3SOF

I don't want to highjack the AMEP thread. so here is a little info on NLG.TO:

I like small oil companies that recently have shifted from being mainly exploration companies to mainly production companies. Some times you can find amazing opportunities here.

Nelson Resources limited is such a company. NLG established its presence in the Kazakhstan oil sector in 2000. The company has accumulated significant losses as a result of acquisitions, research and development costs.

The Q1 2005 did however show that the company has now gone from being a start up to a profitable oil company.

They posted a 35.8 million profit and the revenue increased with 273% compared to Q4 2004. The revenue increase is a combination of a 148% increase in production and a 51% increase in oil prices.

In the latest production figures from May total production has increased with 14% from April but what is even more promising is that they expect to increase the production from one field (North Buzaki) with 300% during the rest of year.

I forecast a PE around 6 in 2005 and well below 4 in 2006 with today's oil prices and the expected production increases.

NLG seems to be a screaming buy with the proven growth and profitability.

You can read more here: http://www.nelsonresources.com/

I am not a great chart reader. But from my perspective it seems like it has a strong base at 2 (I have at least tried to buy below without success). It will form a nice cup with handle if it breaks out of the present trading range. There is also a clear divergence between the RSI and the stock price, which should indicate a pending increase. I would love comments from the experts!

it looks good but you should know that the cup w/handle as defined by its originator William Oneil needs a runnup before it goes into this continuation pattern.  Support @ 2 looks valid but only a close in the area of 2.15 - 2.25 with volume would make me excited as a technician.  Goodtrading.  :)

Thanks EliteG. We came a bit closer to 2.15 today - can't wait till we hit your mark! Any comments to the RSI divergence?

The two largest public traded oil companies in Kazakhstan is Petrokazakhstan (PKZ) and Nelson Ressources (NLG.TO). Both of them are grossly undervalued IMHO.

Petrokazakhstan received a buy out offer yesterday which according to Wall Street Journal could value the company to 50-70 per share. PKZ traded at 33 before the offer.

This could make NLG even more interesting:

• It draw the attention to the huge opportunities in Kazakhstan
• If Petrokazakhstan turn the offer down NLG could be next on the buyers list
• If Petrokazakhstan accepts the offer there will be a lot of money that need to be reinvested. As the PKZ investors knows Kazakhstan I would expect some of that money to flow towards NLG.

I very much like your thinking here on this one.  It may happen.  Will be watching closely.

About the RSI divergence.  That is definately bullish...and I like that it is subtle.  The trigger is still price and volume but its nice to have RSI on your side.  ;)

i can't get NLG on my stock screener
i use ameritrade.
is it only on TSX ?

-rocket8

Having in mind that US is closed today I thought it might be an idea to talk about some Canadian oil stocks. I am sure you are all bored today       ;D

We have discussed at lot about the coming oil bubble. I don't think it is a bubble but rather a fundamental change in supply and demand.

Recently a report titled "The mitigation of the peaking of world oil production" said: "World oil peaking represents a problem like none other. The political, economic, and social stakes are enormous. Prudent risk management demands urgent attention and early action." If you start a serious program today it will take 20 years before completion. A real tremble was felt from the Goldman Sachs alert, which predicts the price ceiling for a barrel of crude to reach $105. "We believe oil markets may have entered the early stages of what we have referred to as a super spike period," Goldman Sachs said. That's peak oil for you.

The chart below shows the discovery of oil and the consumption. It is clear to see that we are entering a period when demand will outstrip supply.

A report prepared by energy economists at the French investment bank Ixis-CIB has warned crude oil prices could touch $380 a barrel by 2015.

The report says that existing new oilfield projects would not be enough to satisfy unprecedented growth in demand from developing economies, particularly China. China will contribute greatly to the world's rising energy needs. "Rapid movements of people from the Chinese countryside into the cities would increase the demand for housing, cars and general transportation. All of this will fuel energy consumption," the report said.

I am not sure whether the oil will go to 80, 100 or 380 but I am pretty confident that the oil will go up and that this will unlock tremendous value for the smart investor. They question is how to play the market.

I have been concentrating on stocks that either have large undeveloped reserves or companies that are involved in drilling (you bet somebody will start to look for oil when the price is $100!)

The largest undeveloped reserves (which are not controlled 100% by state owned companies are in Russia and Kazakstan. That is why I love a stock like NLG.TO. They have 220 mn bbls oil reserve (2P) and their Market cap is 1.37 billion. Just at the existing oil price their proven reserves are worth 5.6 times the market cap. ($35 profit per bbls) then add the increase in oil prices, unproven reserves and new discoveries .......

On the drilling site of things my preferred pick is ESI.TO. There are expanding their international business rapidly through acquisitions and their north American business is pilling up cash!

We are close to break the resistance level at 2.10. If successful NLG can move much higher

Hi michael , thanks for the analysis.  :D
do u think it's now a good entry point? and do u think the fear of terrorism will bring down the oil sector a little bit?

Thanks!

Terrorism is more likely to increase than decrease the oil prices. The only way oil price will decrease due to terrorism is if people will change their energy consumption and history has learned us that this is very unlikely (will you start to walk to work because of the sad incidence in London today). However terrorism might be a threat to oil production. When that is said I think you should look at oil as a fundamental supply/demand story and not speculate in terrorism etc.

I am quite loaded with NLG.TO stocks and I obviously believe in the company. Their production increase and reserves are tremendous but you are asking if this is a good entry point and from a purely technical point of view you might consider to wait until 2.10 has been finally been brooken.

So 2.10 is behind us (hopefully!) This is my favourite oil play. I have looked around for the same kind of value without finding anything close to NLG.

Oil price around record levels, production sky rocketing, very high reserves, profitable. Nice combination!

good call michael!  ;D

i am in at 2.13 , took quite a while to get my limit order filled.
thanks for the headsup. applaud!

Hello Michael, nice info again. i do feel this pick is in good hands!  ;D
estimate 3.13 by year end, 78% gain, may not meet some momo plays criterian , but combined with the stability of its price i believe it becomes a very nice pick. just what i needed to stabilize my portfolio which has a few too many pennies. not to mention i dont need to convert my canadian dollars!
hoping the volume picks upand  it can go much higher!

good luck!

As with any good stock pick there are more to the story than what meet the eyes

ATON has a Can$ 3.75 (USD3.13) target on NLG.TO:

QuoteNelson Resources remains the top pick in our Caspian universe due to its very good operating results, which given the current high international oil price is likely to be appreciated by the market. Our end-2005 target price of $3.13 for Nelson provides more than 100% upside.

But can you trust these analysts? I guess the answer is sometimes but in this case we have quite solid proof.

We know the proven reserves, production increases and cost so it is relative easy to calculate the DCF. The only real variable is the oil price. Below is ATON's DCF calculation.

But that is not the whole story. We need to look into Kazakhstans Oil Barons and Chaparral as well.

Now that is a long story and I need to do some more research so I will post that later today!  ;)

tWO OIL  cos looking good today: ENY and GGR - most are going up and down like roller-coasters!

Michael! i applaud u!
i admire ur expertise in FA!
it's a steady climber, experiencing enuf roller coaster for the pennies stocks already.  ;D

good luck to all!

Thanks Eaggerlearner - Ramsburg where is the blushing smiley!!!!!

