August 1, 2014
- How “bolt-on acreage” helps deliver 221% gains in a little over two months
- “Downspacing” and other profitable terms from the Oil Driller’s Dictionary
- Stocks add to yesterday’s losses: Are these three time bombs in your portfolio?
- Numbers aplenty: Manufacturing, jobs, and the Fed’s favorite inflation gauge
- Suppressing Southern accents in the South… readers respond to our GMO expose… a new twist on “ethical investing”… and more!
The term is “bolt-on acreage.”
Earlier this month, Matt Insley of our energy desk began putting together an “Oil Driller’s Dictionary” — a glossary of terms that can lead to triple-digit profits in a matter of weeks.
“Bolt-on acreage,” he explained, “is acreage that an energy producer acquires next to their existing acreage. In that sense, you can bolt this acreage right onto an existing land package. Using another industry term, it’s ‘contiguous’ acreage.
“Bolt-on means more acreage, more efficiencies and more future production.”
“Bolt-on” was the driver behind a buyout in the Bakken Shale patch of North Dakota we mentioned last month.
Whiting Petroleum (WLL) bought Kodiak Oil & Gas for $6 billion. Together they’ll produce more than 107,000 barrels of oil (and natural gas equivalent) per day. “That was the real reason we came together,” says Whiting CEO James Volker. “It was a natural fit,” adds Kodiak CEO Lynn Peterson.
The combination will create the biggest player in the Bakken.
Fact is, Whiting was on Matt’s radar months before the announcement: “While the Bakken continues to impress with huge production numbers,” he wrote his readers in early April, “a well-run company like Whiting will ride the tide higher. For instance, the company is up 15% on the year and share prices are close to their all-time highs (from 2011).”
On May 21, he told his readers to pull the trigger on an options play with Whiting: “New techniques, know-how and new technology can add up to A LOT more bubbling black crude. Whiting, in particular, has shown the ability to execute in this department.”
Which brings us to another term from Matt’s dictionary: “downspacing.”
“America’s shale boom is still in its infancy,” he explains. “When drilling first began, however, engineers estimated the proper space between wells. For example, you may have one well on a 320-acre plot. Downspacing is the idea that you can fit more wells in the same acreage. So instead of putting one well every 320 acres, maybe you put two or four wells there.
“This will be an important process going forward. Since many shale players have their acreage position and test wells drilled, infill drilling is where the next decade of production will come from. Can producers get more production out of the same acreage? Keep an eye on downspacing.”
Downspacing is one of Whiting’s strengths: “Whiting has 65 existing wells on their original spacing plan,” says Matt – which means four wells per each 1,280-acre ‘drilling spacing unit.’
“Today, the company is testing eight wells per spacing unit. Simply put, if production is the same in these ‘infilled’ wells, Whiting would be looking at double their existing production, from the same acreage.
“Double the production with the same acreage? That’s the power of downspacing!”
The power of downspacing pushed Whiting stock up 11% in only one month — enough to propel Matt’s recommended option play 92% in less than a month. At that point, he urged his traders to sell half the position… and hold on tight for the rest.
Then came the Kodiak buyout — bolt-on acreage that pushed the stock higher still. Yesterday, Whiting issued its second-quarter earnings report — easily beating expectations. Matt urged his readers to take profits on the rest of the position — for a gain of more 219% in a little over two months.
[Ed. note: Matt is following other companies taking advantage of bolt-on acreage and downspacing. To say nothing of other terms like “longer laterals” and “stacked formation” we’ll introduce you to in the coming months.
For your own shot at the gains to be had in Real Wealth Trader — proven performance this year of 104% in six weeks, 219% in a little over two months and 225% in less than three months — simply follow this link.]
Stocks are meandering this morning, punch-drunk after a vicious sell-off yesterday.
As we write, the S&P 500 has shed a point and sits at 1,930 — nearly 60 points off its all-time closing high set a week ago yesterday.
“Forget about the big indexes and the big, red numbers they’re showing on the financial news channels,” advises Greg Guenthner of our trading desk. “Instead, you should focus on three sectors that look like strong sells.”
Two of them are go-go sectors that rose too far too fast — homebuilders and solar stocks. The third might be a bit of a surprise — consumer staples. “These are the ‘safe’ stocks investors were fighting to buy earlier this year as they fled the more speculative areas of the market,” says Greg — stocks like Procter & Gamble, Coca-Cola and Wal-Mart. “But now these names are also starting to break down.”
U.S. manufacturing is looking its strongest in more than three years. The ISM manufacturing index for July rang in this morning at 57.1 — the highest since April 2011.
The numbers within the survey also look strong, including the two most important — new orders and jobs.
Manufacturing numbers from overseas filtered in hours earlier — the eurozone unchanged at 51.8 and China at a two-year high of 51.7. As a reminder, numbers above 50 indicate a growing factory sector.
When it comes to U.S. jobs, the best we can say is that fewer people are losing hope.
The Bureau of Labor Statistics delivered its monthly jobs report this morning. The wonks conjured 209,000 new jobs for July. That’s the sixth consecutive reading above 200,000. Those aren’t bad numbers, although the numbers tend to represent jobs with fewer hours and lower pay than before the “Great Recession” got cranked up.
Meanwhile, the percentage of Americans participating in the labor force ticked up a bit; in other words, more unemployed people are at least starting to look for work again. As such the U-3 unemployment rate rose a bit, to 6.2%.
Then there’s the real-world unemployment rate kept by John Williams at Shadow Government Statistics. He runs the numbers the way the wonks did in Jimmy Carter’s day. Using that method, unemployment remains stuck near all-time highs of 23.2%.
