant."

But Paul Bishop, the vice president for research for the National Association of Realtors, countered that these properties aren't vacant in the usual sense of the term. "A vacation home is hardly the same situation as a foreclosed home that has been taken back by the bank," he said.

0:00 /04:41Americans move south

In Maine, more than two-thirds of the 160,000 vacancies were vacation homes in 2009; Vermont had a similarly high concentration.

Compare them with Connecticut, which has a vacancy rate of just 7.9%, the lowest of all the states. If you back out the vacation properties from the statistics, the states have very similar vacancy rates: 6.1% for Connecticut and 7% for Maine.

Some states have high vacancy rates even after backing out the second homes: Florida's is about 10%; Arizona's is 10.7%; and Nevada's 11.4%.

Besides Connecticut, the other states with lowest vacancy rates are California, Iowa, Illinois, Virginia and Washington, all at 9.2% or lower.

Rare Earth Stocks Breaking Out

Not too long ago in our national history, mining for rare earths (Market Vectors Rare Earth/Strategic Metals (REMX)) was an American enterprise. As in so many other areas, such as nuclear power, automobiles and technolgoy, it was decided that the US would shut down industries and farm the work out. The Chinese took the lead and became the world’s supplier of over 97% of these crucial rare earth elements. Now it is the Americans coming, hat in hand, to petition Beijing a la Oliver Twist with a “Please… may I have some more?”

Consequently, it is an exciting time for people positioned to profit from the most promising stocks in the rare earth market. Demand is soaring skyward in the face of a serious shortage. An immediate global call for action and solution is required. It’s already too late.

The prices of rare earths are reaching new heights. This swift ascension is all the more notable as China increasingly curtails the exports of these rare ores. Now Beijing has revised downward by 50% what they would allow for sale abroad, in the January to June 2011 period. China has also raised taxes and has cut down on illegal smugglers. It is a game of chess and China is forcing the West to make the next call. Will the West develop their rare earth assets? If the West doesn’t, I expect the Chinese will make an acquisition. Already Molycorp (MCP) is on the record that China may import certain heavy rare earths and may look for targets abroad. China would be making a strong case that even they are strapped for critical heavy rare earths such as dysprosium and neodymium.

Such regulation of this critical area continues to stoke profitable activity in this sector. It is well known that rare earths are essential to this vital modern industrial nation. For example, Japan, the world’s third-largest economy, depends on rare earths, especially their top-notch automobile maker such as Honda (HMC) and Toyota (TM). Lanthanum is used in their batteries, cerium is in the windshields, dysprosium and neodymium are used in the hybrid engines. These hybrid vehicles are large users of rare earths. Car companies are increasing the amount of rare earths used to raise the fuel efficiency of the newer designs.

Recently China claimed that they had to place quotas to protect their own industries and environment. China professes they had to exercise self-protection and were not being draconian. In essence, they advised other nations to expedite their own mining permitting processes so that new prospects could be brought to fast-track fruition.

These actions are not without repercussions. Several US senators threaten to bar Chinese miners from the United States unless they can increase rare earth supplies abroad. Importantly, the World Trade Organization is mobilizing to exert pressure on China to increase their exports through trade sanctions. There is also legislation pending to require the American military to stockpile rare earths. Concerted global action is required that goes beyond protectionism. Governments must accelerate the entire permitting and financing process. Such a combined effort is immediately called for.

Many of my rare earth recommendations have huge potential and should be followed as I expect many of these heavy rare assets to gain significantly. Last week, I sent out a report showing increased institutional interest in rare earth stocks as the crisis intensifies in Washington and Beijing. Recently rare earths moved from a rapidly rising market at the end of 2010 to a sideways consolidation so far in 2011. Some fear the US will retaliate against China by forcing the WTO to threaten trade sanctions. The profit-taking appears to be coming to an end and there is a lot of money flowing back into this space.

I sent out last week an update on the break of the 50 day moving average and falling wedge to the upside in Molycorp. Molycorp is the leading light rare earth developer in the Western Hemisphere and I believe that this enthusiasm will spread to the other rare earths as this sector looks ready to take off again. This appears to have similar characteristics as the breakout in December where the rare earth sector soared on export cuts from the Chinese. Right before the December breakout many of the rare earths showed similar technical characteristics with a break of the 50-day moving average followed by a reversal higher.

The fact remains that both the US and China realize that they need each other. The US has provided China with a large market and China has afforded the US cheap labor and cheap rare earth commodities, which is crucial to the latest and most innovative technology products.

Recently, China and the US had a special dinner announcing a myriad of deals across several industries. The theme of the deals was that China would help devalue the dollar to keep up the equity markets if the country could have access to North American resources and financial companies. China needs to hedge their large positions in the US dollar (PowerShares DB US Dollar Index Bullish (UUP)) and long-term US debt (iShares Barclays 20+ Year Treas Bond (TLT)). China has opened an office in Toronto to look for acquisitions and is encouraging investments in commodities to supply the rapidly developing Chinese market. Molycorp recently announced that China may be looking for rare earth targets and may be an importer by 2015.

China announced yesterday that a rare earth tax will be imposed. This will significantly elevate production costs for companies operating in China. There is significant pressure being put on lawmakers in Washington on developing a domestic supply of rare earths.

The rare earth sector is experiencing an explosion of investment interest as China continues to place restrictions and raise taxes on Rare Earth Oxides (REO), causing soaring prices. Sojitz, a major Japanese trading giant, has already made a deal with Lynas and Hitachi (HIT) and Sumimoto (SMFG) has signed agreements with Molycorp, the only near-term producer outside China. Japan and South Korea invested $1.8 billion in a Brazilian mining group a few weeks ago that is the largest producer of niobium. (Niobium is used to make a hard, lightweight steel that is increasingly being used to make vehicles that are lighter and more fuel-efficient.)

I believe as the crisis intensifies there may be more strategic acquisitions for assets whose projects will come online further down the road. Companies in North America with the crucial heavy rare earth assets should be followed. Many do not realize that even China may make bids in 2011 on heavy rare earth assets. Stay tuned.