I am trying to finish the story about the Kazakhstan oil barons and chaparral before dinner (my time) but the AOBO action is really disturbing!

Mike

Sometimes the shortest point between two points is not a straight line! I discovered NLG when I was holding Petro Kazalhstan, PKZ (sold that one recently when they received a couple of take-over offers!). PKZ is a great company with high production and low evaluation (the PE was below 3 when I bought!) but they kept running in to legal and political problems. Culminating when the Kazakhstan authorities ordered PKZ to stop gas flaring. (that was when I bought!)

Doing the DD I found out that Kazakhstan was probably the most promising area for oil exploration, which was not totally dominated by state own oil companies, but still PKZ was not valued close to their DCF. So as any unsatisfied lover I started to look around for a more attractive young lady (I am always turned on by sexy shares!)

And here was this small fast growing Oil company sitting on huge reserves with no problems with flaring, no political debacles, no legal issues. The sexy lady was called Nelson (I guess this is the last name!)

I am working in the third world so I appreciate the value of being well connected. Was that the Nelson's secret? Who was the dad and mum?

Dinner time and i have only touch the surface! To be continued......

Why is Ms. Nelson's mum and dad interesting? Well Kazakhstan's president has publicly stated many times, that he would like to see the Kazakh citizens receive part of the proceed related with the Kazakhs "ünderground". NLG employs over 95% local workers and subcontractors and the majority owners are Kazakhs.

Now we are not talking the average Kazakh farmer investing two US$ in his favorite stock.

We have to go back in time to get the full picture: In June 2000, NLG was a company going nowhere fast with 120 mil shares issued...a long comes a group of investors that want to own 70% of the company, so at that point approx 290 mil shares were issued to CAIH and a group called Korinth Investment who later changed their name to Energy Investments International....the history of these 2 group is that CAIH is related to Kazkommertsbank. (and at one point was a very large shareholder in PKZ - Interesting how things are connected!) EEI is rumored to be bankrolled by Timur Kulibayev, 2nd in command at Kazmunaigas (the state owned oil company) and son in law of Nazarbayev, of course the President of Kazakhstan. Along with the new shares many shares, warrants and options were issued to be used as source of funding in the future in addition to loans from Kazkommertsbank and Halyk Savings Bank, rumored to be associated with Kulibayev...time goes by, more money is needed, company issues more shares, but only to the two main principals. Along comes the current President of NLG (too many presidents in this story!) Mr. Kuandykov who starts out purchasing 100mil share (from CAIH and EEI), then later adds another 50 mil.

You might not all know Mr. Kuandykov, he worked and headed up the org Kazcaspishelf, a group of geologists studying oil possibilities in the Caspian Sea and Kazakhstan. Hmmmm... are we talking about a guy who knows all the secret spots for oil and knows how much is in Kazakhstan? Behind the scenes is another guy, Nurlan Balgimbayev, former Prime Minister of Kazakhstan a VERY influential person in Kazakhstan but let me stop here. I guess you get the picture. You have the Kazakhstan elite working for you. Their main goal is to get rich and you are benefiting in the process.

I don't think I tried to keep it a secret that I think NLG is a quite interesting investment (don't want to create any hype here!). You might disagree but try to look at it objectively: Strong local support, high oil prices, huge reserves, rapid increasing production and low production costs.

But what is the story about Chaparral? That is for the next post!

can't trade .to stocks at scottrade. :(

Stocky Sorry for you  :-\  but read on!

Remember CAIH? Well these guys have a lot of interests in the oil sector in Kazakhstan. One of their holdings was a 60% stake in another oil company called Chaparral Resurces Inc. (CHAR.OB – up 13% today!!!).

But too many oil assests makes life difficult so the management of CAIH thought that it would be a good idea to marge their stake in Chaparral into NLG. Normally that would happen at huge multiples but not in this case (after all it was part of the family!)

Chaparral Resources is engaged in international oil and gas development with a single operating asset: development of the 16,900-acre ``Karakuduk Oil Field'' and NLG now holds 60% of the company acquired veeery cheap (Let me be honest I can't remember the price so you just have to believe me!)

Chaparral is a very interesting story in its own right but that is for another day but basically this company is more mature than NLG (meaning that they are producing a lot of oil and traded at lower PE values).

CHAR.OB is now one of the main assets of NLG so how have the companies performed? Well try to look at the chart below. Even though NLG has done great CHAR has by fare out paced it. Now why is that interesting?

Well for two reasons. First this shows what will happen when NLG start to produce a lot of oil (and that is very soon) second the increase in the market cap of Chaparral is not reflected in NLG's stock price.

So you have a company that has: Strong support from the Kazakh elite, high oil prices, huge reserves, rapid increasing production,low production costs and a subsidiary, which value is not reflected in the share price.

Well I have probably fallen in love with this company but just maybe there are some value here.....

applaud!
what's more to say?   ;D ;D

thanks mike.

And here is the final chapter.

As I said it is funny to see how things are connected. I started out with Petrokazakhstan and now the rumor on the street is that NLG is going to take over PKZ.

Here is what Bear Sterns has to say:

NLG merger with PKZ recommended:

"We believe the list [of potential bidders for PKZ] is shorter than most believe due to the inherent complications. While an acquisition of PKZ would be a wonderful transaction/LBO due to its supercheap valuation (2.6x EBITDA), net cash position ($1.58/sh), and substantial free cash (1Q05 offered 22% free cash flow yield annualized), it is not for most buyers due to multiple conflicts with the government and PKZ's partner Lukoil. Additionally, the operating environment in Kazakhstan has become increasingly difficult for Western investors during the past two years, therefore, we believe, keeping those without assets in Kazakhstan away. We believe the list could conceivably include Chevron or Eni, but both have existing substantial exposure to Kazakhstan that remains complicated. The most likely to bid, we believe, would be privately held CNPC (or some arm), ONGC (looking at everything), Lukoil (we think they'd only like to secure N. Kumkol), Nelson Resources (the perfect buyer if it can secure the capital),
Kazmunaigas (only if executing its right of first refusal - not an initiator, which could be preordained), private investor/group (could involve Nelson shareholders or other regional private equity groups/family money).
...

Our chief expectation is for Nelson Resources to make a bid in conjunction with a third (funding) party. Such discussions occurred several years ago; however, at the time Nelson was much smaller and far earlier in its acquisitions campaign. However, it was then, as it is now, in a strong position, being owned 60% by powerful Kazakh financial interests and run by a CEO with a long history in the country (having run Tengiz for Chevron). Finally, its current rich
valuation, trading at 7.6x 05E EBITDA and $10.5/boe, offers a fair value for its aggressive development program in eastern Kazakhstan. A deal between the two would represent a merger or reverse takeover, however Nelson's substantial cash calls could be paid for easily via the cash-rich PKZ asset."

Well I think it is a match made in heaven. (remember the problems I had with PKZ?) You have a very well connected company (NLG) and a very cash rich company with all kinds of political problems which keeps the value down. A merger would release incredible value!

But then this is indeed speculations and even though it adds a huge upside in my opinion NLG should be valued based on the existing assets and according to ATON that alone gives it a 100% upside!

I know this was a way too long story - but sometimes it is impossible to give insight in a 5 liner  :-[

Michael, I have been following NLG for about 4 months and I just wanted to say your comments here are bang on. I am happy to be aboard.

