Arena Resources Shares are Volatile
Volatility is Normal for ARD Shares
Today oil sold off $2.73 to $58.32 a barrel for the front month on NYMEX. It is precisely at these times that one wants to own an oil company that is a low cost/high margin producer of oil. It just so happens that ARD is the domestic oil producer with potentially the lowest cost structure and the highest margins in the E&P universe.
The decline in ARD shares is due to the selloff in oil as it relates to the warmer than normal winter. Demand for heating is less and consequently the demand for heating oil and natural gas.
Today's Action is Actually a Positive for ARD Shares
The lower oil prices will increase the rate of growth in demand for crude oil. On the supply side the lower prices will actually be an incentive for OPEC to institute a third production cut on top of the previous two cuts of 1.2 million bpd in November 2006 and the one already approved beginning February 1, 2007. It is safe to say that the lower prices for crude oil only make the oil markets going forward tighter.
Additionally the sell-off in ARD shares present investors with an excellent opportunity to initiate or add to positions. The sell-off also give ARD management an excellent opportunity to acquire additional proved reserves on terms favorable to the company. With a credit line of $150 million you can bet Tim and Stan are always looking for an acquisition that makes sense.
Volatility is No Stranger to ARD Shares
On September 22, 2006 ARD hit bottom during a period of selling lasting weeks. The case was made at that time against selling ARD shares. Only 11 weeks later ARD went on to close at an all-time record high of $47.40 on December 8, 2006.
Right now ARD shares are 15.8% below the all-time record close set on December 8. Certainly the shares could trade a bit lower short term. In the longterm one can anticipate a new record high for ARD shares before the end of March 2007.
What Will Drive Share Price?
Drivers in share price will be the reality that demand for oil is increasing. Since approximately 70% of petroleum is used for transportation the most important driver in demand will be gasoline to power the world's ever increasing desire to travel. The warm weather and the lack of demand for heating oil is of secondary importance since a relatively small percentage of crude oil is used for heating. Keep your eye on gasoline demand and crude oil production.
Domestic crude oil production will continue to decline over time. Also we are now at the point where we will begin to see declining imports of crude oil.
With respect to ARD we can expect the 4th quarter operational update in January. We can expect the 2006 year-end production and proved reserves report in February. In March we can expect the Q4 and FY2006 financial and operating results. Investor interest will focus on the presence or absence of crude oil commercial production to date on the Syracuse and Auntie Em properties in Kansas.
In conclusion, volatility with ARD shares is normal. Fundamentally the company is strong. On a macro scale supply and demand issues will push oil prices higher. On a micro scale there are multiple drivers that will push ARD share price higher over the medium and longterm. Enjoy the ride.
Volatility is Normal for ARD Shares
Today oil sold off $2.73 to $58.32 a barrel for the front month on NYMEX. It is precisely at these times that one wants to own an oil company that is a low cost/high margin producer of oil. It just so happens that ARD is the domestic oil producer with potentially the lowest cost structure and the highest margins in the E&P universe.
The decline in ARD shares is due to the selloff in oil as it relates to the warmer than normal winter. Demand for heating is less and consequently the demand for heating oil and natural gas.
Today's Action is Actually a Positive for ARD Shares
The lower oil prices will increase the rate of growth in demand for crude oil. On the supply side the lower prices will actually be an incentive for OPEC to institute a third production cut on top of the previous two cuts of 1.2 million bpd in November 2006 and the one already approved beginning February 1, 2007. It is safe to say that the lower prices for crude oil only make the oil markets going forward tighter.
Additionally the sell-off in ARD shares present investors with an excellent opportunity to initiate or add to positions. The sell-off also give ARD management an excellent opportunity to acquire additional proved reserves on terms favorable to the company. With a credit line of $150 million you can bet Tim and Stan are always looking for an acquisition that makes sense.
Volatility is No Stranger to ARD Shares
On September 22, 2006 ARD hit bottom during a period of selling lasting weeks. The case was made at that time against selling ARD shares. Only 11 weeks later ARD went on to close at an all-time record high of $47.40 on December 8, 2006.
Right now ARD shares are 15.8% below the all-time record close set on December 8. Certainly the shares could trade a bit lower short term. In the longterm one can anticipate a new record high for ARD shares before the end of March 2007.
What Will Drive Share Price?
Drivers in share price will be the reality that demand for oil is increasing. Since approximately 70% of petroleum is used for transportation the most important driver in demand will be gasoline to power the world's ever increasing desire to travel. The warm weather and the lack of demand for heating oil is of secondary importance since a relatively small percentage of crude oil is used for heating. Keep your eye on gasoline demand and crude oil production.
Domestic crude oil production will continue to decline over time. Also we are now at the point where we will begin to see declining imports of crude oil.
With respect to ARD we can expect the 4th quarter operational update in January. We can expect the 2006 year-end production and proved reserves report in February. In March we can expect the Q4 and FY2006 financial and operating results. Investor interest will focus on the presence or absence of crude oil commercial production to date on the Syracuse and Auntie Em properties in Kansas.
In conclusion, volatility with ARD shares is normal. Fundamentally the company is strong. On a macro scale supply and demand issues will push oil prices higher. On a micro scale there are multiple drivers that will push ARD share price higher over the medium and longterm. Enjoy the ride.
posted by -Aztec- at 1:46 PM
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