Trend Rally Underway for DEE-T

UPDATE 1-Delphi Energy acquires assets at Hythe, Alberta
6:39pm ET (Reuters)

* Says will exchange non-core assets, pay C$10 mln cash

* Sees additional production of about 630 boepd at Hythe

Sept 30 (Reuters) - Canada's Delphi Energy Corp said it would acquire additional natural gas and light oil assets and related infrastructure at Hythe, Alberta, primarily to boost production.

The acquired assets complement Delphi's existing assets at Hythe, where production has grown from 400 barrels of oil equivalent per day (boepd) to 2,000 boepd over the past two years, the company said in a statement.

Delphi expects additional production of about 630 boepd at Hythe.

The company said it would exchange non-core producing assets and related infrastructure and pay net cash of C$10 million for the acquisition.

The transaction is expected to close by Nov. 3, Delphi said.

The company also maintained its outlook of lowering net debt by about C$2 million to C$4 million by Dec. 31.

Shares of the Calgary, Alberta-based company closed at C$1.41 Wednesday on the Toronto Stock Exchange. (Reporting by Koustav Samanta in Bangalore; Editing by Ratul Ray Chaudhuri)

Delphi Energy to list 12 million more shares

2009-09-28 18:16 ET - Prospectus Approved

TSX bulletin 2009-1226

An additional 12 million common shares (symbol: DEE) will be listed at the opening on Wednesday, Sept. 30, 2009. The listing will cover common shares to be sold to the public at a price of $1.25 per common share pursuant to the terms of a short-form prospectus dated Sept. 23, 2009. The closing of the offering is expected to occur prior to the opening on Sept. 30, 2009.

Delphi Energy arranges $15-million financing

2009-09-09 17:33 ET - News Release

Mr. David Reid reports

DELPHI ENERGY ANNOUNCES FINANCING

Delphi Energy Corp. has entered into a financing agreement with a syndicate of underwriters, led by National Bank Financial, to issue and sell, on a bought-deal basis, 12 million common shares of Delphi at an issue price of $1.25 each, resulting in gross proceeds of $15-million. The underwriters will have the option to acquire up to an additional 1.2 million common shares at an issue price of $1.25 per common share for additional gross proceeds of up to $1.5-million for total gross proceeds of up to $16.5-million. Proceeds of the offering will be used to finance Delphi's continuing light oil development program in Hythe and additional potential acquisition opportunities. The offering is subject to normal regulatory approvals, including approval of the Toronto Stock Exchange. Closing is expected to occur on or before Sept. 30, 2009.

It's a typical rally for a bank-sparked recession

David Parkinson

Last updated on Monday, Oct. 05, 2009 06:32AM EDT

If the stock market rally seems so wildly out of line with that of normal recoveries, maybe we should stop comparing it with normal recessions.

Last week, when the S&P 500 peaked at 60 per cent above its March lows (and the S&P/TSX composite index was up 55 per cent from its March bottom), Gluskin Sheff + Associates Inc. chief economist and strategist David Rosenberg pointed out that in typical recessionary bear markets, stocks don't see those kinds of recoveries until the economy has expanded by more than 5 per cent (it has only recently turned upward), U.S. employment has risen by more than two million jobs (it is still declining) and corporate profits have climbed 34 per cent (they, too, are only just turning positive).

His conclusion: This rally has far outpaced where it normally should be at this stage of the economic recovery.

But as Mr. Rosenberg and others have been keen to point out for months, this has not been a typical recession. When you compare it with other similarly unusual downturns – namely, those triggered by banking crises – both the depth of the selloff and the speed of the recovery don't look so unusual at all.

Normally abnormal
In a research report this week, National Bank Financial market strategist Pierre Lapointe took a look at the six downturns over the past 30 years that the International Monetary Fund has identified as triggered by “periods of banking-related financial stress” – in other words, the six economic events around the world that most closely resemble the financial meltdown of last fall.

Signs of recovery energize resource and metal funds

REUTERS

Both gain an average of nearly 11 per cent, but managers say more positive data are needed if rally is to last

Natural resource and precious metals funds generated robust returns in September as commodity prices rose on signs of a global economic recovery.

Resource and precious metals funds both gained an average of nearly 11 per cent last month, and were among the best performers year to date, according to preliminary data released Thursday by Globe Investor.

Economically sensitive stocks have rallied because there is data confirming a rebound, said Benoît Gervais, a fund manager with Mackenzie Financial Corp., adding that there is a synchronized recovery between developed and emerging markets.

But there could be a pullback in the resource sector if there are any signs that the recovery has stalled, he cautioned in an interview.

“You need constant flow of information to confirm that the economic recovery is on, so that people have higher confidence that those stocks will make money.”