Usedcasting

Hi Usedcasting

Welcome to 3SOF. Now we are at least three that are in love with Ms. Nelson

One of the Top pickers here is eliteG. Make sure you read his posts!

About NLG he said:

Quote from: eliteG on June 27, 2005, 01:27:47 PM
..... Support @ 2 looks valid but only a close in the area of 2.15 - 2.25 with volume would make me excited as a technician.  Goodtrading.  :)

Well yesterday we had the volume and a close between 2.15 and 2.25 is likely today so just maybe eliteG will give us his blessing to go on honeymoon with our sexy little lady!

Mike

I have owned Nelson since 1989. I have seen it go from a movie company to a shell company to a gold miner in Tajikistan to finally an oil company in Kaz. I have a very large position in NLG and see it's potential as tremendous.

So add me to team Nelson. Michael your DD is fantastic.

Video

Great close today...Nlg @ a 4 month closing high of $2.27 Can. or $1.87 US equivalent.
If NLG crosses $2.55 with good volume then the next intermediate target is $3.50 Can.

Video

A positive spillover from the Pkz takeover; increased production; upcoming earnings report for the June quarter and possible news on the Caspian fields have moved this baby up for the week to a close of $2.25 Can.

Comments anyone?????

Video ;D

Interesting play. I might add on Monday. What do you guys use to trade Canadian stocks? What is the commission and exchange rate they typically get?

Thanks.

I use TD Waterhouse...they have an office that can trade directly on the Toronto exchange.



   

BRANCH INFORMATION

1 HARBORSIDE FINANCIAL CENTER
ANDERSON IN 46011-1015 PLAZA FOUR A
JERSEY CITY, NJ 07311-1401


CUSTOMER SERVICE: (800) 934-4448

The exchange rate is about 82% as of 7/15/05...so $2.25 Can = $1.85 US

Check on recent commissions....I know they lowered them recently if your account is big enough ($500,000+)

Good luck and WELCOME!

Hi everybody, I am new to this board.

Has anybody an idea on what the direct added value will be if the Zhambai option is
successfully exercised.
The value of these new (at let's say 7US$ a barrel) reserves will lift the market cap into the billiions. Can I then conclude the markt cap will increase  by the value of the new proven reserves - the cost of the option and other related costs

or is that all to simple, some companies such IVH do not even make money and are only valued on what is in the ground

25% participatory interest in Zhambai LLP (a wholly owned subsidiary of Kazakhoil, the predecessor of KazMunaiGas), which holds a licence for the exploration and production of Zhambai South and South Zaburunye blocks

Hi Nelsoninvest,

Welcome to 3SOF and the Nelson team!

I wish it were so simple but unfortunately the market is not so rational (otherwise NLG would already be trading at much higher prices!) But the exercise of the Zhambai option will certainly add value to NLG so I would expect a nice pop in the price when the announcement is made.

I mentioned previously about NLG's purchase of the CAIH 60% stake in CHAR.OB but couldn't remember the price:

Quote from: Michael on July 12, 2005, 02:51:46 PM
.....But too many oil assests makes life difficult so the management of CAIH thought that it would be a good idea to merge their stake in Chaparral into NLG. Normally that would happen at huge multiples but not in this case (after all it was part of the family!)

Chaparral Resources is engaged in international oil and gas development with a single operating asset: development of the 16,900-acre ``Karakuduk Oil Field'' and NLG now holds 60% of the company acquired veeery cheap (Let me be honest I can't remember the price so you just have to believe me!)

Well I found the price: NLG paid in May 2004 $23.9 million for 26 million shares or $0.91 per share. Chaparral is to day valued at $3.16 per share. 242% profit on that investment over 1 year. Not bad but then remember NLG.TO is not like other companies we are something special  ;D

Here is what ATON Capital had to say:

Hi Michael

Thanks for the great info!!!

Nelsoninvest

A very interesting article about the supply/demand of oil. This is another good reason to own Nelson. ;D

Cut and Paste:


http://321energy.com/editorials/sprott/sprott070505.html

VIDEO

Good Day All
I can't find any news, so I'm guessing that there's some profit taking today. You don't tend to see NLG fall with oil price declines. Any thoughts!

Monthly article of Eric Sprott at sprott.com is a good read. One of top Canadian investors, bullish on oil, coal and uranium.

Best of Luck

Hi Usedcasting,

I also can't find any company specific news so I guess we are seeing some profit taking due to the drop in oil. After all NLG has had a nice run while oil prices has gone down as you mention.

There might be bumps on the road but as long as NLG post results like this:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=2641)

I am not concerned about the long term direction of this company.  ;D

Nelson resources paid US$2.60 per barrel for Chaparral

The transaction will be accounted for as a purchase of Chaparral by Nelson under purchase accounting rules and Nelson will continue to use the full cost method of accounting for its interests in oil and gas properties.

Based on a transaction value of approximately US$23.9 million, the transaction implies a proved reserve purchase price of US$2.60 per barrel.

If NLG pays US$ 2 (just a guess as might even pay less as the oil is still in the ground) for the Zhambai option (according to a PR the two off shore blocks have 1.7 Billion of recoreveble oil) they will need to pay 3.4 Billion.
Total reserves will go up from 220 Million now to 1900 Billion suggesting a market cap of (7 $US per barrel *1900 M barrels) = 13.3 Billion, taking debt/share increase of lets say 1.8 Billion shares to finance the purchase into consideration would give NLG a 13.3 Billion $US market cap / 1.8 Billion new shares plus 900 M already outstanding would give us a price per share of 4.75 $US or 5.7 CAD$

comments please

Nelsoninvest

just out : 28 July 2005

                      NELSON RESOURCES LIMITED ANNOUNCES                       
             15% INCREASE IN RESERVES AND APPOINTMENT OF DIRECTOR             

Nelson Resources Limited (TSX / AIM: NLG), a leading independent exploration
and production company operating in Kazakhstan, today announces an increase of
15% in proved and probable (2P) oil reserves net to Nelson's equity interest in
its fields, according to a mid-year update of the December 31, 2004 reserves
figures carried out by independent reserves evaluators McDaniel & Associates
Consultants Ltd., Calgary ("McDaniel").

The increase to 270 million barrels (MMbbls) of 2P reserves net to Nelson, from
235 MMbbls as of the previous review, is mostly attributable to a re-evaluation
of the Kozhasai field in north-western Kazakhstan, following the completion of
a test well carried out as part of the field's pilot production programme. The
reserves review was limited to the field's West Block where the test well is
located. As a result, the field's total 2P reserves at December 31, 2004 have
been re-evaluated at 75 MMbbls (38 MMbbls net to Nelson's 50% interest), a
seven-fold increase over the previous evaluation of 11 MMbbls.

Hi Orvis,

Thanks for the news clip, which I believe has still not hit the main media (you always read it first here on 3SOF!). Allow me to quote our chairman:

QuoteI am very pleased that the success of our drilling program is allowing McDaniel to
attribute more reserves to Kozhasai. I have always believed that this field
would prove to be a major asset for Nelson. We have a second new well being
completed now and expect to have the third of the six pilot development wells
completed by the end of the year.

Also did you notice that Chaparral moved up 13.4% yesterday. We own 60% of that baby so we might see some follow up on NLG today.