Americans’ incomes grew last month… and their spending grew to match
The Commerce Department’s monthly “income and spend” report registered a 0.4% increase in personal incomes during June… and a 0.4% increase in personal spending. The two previous months, Americans actually were actually saving something for a rainy day.
This report also includes “core PCE” — the Federal Reserve’s preferred measure of inflation. It remains well below the Fed’s 2% sweet spot, registering a 1.5% year-over-year increase.
We see a couple of Federal Reserve “hawks” making noises this morning about raising interest rates sooner rather than later. But with a core PCE number like this, chairwoman Janet Yellen and her dovish confreres won’t be in any hurry…
Your government in action, suppression of Southern accent edition: The 4,400 workers at the Oak Ridge National Laboratory in Tennessee got an email last week.
“Feel confident in a meeting when you need to speak with a more neutral American accent,” the email said, “and be remembered for what you say and not how you say it.”
It was an invitation to a six-week course: “In this course, you will learn to recognize the pronunciation and grammar differences that make your speech sound Southern, and learn what to do so you can neutralize it through a technique called code-switching.”
Oak Ridge workers come from all over the world, so language brush-up classes are common. Oak Ridge managers say a native English speaker requested the accent-suppression class.
A spokesman says the idea “probably wasn’t presented in the right way.”
Probably…
“Thank you for writing about the real concerns with frankenfoods,” reads the first of many emails in response to yesterday’s episode of The 5.
“Most of your competitors treat those of us who even ask that GMO food be labeled as some kind of nuts. We know that Monsanto’s megabucks and their FDA lackeys are not going to ban it anytime soon. Just let us choose whether we eat it. We would also like to choose whether to drink nutritious raw milk, instead of the antibiotic-loaded white-colored liquid sold as milk. The well-financed establishment also makes that difficult.”
“It is absolutely critical the U.S. and Canadian consumer get educated and outraged about GMOs,” writes another.
“The mere fact that Monsanto et al. spend billions to lobby against labelling should be telling enough!! If there isn’t anything wrong with it, label it and let the consumer decide if they want to buy a product with GMOs or not. Until that happens, we are hostages of the corrupt corporate machine whose sole purpose is making obscene amounts of money regardless of the human or environmental costs (many that may be irrevocable, especially that pesky one — death).
“Stop buying anything that you don’t know for certain is non-GMO. Tell your friends, support your local farmers market and grassroots businesses popping up to supply organic and or non-GMO products! They are out there! This applies to meat as well: Most meat produced in USA is grain-fed on corn and or soy. It’s in the meat too.
“44,000 pages of what were hidden FDA documents aren’t lying. They are telling us to wake up!”
“The problem with GMO insect-resistant and/or herbicide-tolerant seeds (aside from the fact that the stuff in question gets eaten by us) is that these ‘defenses’ eventually selectively breed stronger insects and weeds, simply by destroying the weaker ones.
“Many farmers have to plant a ‘heritage’ field: one with the less modified crop to attract the insects away from the more intense GMO plots in part to slow this down. Second downside is that by using stronger insecticides and herbicides, more bees die (‘collateral damage,’ to borrow from military jargon), and all of this eventually either runs off into ditches or seeps down into the aquifers. This is part of the ‘necessary’ process for huge farms. That, plus the heavier harvest equipment, aside from fuel use and cost (think: Buy a top-end Bentley), compacts the earth, turning fields into hard, chemical-laden parking lots.
“A friend of mine (from Iowa) tells me his grandfather referred to tractors as ‘a fad,’ implying that they would eventually to fade into the scrapheap of history. Maybe after it all goes to hell in a handbasket, sometime after all the ammunition gets spent, we’ll end up beating plowshares into swords. The irony of it all!”
“The truth about Monsanto. How refreshing. Well done,” writes a fourth — who then pivots to another topic that’s kept the inbox full this week.
“So is investing in Monsanto immoral? Honestly, do I really even have to ask?
“Anyone who takes an ownership stake in MON had better hope the notion of karma is silly. As silly as, say, eschewing investment in profitable companies … just because they happen to be criminal corporatist death merchants.”
“Just a quick reply to the reader that points out the difficulty in living without hydrocarbons,” reads another email on the ethical-investing thread.
We’ll back up a bit: This individual wrote in on Wednesday eschewing the stocks of companies engaged in fracking. Yesterday, someone shot back to the effect of, “Yeah, try living in a world without oil.”
“Quite. I haven’t accomplished that for sure,” replies the original reader.
“For brevity, I assumed that your well-informed readers would be familiar with the several criticisms of fracking. I was trying to imply the precautionary principle. Yes, if we were to investigate and weigh the dangers of our evolving technologies, it would slow down their development and adoption. And the profits would come slower, too.
“But I argue that the sometimes devastating unexpected consequences may be lessened or eliminated. I was interested to read the comments by Doug Hill about GMO products in this light.
“Your reader is right that to be consistent I must also avoid using the products or brands that I find offensive. He acknowledges ‘some decisions about what to avoid are straightforward,’ meaning, I think, that he has standards that are clear to himself. But later, he suggests that morality is the enemy of progress.
“I think our morality helps us understand when we actually have progressed. Thanks for your time.”
“The Argentine default is as contained as GMO crops are contained within their fields,” writes our final correspondent, mashing up two topics we covered yesterday. “Perhaps Argentina can take a play from Monsanto and sue their creditors.”
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. If you’re not up to speed on the GMO furor we’re kicking up, check it out right here. Your health and longevity depend on it.