Yesterday we touched on the idea that the world is being hit at the forefront of energy and the excitement doesn’t stop right away. Therefore, it is necessary to consider energy stock.
But here we are talking about a large market across multiple sectors. There are oil, coal, uranium and natural gas.
Some companies have multiple exposures and often have projects in different countries.
One of the gas companies I’m paying attention to Cooper Energy Co., Ltd. [ASX:COE].. Recently, off the coast of Victoria, we have shifted from developers with major gas assets to producers.
Victoria consumes much more gas in Australia, so it’s a convenient place to have your base. This is a legacy of the large amount of natural gas in the Bass Strait.
Cooper’s share price has been hit in the last few years. please look…
Just as the energy crisis became a headline and began to spread throughout the market, you’ll see a small spike in the lower left corner.
In some cases, it is easy to extrapolate the bull market of everything (in this case gas) to the basis for buying any stock in the sector.
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But I haven’t bought Cooper and I don’t recommend it. Please pay attention to it, but I will explain the reason.
Cooper’s flagship project is a large gas field called the sole of the Gippsland basin. They have spent hundreds of millions of dollars bringing it into production for nearly a decade.
Like all large projects, it required a lot of debt, fairness and a large time frame to make it happen. Management was doing a good job of making that happen.
But at the finish line, Cooper ran into a problem. The gas treatment plants they use (but do not own) have encountered persistent fouling problems.
It kept the amount of gas they could put on the market lower than it would otherwise, making it difficult for them to deliver to their contract.
Another problem is that Cooper offers these gas contracts at agreed prices, rather than primarily spot prices with the energy retail sector.
This price is not the big juicy price we are reading regarding the soaring LNG prices around the world.
Cooper’s bull case is a step away from this dynamics. The idea is that high international LNG prices will attract Queensland gas to ship abroad and away from Victoria, thus pushing up gas prices in southeastern Australia.
And that may happen. However, Cooper told the market in a recent update that gas selling prices remain within previously expected limits.
I checked Cooper’s account yesterday. Although sales increased in FY2009, the company’s cash flow was negative, and as a result of recording all expenses and capital investment, it was in the red.
It also has $ 100 million in debt by funding the development of Sole Field.
Now, the market may now be ready to look beyond the problems of processing plants and deficit accounts. Soaring stock prices may suggest that.
But I’m still vigilant. I’ve always noticed that company presentations are a bit vague about their cost base getting the gas out of the ground.
At least for me, it’s hard to figure out the potential bottom line. In addition, the company is still spending money on development and relies on third parties to solve plant problems.
It leaves it in a weaker position than the gas stock, which can mint money at high prices happening elsewhere.
How about the recent price hike? It could be a bargain hunter, or the beginning of a new uptrend formation. Victoria’s gas problems can get worse from now on to 2025, so some may have a longer time frame in mind.
It’s in the top 10 unsold, so is it out now (is it repurchased?).
Feel free to touch me and the bass Letters@dailyreckoning.com.au If you think I’m wrong, right, or somewhere along the way. Maybe you have the energy stock you are pumping up? Feel free to share.
I’m not going to buy Cooper today. But I keep watching that progress.
Oh, I shouldn’t forget anything else. I’m a host of new market podcasts, Fat Tail Investment Podcast.. Every week, we bring you the latest ASX information, trading ideas and special guests.
I am excited to bring you a great show. We’re starting with a bang — my old companion Murray Dose joined me for our first hit.
He shares why he’s worried about what’s happening with ASX and what you can do with it.
click here Or check the thumbnail below.
nice to meet you,
Editor, Daily Reckoning Australia
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https://www.dailyreckoning.com.au/gas-bull-market-stock-watch/2021/10/12/ Gable Market Stock Watch