• Increased production
• Increased reserves
• Increased profit
• Increased value of subsidiary
• Increased share price

Well the last one is still lacking. We are only up with 10% in July. We are now fighting with the resistance at 2.2 but volume is increasing so we will break through. It is only a matter of time.

Michael, posted that NR because I'm in London and it was released here at 07:00 (01:00 am your time).
Interesting to hear about Chaparral. Any idea what the holding is now worth per NLG share?

Hi Orvis,

The increase in Chaparral was only 13% yesterday but 30% over the last 4 trading days. Sorry for the mistake.

The value of NLG's stake in Chaparrel is $91 million.

Hi Michael,

Hopefully, we will have some gains on NLG shortly.

Do you think char.ob will have faster gain than NLG?


Thanks.

Hi Valueseeker

I am not good at making short term predictions. I think I have demonstrated that clearly lately (AOB and VPHM).  (http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=2800)

I am real valueseeker  ;D

What I do know is that NLG have more potential value inform of reserves, production, options on fields etc. than CHAR.OB. Will that be reflected in the share price this week, month or year? I have no clue but sooner or later it will be reflected.

Both charts looks bullish to me so it is your pick.

Prompted by Orvis post i did a quick calculation. The 30% increase in Chaparral's share price adds 3 cent to NLG's share price.

Thanks. Michael.

I have been in VPHM since $6 range and sold 1/2 of the seed in $11 range and keeping 1/2 for long term.

I am also in in AOB, NLG, RITA and DESC. Looks like RITA is going to rise today with the news.


-Louis

Good day all. I was just wondering if a 15% increase in reserves should translate into a 15% increase in share price.

Wishful thinking I presume!

Usedcasting,

I don't think that is wishful thinking. I believe that is close to 100% sure.

15% increase in reserves will over time translate into 15% increase in profit which will translate into 15% increase in PPS.

The important issue here is "over time". The share market is unfortunately not rational and I guess your question is if the share price will increase 15% now and that might be wishfull thinking (but then it might not!)

Did you see Petrokazakhstan's earning release today?

Significant lower production and higher oil prices translated into an increase in profit of 13.6%

NLG is in the same market but we have significant higher production and significant higher oil prices. I can't wait to see the earning release :D

Usedcasting,

Maybe we were a bit too unkind to the market yesterday. It finally decided to move NLG up with good volume.  :D

We are still in the same bullish trend, which started in June, and I believe we have enough oil to keep this rocket flying for some time. We should soon have a date for earnings and we could se a little acceleration when people start to multiply production increases with oil price increases. That is an explosive combination!

Hi Michael,

Great pick! Thanks.

I wish I had more Canadian $ to put in.


-Louis

I've tried e-mailing Nlg for report date but no response. I've found them not that accommodating with shareholders. But if its all work and no play that's OK with me.

To all, have a great weekend!

Oil above 60

Q2 and half year results to be released on August 15th (NR for this just out in the UK)

Thanks Orvis4 for the info.

I have a couple of general questions.

1) What is Nlg's cash position.
2) Why so many outstanding shares
3) And would it make sense to start buying back shares.

Just trying to look toward the future.

Cheers

Hi Usedcasting

NLG had 63 million (CAD) cash and cash equivalents by the end of Q1. They generated 35 million operational cash flow during the same quarter. Much of the cash was used to bring the debt down.

If you read from the start of this thread you will see why they issued shares. I think it was a very wise move which we are benefiting from now. I certainly wouldn't like them to buy back shares. Nelson has access to deals in Kazakhstan that the big oil companies can only dream about. Any cash they might have should be used to take advantage of this!

We are now one week away from earnings. The revenue last quarter was 98 million and profit 35 million. I expect both figures to go up. The increase in oil prices will however cause a loss in KOA's derivates instruments and there will most likely be other compensation cost (they had a Q1 gain on other compensation cost of 9 million!). The increase in revenue is therefore not expected to be reflected fully in the profit for this quarter.

KOA's derivates instrument expires in August this year and this alone will boost NLG's profit significantly.

Longterm NLG PPS depends on three things:

Reserves
Production
Oil price

All of these are showing very bullish trends. the latest forecast for reserves and production is already discussed here so let me finish with the oil price chart. As can be seen the oil price in Q2 has been higher than Q1 and looking to the future it seems like the oil price will be even higher in Q3.

Hi Michael,
you said, that derivates instruments will expire in August this year.
I think this is wrong but I'm not 100% sure
But a while ago, I've read something like they entered into new derivative contracts which are valid until end of 2006.
Unfortunately I don't remember where I read that.

So if you could shed a little light on this, any information would be very appreciated!!

Heavy derivative costs is really the bad point about Nelson.
All other oil stocks generate enormous amounts of money with this high oil price.
while it seems rather more and more expensive for Nelson.

Wish, I had some numbers to do the math

Hi Strokata,

I am actually wrong  - they expire in August 2006. Thanks for pointing that out! (I was writing from my memory, which is not as good as it used to be  >:()

Here are the details:

Contract amount
(bbls per month)       Contract period                   Written call ($/bbl)
120,000             September 2003 to August 2006           30.00
150,000             December 2003 to August 2006            29.50

This is as fare as I know the only call contracts they have. I am not concerned about the put options.

Once again sorry for the mistake!

Strokata,

One more comment about the call contracts:

KOA's production exceeds by fare the call contracts so KOA do benefit from the Increase in oil price (as can be seen in their result!) and also remember that NLG is only a 50% shareholder of KOA.

When that is said I can't wait to see those contracts expire!

Thanks Michael for answering my questions.

This board is quiet given its less than 4 working days to the interim results!

Investing from the UK its hard to get a feel for sentiment in Canada for this stock. Although its quoted on the LSE its the Toronto exchange that drives the sp.
Can anyone give me a steer on what expectations are for the sp at and after the interims i.e. will it be a case of buy on rumour and sell on news, or will it be a case of an overlooked stock getting some deserved attention and sp rise?

Derivative instruments (continued)
In March 2005, the Company purchased the following derivative instruments:
Contract amount (bbls/month)  Contract period                Contract type ($/bbl) *
75,000                         April 2005 to June 2005              Purchased put 33.00
160,000                       July 2005 to September 2005      Purchased put 33.00
170,000                       October 2005 to December 2005 Purchased put 33.00
                       
Michael, I found the info about the new contracts they entered into this year
and actually, it's all put contracts to counter-balance the existing calls, which were written in 2003.

I am very happy they did that and hope they will enter into additional put contracts for the time after December until August 2006

If not those calls could be pretty expensive.

In Q1, they paid (or actually deferred) derivative costs of 5.32 million USD, Brent averaged at 47.71, way higher than their avg call price of 29.72 .. let's calculate ..  okay roughly 98000$ per month and brent$ above 29.72

Let's assume we had an oil price of 80, derivative costs would be as high as (80-30)*98000 ~ 4.9m USD per month!!
Very rough calc without no guarantee ;)

but anyway, I'm less concerned when I see their put amounts for Q3 and Q4..

From Aton today :o


Top News
Nelson Resources. Output rises 9% m-o-m in July
Nelson Resources posted a 9% m-o-m increase in crude oil production to 31.5mbpd, according to Kazakh Energy Ministry data cited by Interfax. Output was up 73% y-o-y and came in 8% above our estimated 2Q05 average, with all fields contributing to the growth.

