Mr. Tim Murray provides research coverage of the oil and gas industry for Northern Securities.
Mr. Murray has over 4 years experience in the investment industry. Immediately prior to joining Northern he was Associate Energy Analyst at Octagon Capital and prior to that was a Risk & Credit Analyst at Altagas Income Trust, an energy services company.
Mr. Murray obtained a B.Sc. in Business Administration from the University of New Hampshire and has completed Level III of the CFA program.
Me: Mr. Murray, what are your current views regarding crude oil markets and stocks at the moment (in the wake of hurricane Dean)and what do your models predict for them moving forward (6 months) in terms of price targets?
Mr. Murray: As Hurricane Dean removed very little production volumes for any sustained period the futures for oil and gas moved downwards with natural gas taking the biggest hit. I'm forecasting oil to drop in the coming months as we believe that the global market is currently well supplied with crude. In addition we are estimating Nymex crude to average US$64.00/bbl for 2008. The two most oil weighted names in my coverage universe are Buffalo Resources Corp. (BFR) target $1.85 and Grand Banks Energy Corp. (GBE) target $1.50. All my target prices are based on 2008 estimates.
Me: Can you also please highlight your views regarding natural gas (in terms of future outlook, price target, company earnings etc.)?
Mr. Murray: Natural gas markets have been very volatile lately and we expect this to continue over the remainder of the hurrican season. Natural gas over the last several months is starting to look like 2006 so if we have another uneventful hurricane season we will once again have nat gas storage numbers running near all-time highs and that should continue to push nat gas pricing downwards. The biggest surprise to us this year has been the larger than expected increase in LNG to the US, if this continues for the remainder of the year we should see even more supply in the market and if the hurricane season is uneventful this should also depress nat gas prices. The majority of the names in my coverage universe are natural gas weighted so cash flows are more suseptable to swing in this commodity. For 2008 we are forecasting Nymex natural gas to average US$8.50/mcf.
Me: I was wondering if you could highlight where in the oil and gas markets you think investors should be focusing their attention - with regards to valuations and investment opportunities (e.g. oil or gas, large cap or mid cap, producers or explorers etc.)?
Mr. Murray: I think during times of uncertainty the majority of investors move into large cap names as the majority of large caps can survive the full business cycle. I believe that many names in the junior E&P universe offer very good value right now as many are trading under net asset value and have the balance sheets to accomplish potentially value added drilling programs over the next six months. I would highlight from my coverage universe Berkana Energy Corp. (BEC) target price $2.15 and Canext Energy Ltd. (CXZ) target price $1.10; once again our target prices are based on 2008 estimates.
Me: What do you think will happen to oil prices if the Federal Reserve cuts interest rates on September 18th and what would happen if they didn’t (i.e. is a rate cut built into current oil prices)?
Mr. Murray: I think the market is expecting a small cut in interests rates and is already reflected in commodity prices. I think the market will continue to focus on the housing situation in the US, and if the market view is that the US economy is slowing than you will have less demand for oil. For natural gas all eyes will be on storage numbers and if we continue to run near all-time highs into the winter months, we expect nat gas prices to continue to be soft compared to historical prices.
Thank You Mr. Murray!
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