The resource sector is “like a garden, where you have flowers for all seasons,” said Mr. Gervais, who co-manages the Mackenzie Universal Canadian Resource and Mackenzie Universal World Resource funds.

Base metal and gold stocks started doing well late last fall, but energy stocks – particularly natural gas – have blossomed in September, he said.

Mr. Gervais said his funds are now overweight in the energy sector, and he sees more upside for natural gas stocks as its commodity price rises enough to allow new shale gas players to “generate significant return on capital.”

Gas rally may be just wishful thinking

Is that light at the end of the long, grim pipeline to nowhere that investors in the natural gas sector have been sliding down?

Gas ripped higher again this week, raising hopes that the market for the fuel is breaking out of a funk that had taken the contract for gas delivered in a month to a seven-year low of $2.50 (U.S.) per million British thermal units (BTU) just four weeks ago.

Since then, the price for gas delivered in a month has almost doubled, finishing yesterday at $4.71 per million BTU.

Yet energy stocks had a rough week, dropping as a group and contributing to a 2.3-per-cent decline for the S&P/TSX composite index, in part because many investors have little faith in the gas rally.

So who's right? Has something changed to turn gas from a dead-end trade facing a terrifying supply-demand imbalance into a big winner, or are the skeptics who were unwilling to bid up gas stocks too far right to back off? Gas bulls are not going to like the answer given by Olivier Jakob, a well-regarded energy market strategist who runs Petromatrix GmbH from Zug, Switzerland.

“The fundamentals, I don't think, have changed in the past month,” he said, pointing to more numbers showing that North American economic growth and industrial production are not rebounding as quickly as hoped, and to the huge pool of gas that's sitting in underground caverns.

“We are way above previous years in storage levels in the U.S. and the trend is not changing.”

In fact, with 15 per cent more gas in storage than last year at this time, the caverns in the southern U.S. where surplus gas is kept are full.

With at least a full month to go (here's hoping) before really cold weather begins in the most populous regions of northern North America, there's not much hope of draining off any of the excess to run the continent's furnaces.

Economic growth doesn't look ready to ride to the rescue in the next month, either. After all, while figures this week showed the U.S. economy shrank at only a 0.7-per-cent annualized rate in the second quarter, not the 1 per cent most were expecting, there's no getting around the issue that the economy shrank – for the fourth straight period.

“You need, really, demand to come back. Until you start really to go back into better dynamics in industrial production, it's going to be a tough challenge.”

That's the short term. The long term isn't necessarily pretty, either.

A signal moment for many big natural gas investors was the announcement that liquid natural gas terminals that were designed during the good years to bring the fuel into a booming, energy-starved North America were being turned around to export gas instead. That heralds a future where the continent is in surplus for the long term.

Optimists point to hopes that gas will be shut in some time soon, with wells simply shut off. But that's a temporary fix. As soon as any rebound happens, those wells can easily be turned back on by cash-starved producers, limiting any gains in the price, Mr. Jakob argues.

“Gas is basically in the same situation that OPEC is in on the crude oil market,” he says. “They need to shut down production. But that is not bullish long term because you do then create that additional long-term capacity.”

However, the gas business lacks the cartel mentality that OPEC has, so there's little discipline to keep production down.

After dropping output in April, Chesapeake Energy Corp., one of the biggest producers in the United States, just brought it back to the company's regular rate. The company's chief executive officer told investors he wasn't willing to sacrifice his bottom line for the good of the industry, saying, “We didn't see any reason to take it on the chin for the team.”

So given those grim fundamentals, what caused the September surge in gas and is it sustainable? Probably not, if Mr. Jakob is right.

The gas market is in what's called contango – which means a steady rise in prices, with gas for delivery soon cheaper than futures for gas that will be delivered a few months from now. As a result, when the market “rolled” so that the contract that most people trade moved from October delivery to November delivery, which was trading at a higher price, the market jumped.

That's not going to last, Mr. Jakob predicts.

“We will have contango convergence, when we retrace to erase this jump that we had from the October to the November contract,” he said.

The other big driver was the buying caused by a quirk in the exchange-traded fund market. The biggest gas ETF, the U.S. Natural Gas Fund (UNG-N11.390.373.34%), had stopped issuing units for a few weeks because regulators were concerned that the fund was getting too big and controlling too much of the market.

However, demand for the fund's units remained strong. As a result, units rose well above the value of the gas contracts the fund owned – peaking at around a gap of 20 per cent. When the fund recently announced it would resume selling units, savvy traders bet that the gap would close. That easy money is now gone.

“The trade was to sell the [fund] and buy natural gas because this 20-per-cent premium would automatically come off when they start to issue new shares,” Mr. Jakob said. “That's what we saw.”