Though a 41% m-o-m increase at North Buzachi was partly due to the installation of new processing facilities resulting in lower output in June, the 54% y-o-y increase at the field demonstrates Nelson's ability to intensify development of newly acquired assets. Karakuduk's 40% y-o-y production growth is additional evidence on this front, as the field had experienced a steady decline before Nelson's arrival in May 2004.

The news is clearly positive for the company and we expect it to be received as such by the market. We reiterate our Buy recommendation on the stock with an end-2005 target price of $3.13.

Nelson Resources production comparison

In '000 bpd July 2004 June 2005 July 2005 Change, m-o-m Change, y-o-y
Kazakhoil Aktobe 22.4 29.8 30.0 1% 34%
North Buzachi 8.4 9.2 13.0 41% 54%
Karakudukmunai 7.8 10.3 10.8 5% 40%
Arman N.A. 3.2 3.7 14% N.A.
Nelson Resources net 18.2 29.0 31.5 9% 73%

Source: Interfax; Kazakh government

Video :)

Aton looking for positive numbers:

12 August 2005, Friday
Morning Focus
Top News
Nelson Resources. Expected to report strong US GAAP results on Monday
Nelson Resources is to publish 2Q05 US GAAP results on Monday, which we expect to show a significant rise in revenue coupled with record operating cash flows, though net income is likely to be less impressive due to accounting technicalities.

We estimate that Nelson produced 2.66mn bbls net in 2Q05, double 2Q04's output and up 14% q-o-q. Oil prices rose 7% q-o-q in 2Q05, but we expect Nelson to post 29% q-o-q revenue growth on the back of a reduction in sweet/light-sour/heavy crude oil spreads in the period. Our estimate may even prove conservative if the company managed to sell crude stock accumulated at the Karakuduk field in1Q05.

Total operating expenses should increase 72% q-o-q, mostly due to the low base effect as the first quarter showed a non-cash gain in additional compensation costs. This line is volatile because it includes Nelson's management share option remuneration program and hence tracks the company's stock volatility. We expect this non-cash item to have no impact on 2Q05's total operating expenses as a small quarterly share price gain should be offset by a reduction in stock option time to expiration.

Production and transportation costs are forecast to rise in line with crude oil output growth and inflation. As a result EBITDA should rise 16% q-o-q to a record $87.5mn. Pretax income will be depressed by $12mn in expenses from the company's hedging program, which are not included in operating expenses in Nelson's accounting.

As a result, we expect net income to decline slightly on a q-o-q basis to $32mn. However, operating cash flow, our main indicator of the company's performance, should soar 34% q-o-q to a record $47mn.  
Meanwhile, capex should rise significantly due to seasonal factors to $71mn in 2Q05.

Summing up, we believe our forecast may prove to be somewhat conservative and feel that the actual results will likely be ahead of consensus. We reiterate our Buy recommendation on the stock with an end-2005 target price of $3.13.  
Nelson Resource 2Q05 financial forecast In $mn, US GAAP 2Q04 1Q05 2Q05F Chg q-o-q Chg y-o-y
Crude oil production, bbl, mn. 1.28 2.34 2.66 14% 108%
Dated Brent, $/bbl 35.3 48.11 51.69 7% 46%
Revenue 50.0 98.5 126.6 29% 153%
Operating expenses -18.7 -22.8 -39.1 72% 109%
EBITDA 32.1 75.7 87.5 16% 173%
DD&A -9.7 -12.9 -15.0 16% 55%
EBIT 8.2 62.7 72.5 16% 782%
Pretax income 6.3 50.9 51.1 0% 715%
Net income 3.3 35.8 31.9 -11% 879%
Operating cash flow 7.9 35.1 46.9 34% 490%
Capex 29.4 23.4 71.0 203% 141%
EBITDA margin 64% 77% 69% -8% 5%
Net income margin 7% 36% 25% -11% 19%


Source: Company data; Aton estimates.

Nelson Resources 2Q05F operating costs breakdown In $mn, US GAAP 2Q04 1Q05 2Q05F Chg q-o-q Chg y-o-y
Cost of sales -6.3 -10.8 -13.7 27% 117%
G&A -8.8 -6.5 -8.3 28% -5%
Additional compensation costs 5.0 9.1 0.0 -100% -100%
Sales and transportation expenses -8.5 -14.6 -17.1 17% 100%
Total operating costs -18.7 -22.8 -39.1 72% 109%
Derivative instruments -13.4 -5.3 -11.9 124% -11%


Source: Company data; Aton estimates.

Financials Out! Here are highlights.
Have a profitable Day.

  TORONTO, Aug. 15 /CNW/ - Nelson Resources Limited (TSX/AIM: NLG), a
leading independent exploration and production company operating in
Kazakhstan, today reports its results for the three and six months ended
June 30, 2005. All amounts are expressed in U.S. dollars unless otherwise
indicated.
   
        HIGHLIGHTS
   
        Year on year, first half (H1) 2004 to H1 2005:
   
        - Oil revenue up 191% to $222.2 million (H1 2004 $76.4 million)
        - Oil production increased by 116% to 5.5 million barrels (H1 2004 2.5
          million barrels)
        - Net profit increased to $60.1 million, from a H1 2004 loss of $6.6
          million
   
        Quarter on quarter, Q1 to Q2 2005:
   
        - Production net to Nelson averaged 29,693 barrels of oil per day - up 8%
          from 27,439 bopd for Q1 2005
        - Gross operating profit increased 16% to $77.0 million (Q1 2005 $66.6
          million)
        - Net profit after tax declined to $24.2 million from $35.8 million in Q1
          2005, due primarily to an increase in other compensation charges
          resulting from the increase in the market price of the Company's common
          stock
   
        Operations:
   
        - Proved and probable reserves were increased by Nelson's independent
          petroleum engineering advisor to 270 million barrels, up from 235
          million barrels previously, due to successful pilot wells at the
          Kozhasai field and the assignment of an initial value to Nelson's
          interest in the Arman field acquired in Q1.
        - 19 new wells were added during the quarter to bring the well stock to
          191 producing wells and 21 water injection wells across the group's
          five producing fields.
        - North Buzachi commissioned a new oil processing facility with 20,000
          bopd capacity
   
        Nick Zana, Nelson's Chief Executive Officer, commented, "Nelson continues
to make excellent progress in accordance with the very ambitious work programs
we have undertaken for 2005 in all our locations. We are making solid
achievements in all areas including drilling, water flood, expansion of
processing capacity and provisions for the utilization of associated gas. I am
most gratified by the two new wells that KOA has drilled and is testing in
Kozhasai that have allowed us to book additional reserves for this very
prospective field. Our team is working hard to realize the potential of the
Nelson group's five producing oil fields with the goal of adding value for our
shareholders."
        Mr. Zana further commented, "My 32 years in the oil industry compels me
to comment on the fact we are in a period of unprecedented high oil prices.
This is very fortuitous for a young oil company as it allows us to fund our
field development costs largely through operating cash flow. However, it is
accompanied by inflation in the costs of equipment, services and personnel as
well as tougher demands by governmental authorities. We in the oil industry
have seen these cycles before and recognize the demands of managing our
businesses through this exciting and challenging period."

Good morning Nlg's. I know Michaels away this week, could someone explain this decline in net profit statement. It always seem's as though there is something to hold this stock back. Hopefully I am wrong.


Net profit after tax declined to $24.2 million from $35.8 million in Q1
          2005, due primarily to an increase in other compensation charges
          resulting from the increase in the market price of the Company's common
          stock.

Aton daily 16-Aug-05

2Q05 US GAAP results show q-o-q rise in production, revenue; bottom line,
cash flow disappoint

Nelson Resources yesterday reported 2Q05 US GAAP results showing a significant q-o-q
increase in production and revenue and a slight decline in EBITDA and net income due to
several unexpected items, which the company explained in a subsequent conference call.
In 2Q05, Nelson's production rose by 14% q-o-q to 29.7mbpd (net), or slightly higher
than our forecast, while revenue came in at $124mn, up an impressive 26% q-o-q and 147% y-o-y and broadly in line with our estimates.
We note that production exceeded the volume of crude oil sold (by 213,000 bbl or 7.4% of 2Q05 output), suggesting an increase in crude oil stock which is likely to be sold down in coming quarters.

Total operating expenses doubled q-o-q to $49.5mn, or well above out expectations,
partly due again to non-cash additional compensation costs. The real negative surprise
came in a 43% q-o-q increase in production costs, though this was almost fully explained by
the introduction of gas flaring penalties, an issue that is becoming increasingly common to
Kazakhstan oil producers. Nelson said it accrued $5.4mn in penalties in 2Q05, and management noted that while it is seeking to find a temporary solution to reduce penalties in coming quarters, Nelson's gas flaring would be ended in 2H06 anyway.

The rise in G&A, which doubled from 1Q05's figure, was attributed to Nelson's efforts
to begin proper accounting, reporting and corporate governance procedures,
following a spate of acquisitions in 2004 that led to a substantial increase in consultancy
fees, which were incurred at the corporate level and thus did not reduce taxable income (and resulted in a higher effective income tax rate).
Transport expenses rose as a result of a higher transportation tariff imposed on the company.

Meanwhile, a lower than expected hedging loss resulted in pre-tax profit remaining in
the proximity of our forecasts, at $46.5mn, or down 9% q-o-q. However, a higher than
expected effective tax rate of 48% resulted in lower than expected net income at $22.4mn, some 24% below our estimates.

Operating cash flow was reported at $18mn, significantly below our forecast due to an
unexpected $30mn increase in working capital, which the company attributed to an increase in trade receivables due to a mismatch between crude oil deliveries and payments, meaning the bulk of this is due to be recovered in coming quarters. Excluding the unexpected increase in working capital, operating cash flow rose 20% q-o-q to $48mn, or exactly in line with our expectations.

Overall, the 2Q05 numbers paint a picture of healthy operating results, with the company's
financials slightly lower than our estimates but higher than the market's expectations.
Based on the reported 1H05 results, Nelson seems to be on track to meet our full
year 2005 projections of $529mn in revenue, $292mn in EBITDA and $144mn in net income.

We will incorporate the gas flaring penalties into our financial model, although we
expect the impact on the long-term forecast and fair value to be minimal. Nelson remains a
very promising growth story and our recommendation on the stock remains Buy.

From the Yahoo message board - last sentence about NLG

GOOD NEWS: Bear Stearns: $60 base.
Key Points
*** BID CONFIRMED - ANTICIPATE OTHERS - BID DOESN'T EQUAL A DEAL. On the back of several press reports suggesting an imminent bid by PTR or ONGC, PKZ mgmt confirmed that it has received a bid for all outstanding shares but that the process would continue (i.e., other bids would be welcome). We do not believe PKZ has to do a deal, therefore offers need to be attractive (i.e., above $55/sh)
*** WHY SHOULD THE PKZ BOARD ACCEPT A LOW BID? In light of the strong commodity, it remains surprising that the market appears to believe that PKZ could be sold for less than $50, something we hope the board recognizes would not be an acceptable deal.Using $50/bbl WTI in 06, PKZ is trading at 2.4x EBITDA, 5.4x EPS & $5.92/2P boe, with production 30% below capacity. Net cash stood at $5/sh at 2Q05.
*** WE OUTLINE WHY WE FEEL PKZ IS WORTH $65 - OUR TARGET IS $59. In light of the current commodity, we project PKZ will be generating >$800 mn/yr using $40/bbl oil beginning in 2007 for 7 yrs. Discounted back at 14% that is worth $4.6 bn assuming limited replacement beyond EOR. Our assumption for China pipe improvement is material & worth $500mn. With $23/bbl netbacks, PKZ is worth $9/bbl today.
*** DOES A PURCHASE HAVE TO OCCUR - WE DON'T THINK SO. We've long suggested a more complicated M&A agreement with multiple partners might occur. We believe PKZ would pay for political freedom and backlog in a deal that might leave the company public but worth far more. The Chinese have the biggest incentive to do this deal and not lose it to partners or the Indians. We outline the options.
*** BUY THE MEDIA-DRIVEN NOISE - PKZ HEADED HIGHER. Has PKZ moved too far to fast? We don't think so, especially considering the performance of the group and cost of oil assets throughout the world. Kazakh netbacks remain some of the best in the industry in light of the favorable gov't both PKZ and Nelson substantially undervalued and rate both Outperform.

We are definitely benefiting today from the sale of pkz. Petro-china a paying a 20% premium for pkz and we deserve the same additional value.

Good day to all!

Hi Usedcasting

I guess it is a matter of definition but I would say they pay a 70% premium compared to the stock price before PKZ announced that they had been approached.

The interesting question is if the Indian consortium would be interested in NLG (or even the Chinese). NLG seems to be even more attractive but I am not sure it is for sale!

Oiloiloil,

Thanks for the Bear Sterns rec. I had missed that one!

eliteG

I remember you wanted to see volume and a sharp price increase. Are you game today?

NLG.TO continue to increase under heavy volume.

Kazakhstan oil has always been traded at a discount compared to other developing markets. I believe the Petrokazakhstan deal will reduce this discount so we could see a nice run from here.

The NLG.TO weekly chart looks real breakouty.  ;)  In this am @ $2.54

Congrats PerfectSage

Up 14% today. I think we officially can call it a break out!

The Chinese Government and the Indian Government has apparantly agreed to co-operate on future oil aquisitions. As mentioned earlier in this thread a combination of PKZ and NLG is a match made in heaven so I wouldn't be surprised if they are next on the shopping list.

The chart at least indicates that there are some speculations!

Very interesting article in The Globe today:

Quote
PetroKaz deal puts little-known Nelson in investors' sights
By DAVE EBNER
Thursday, August 25, 2005

CALGARY -- Investors hunting for the next PetroKazakhstan Inc. have set their sights on Nelson Resources Ltd., driving the oil producer's stock almost 30 per cent higher in the past three days on takeover speculation.

Like PetroKaz, Nelson is listed on the Toronto Stock Exchange but operates fully in the central Asian country of Kazakhstan. Shares of Nelson took off after China National Petroleum Corp. made a $4.18-billion (U.S.) bid for Calgary-based PetroKaz, a deal announced early Monday.

"What we see is a market reaction to the runup of PetroKazakhstan," Nick Greene, Nelson's chief financial officer, said in a telephone interview yesterday from the company' office in London.

Mr. Greene said Nelson hasn't been approached by a larger suitor -- "You don't just pick up the phone and call someone and make an offer on the fly" -- but he did note that there have been a surge of calls from new investors, both institutional and retail

It sounds to me like they would welcome an offer!

All good news Michael. Where do we go from here? The word I'm hearing is $3.40. A 30% discount on other oils due to the region.

Good trading all!

From the Toronto paper(The Globe and Mail) today 8/25/05


By DAVE EBNER

Thursday, August 25, 2005 Page B5

CALGARY -- Investors hunting for the next PetroKazakhstan Inc. have set their sights on Nelson Resources Ltd., driving the oil producer's stock almost 30 per cent higher in the past three days on takeover speculation.

Like PetroKaz, Nelson is listed on the Toronto Stock Exchange but operates fully in the central Asian country of Kazakhstan. Shares of Nelson took off after China National Petroleum Corp. made a $4.18-billion (U.S.) bid for Calgary-based PetroKaz, a deal announced early Monday.

"What we see is a market reaction to the runup of PetroKazakhstan," Nick Greene, Nelson's chief financial officer, said in a telephone interview yesterday from the company' office in London.

Mr. Greene said Nelson hasn't been approached by a larger suitor -- "You don't just pick up the phone and call someone and make an offer on the fly" -- but he did note that there have been a surge of calls from new investors, both institutional and retail.

"Apparently, we are relatively unknown, at least in the Canadian retail investor community," he said. "I think the calls are to ask who we are."

Although its profile in Canada is low, Nelson is well known in Europe. The company was listed on the London Stock Exchange's Alternative Investment Market last year, on which it is among the top five names by market capitalization.

Nelson's only real connection to Canada is the TSX listing, which it got in 1993 when the company was incorporated in Bermuda.

The aggressive bid for PetroKaz is "extremely positive" for other companies working in the Kazakhstan-Caspian Sea region, said Moscow brokerage Aton Capital in a report to clients on Tuesday.

Aton also said that PetroKaz shareholders will likely look at other investments in the area, and Nelson is a top candidate for new funds.

Nelson stock closed at $2.89 (Canadian) on the TSX yesterday, up 28 cents or 10.7 per cent to its highest level since the mid-1990s. It has climbed 29.6 per cent this week, and its market capitalization is now $2.5-billion, up from less than $2-billion at the end of last week.

It produces roughly 30,000 barrels of oil a day, about one-fifth of PetroKaz's productive capacity.
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Hi Video

NLG.TO are now close to be fair valued compared to other oil companies (the whole sector is undervalued!). NLG.TO is therefore now more a take over and TA play than a fundamental play.

NLG has always be quite expensive based on the valuation of their reserves (there are good reasons for that which has been discussed extensively in this thread)

Below are the ATON figures for the Oil companies in the region:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=4379;image)

The figures are from June and a lot have happened since. Here is an update for the most interesting companies based on the POS from yesterday:

(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=4380;image)

I haven't added the 15% increase in NLG's reserves as I don't know if the other companies have had similar increases. You might therefore decrease the $/bbl with 15%.

PKZ's evaluation include their refiniery. the value is $5.7/bbl If you subtract the value of this

I still think NLG has some upside but I don't see a 30% discount at present. I am therefore considering to sell over the coming trading days depending on the TA.

Michael,

Short term NLG might need a rest after a spectactular run this week.
Longer term it has a long way to go. The Zhambai field is the real
catalyst for share price growth. IF there is really 14 billion barrels with 3 to 4+ billion
recoverable, NLG can at least double or triple from here. We have about 300 million
barrels now and add our 25 % stake of Zhambai (750 mill to 1 billion) the company enters the big leagues:

Aton April 2005
The option for 25% in the South Zhambai-Zaburunye block, which is estimated to be the second largest offshore field in Kazakhstan after Kashagan, represents an additional attraction.

Michael,


Aton: May 5 2005
Nelson Resources. Zhambai block negotiations may be wrapped up this year
Nelson Resources President Baltabek Kuandykov said yesterday the company expects to close a deal with KazMunaiGaz, Kazakhstan's state oil and gas company, to purchase 25% in the Zhambai offshore block this year, Dow Jones reported. The recoverable resources of the Zhambai block, the development of which is covered by a PSA agreement, are estimated at 6.8bn bbls of oil equivalent.

Nelson has had an option to buy a 25% stake in the project for some time and plans to convert this to equity and participate in the exploration phase. Kuandykov said the outstanding questions with KazMunaiGaz related to legal, commercial and environmental issues at Zhambai, which would be the subject of negotiations that may begin mid-month.

The news is positive for Nelson Resources as the acquisition of a 25% stake in the Zhambai block would likely raise the company to the ranks of the world's largest independent oil producers in terms of reserves and has long been seen by the market as a major catalyst for the company's stock performance.


Aton: May 17 2005
Finally, asked about negotiations on the 25% Zhambai block option (due to begin shortly), management reiterated its hope the deal would be closed this summer. CEO Nick Zana had said recently that Kazakhstan's state oil and gas company, KazMunaiGaz, has received permission from the government to extend Zhambai's license area well beyond the borders  of block currently drawn. (THIS WILL GIVE US THE POTENTIAL FOR EVEN MORE OIL!!!!!)

Michael,

Sell if you must and garner some profits, but get back in if it really starts to move.
If these numbers prove to be true....I think we can have at minimum a $6.00 Can. stock ($5.00 US)

Hope this is useful info.

Video

Video

As mentioned in the CKCM thread I already sold. I bought below 2 so I decided to lock in a bit of profit.

I agree that the Zambai option can provide significant upside for the stock. I do however believe that the stock might go down from here in the absence of news about this. I therefore hope to buy in a bit lower.

I don't think I have made it a secret here that I am very bullish on Oil stocks. I do however think we will see a correction in the coming weeks so I have in general sold out of my energy stocks.

The oil chart is showing a double top and Katrina has not managed to get people excited (at least not on oil). My target for this reversal is around $62. At that point I will be shopping for oil stocks again (including NLG!)

Mike

The Aftermath of Katrina (thanks to Tracer on Yahoo-PKZ board)

A Category 5 hurricane, the most severe type measured, Katrina has been reported heading directly toward the city of New Orleans. This would be a human catastrophe, since New Orleans sits in a bowl below sea level. However, Katrina is not only moving on New Orleans. It also is moving on the Port of Southern Louisiana. Were it to strike directly and furiously, Katrina would not only take a massive human toll, but also an enormous geopolitical one.

The Port of Southern Louisiana is the fifth-largest port in the world in terms of tonnage, and the largest port in the United States. The only global ports larger are Singapore, Rotterdam, Shanghai and Hong Kong. It is bigger than Houston, Chiba and Nagoya, Antwerp and New York/New Jersey. It is a key link in U.S. imports and exports and critical to the global economy.

The Port of Southern Louisiana stretches up and down the Mississippi River for about 50 miles, running north and south of New Orleans from St. James to St. Charles Parish. It is the key port for the export of grains to the rest of the world -- corn, soybeans, wheat and animal feed. Midwestern farmers and global consumers depend on those exports. The United States imports crude oil, petrochemicals, steel, fertilizers and ores through the port. Fifteen percent of all U.S. exports by value go through the port. Nearly half of the exports go to Europe.

The Port of Southern Louisiana is a river port. It depends on the navigability of the Mississippi River. The Mississippi is notorious for changing its course, and in southern Louisiana -- indeed along much of its length -- levees both protect the land from its water and maintain its course and navigability. Dredging and other maintenance are constant and necessary to maintain its navigability. It is fragile.

If New Orleans is hit, the Port of Southern Louisiana, by definition, also will be hit. No one can predict the precise course of the storm or its consequences. However, if we speculate on worse-case scenarios the following consequences jump out:


The port might become in whole or part unusable if levees burst. If the damage to the river and port facilities could not be repaired within 30 days when the U.S. harvests are at their peak, the effect on global agricultural prices could be substantial.

There is a large refinery at Belle Chasse. It is the only refinery that is seriously threatened by the storm, but if it were to be inundated, 250,000 barrels per day would go off line. Moreover, the threat of environmental danger would be substantial.

About 2 percent of world crude production and roughly 25 percent of U.S.-produced crude comes from the Gulf of Mexico and already is affected by Katrina. Platforms in the path of Katrina have been evacuated but others continue pumping. If this follows normal patterns, most production will be back on line within hours or days. However, if a Category 5 hurricane (of which there have only been three others in history) has a different effect, the damage could be longer lasting. Depending on the effect on the Port of Southern Louisiana, the ability to ship could be affected.

A narrow, two-lane highway that handles approximately 10,000 vehicles a day, is used for transport of cargo and petroleum products and provides port access for thousands of employees is threatened with closure. A closure of as long as two weeks could rapidly push gasoline prices higher.

At a time when oil prices are in the mid-60-dollar range and starting to hurt, the hurricane has an obvious effect. However, it must be borne in mind that the Mississippi remains a key American shipping route, particularly for the export and import of a variety of primary commodities from grain to oil, as well as steel and rubber. Andrew Jackson fought hard to keep the British from taking New Orleans because he knew it was the main artery for U.S. trade with the world. He was right and its role has not changed since then.

This is not a prediction. We do not know the path of the storm and we cannot predict its effects. It is a warning that if a Category 5 hurricane hits the Port of Southern Louisiana and causes the damage that is merely at the outer reach of the probable, the effect on the global system will be substantial.







   

 


--------------------------------------------------------------------------------

Oil is headingto over $70 !

Watch tomorrow for GAS and OIL plays !

Hi Realdeal and Video

It seems like I was exceptionally wrong with that call on oil! Good I posted it on a Sunday so nobody traded on it  ;)

I still think we are heading for a reversal but for now it seems like oil prices literally has the wind in the back.

I will write a little more on oil when the storm has receded

Mike

Hmmm...... maybe I was too fast to apologize for my call on oil!

I have at least turned definitely short term bearish on oil.

If the worst storm in the Mexican Gulf in modern history can't break the resistance at $67 what can?

One of the signs that we might be looking of at a reversal is the clear divergence between the stock price and RSI. I will as promised write a bit more on oil as soon as I get time. (have been a bit busy lately looking at RFID!)

Mike

Nelson closed at a new recovery high.....$3.03 Canadian (last time it was this high was 1996)

http://stockcharts.com/def/servlet/SC.web?c=NLG.TO

= :D

I am still keeping NLG. The potential of Zhambai (or just the thinking the potential of it) will keep pushing up the stock.

I sold CHAR (NLG has 40% in it) today at the peak after holding it over two weeks. It probably will pull back a bit before next earning report.

Still keeping KCS (natural gas play) and EGY (a smaller oil company). I will try to buy into another natural gas company before October (when people start to turn on heater).

Out of NLG.TO on Monday @ $2.93 and into PBG.TO @ $6.88 & out of PBG.TO @ $10.10

Sold NLG at $2.85 yesterday. I didn't like it dropped a bit after Katrina, instead of moving up like other oil & gas stock.

Still keeping KCS, CHK, and EGY in oil & gas sector. The former 2 for the up coming NG season.

Alot of action today. Have not found any news.
Anyone find anything?

Good Trading

usedcasting: In spite of the fact that oil is down & natural gas is up today, energy stocks are having a great day.  Looks like NLG tested the breakout point of $2.50, passed and is now going to break above $3 on heavy volume. I bought  NLG back at $2.89 today.  8)

What is this for BS, Lukoil offering only 2B for NLG.TO

Is this the end for Nelson? " Bad offer"


LUKOIL offers $2 bln to buy Nelson at a discount

Friday, September 30, 2005 06:09 EDT

By Dmitry Zhdannikov

MOSCOW (Reuters) - Russian oil major LUKOIL offered to buy oil firm Nelson Resources for US$2 billion in cash, a 15 percent discount to the market value of a firm with large potential reserves in Kazakhstan.

The price offered for Toronto-listed Nelson, with all its assets in the ex-Soviet republic, is around C$2.57 per share, compared with Thursday's closing price of C$2.96.

"The parties have agreed to negotiate the definitive agreements by Oct 12," Nelson said in a statement on Friday, adding that it was keen to ensure the offer would be for 100 percent of its shares.

But LUKOIL said it already had agreement from 65 percent of Nelson's shareholders that they would sell their stakes, and it would extend the offer to minority shareholders at the same price.

"This price represents a premium of 27.5 percent to the six-month average trading price of Nelson," said LUKOIL.

LUKOIL is already heavily present in Kazakhstan and has said it wants to further expand in the country, which is set to become one of the key global oil players in the next decades as it sits on massive hydrocarbon reserves.

Some analysts were surprised at the level of the offer.

"It is 37 percent below our fair value, and the reasons for this discount are not clear," said Dmitry Lukashov from Aton brokerage.

"We will recommend to those of our clients, who are shareholders in Nelson, to vote against this deal," said Lukashov.

But Andrei Gromadin of MDM Bank said he considered Nelson expensive at current levels and Kaha Kiknavelidze from Brunswick UBS added that LUKOIL was offering to pay a price in line with recent transactions in the Kazakh oil sector.

"LUKOIL wants to pay $12.6 per barrel of proved reserves and $7.9 per barrel of proved and probable reserves, which is close to what CNPC offered for PetroKazakhstan ," he said.

China's CNPC offered to pay $4.18 billion for Toronto-listed Kazakh producer, PetroKazakhstan, valuing the firm at $10.7 per barrel of proved reserves -- one of the highest valuations in the history of oil deals in Kazakhstan and well above average Russian levels.

LUKOIL has a 50-50 joint venture with PetroKazakhstan, known as Turgai Petroleum, and it said this week it wanted to buy out the remaining 50 percent of the venture from CNPC before the deal closes.

"It is obvious that LUKOIL wants to increase its presence in Kazakhstan and the Caspian Sea region in general," said Kiknavelidze.

Kazakhstan wants to triple oil output to 3 million barrels per day by 2015 due to three major projects, led by global oil majors, but analysts say that mid-sized fields, like those of Nelson, also offer attractive positions in the booming industry.

Nelson has stakes in several oil firms or separate fields in Kazakhstan, including Alibekmola, Kozhasai, Zhambai, North Buzachi, Karakuduk and Arman fields.

The firm says its net proven and probable reserves are around 270 million barrels, but its total reserves in place could be potentially as high as 2 billion barrels.

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