Put your hand under the cash waterfall
Latest News about traditional investments.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore — (TFN): We all have a friend like him. For me it’s a guy named Greg. He has some great ideas and his entrepreneurial spirit runs deep, but for some reason, his plans never seem to make it to fruition. Somewhere from the drawing board to the production line, he runs into a debilitating snag.
Most of the time, it’s money.
He’s got great ideas but nary a penny to his name. That’s why I told him to ring up old Uncle Sam… collect. Washington’s handing out all sorts of dollars these days. He might as well put his hand under the waterfall.
According to the Wall Street Journal, the Department of Energy is handing out some $40 billion just to the so-called “clean energy” sector. Greg needs to paint a tree on his latest invention, call it organic and break into 21st century politics, er, business.
From here on out, it’s not what you know, it’s who you know. With Obama acting as economic maestro-in-chief, it’s a whole new world for us business folks.
Which brings me to a sore subject. You see, I recently told Hot Stock Confidential members to buy shares of a tiny little up-and-comer named Raser Technologies (NYSE:RZ).
Now, before I go any further, I don’t want to hear any complaining that I only talk about my winning plays in Notes, because this one was a loser. A big fat flop. Right now, we’re down 45%. It was one, if not the worst recommendations I made this year.
But I’m not selling. Even though I got plenty of heat from internal and external “forces,” I am still not ready to suck it in and lock in the loss.
I’m not holding out because the company’s got a breakthrough product or is about to get bought out. I’m holding on because Uncle Sam is ready to cut Raser a big ole’ check.
When I initially recommended the company in late August, headlines were abuzz with “green” spending. But then, just as suddenly as it started, it stopped. Congress switched gears to healthcare and Raser shareholders were left in the dust.
But Washington never stays in one place too long. It makes for an easy target. So once again, the clean energy industry is heating up. The article in today’s Journal proves it.
With Stimulus 2.0 ready to be released and the DOE spending like an eighteen-year-old who just unlocked his trust fund, this is a fantastic time for Raser and its geothermal electricity production.
After all, just last week it announced it was applying for a Treasury Department grant that could put $33 million into the company’s coffer.
For a firm with a market value of just $90 million, $30 million can do great things.
This play may not have followed a traditional route and is certainly a move that would make any financial advisor soil his suit, but in today’s financial environment, when the government acts as the lender of choice, traditional rules are out the window.
While fundamental investments still have long-term merits, for us short-term traders and especially us contrarians, some of the best investment opportunities can be uncovered by following the White House press pool.
*** Speaking of money, how about Exxon’s big deal today? For us contrarians, the $31 billion, all-stock deal proves the world’s largest oil producer believes its stock is overpriced and ready to fall.
If you’ve read my work for any length of time, you likely know that I am a big fan of signaling theory. According to the common-sense notion, Exxon’s unwillingness to use any of its massive pile of cash is a sign that company executives feel a $69 share of the company is worth less than $69 in cash.
It is no wonder we are watching shares drop by more than 4.7% today. In the long run, today’s news will boost Exxon’s performance. But in the short term, investors have an awful lot to think about.
By far, the biggest news surrounding this story is not what it will do for Exxon or XTO shareholders, but what it will do to the natural gas market.
It’s exciting stuff, especially for those of us that just racked up triple-digit gains thanks to the industry’s recent meanderings. I’m talking to you TFN Strategic Trader members.
Here’s what I wrote for the TFN site today:
“You don’t become one of the world’s largest and most profitable companies by making dumb moves. Exxon Mobil (NYSE:XOM) proves it once again.
“The Street is buzzing today thanks to news that Exxon is printing some $31 billion worth of new shares in order to purchase XTO Energy (NYSE:XTO), one of the nation’s natural gas producing giants. It’s a major deal that has hearts skipping across a variety of sectors.
“Of course, nobody is as excited as XTO shareholders. They woke up to news of a buyout worth a 17% premium to Friday’s closing price.
“Shares of the oil and gas producer slipped by double-digit proportions over the past few months as natural gas prices slide. But now that demand is rising and gas prices are following suit, Exxon officials saw it was time to make their move. With XTO prices reaching short-term lows, Exxon made its move.
“Now that a major non-conventional gas player is making headlines, investors have their eyes on all sorts of potential buyouts. It’s almost impossible to find a company in the energy industry not trading in higher territory today.
“Two stocks you will hear a lot about over the next couple of weeks are Chesapeake Energy (NYSE:CHK) and Range Resources (NYSE:RRC).
“So far today, Chesapeake is up by over 6%, with shares trading close to $25.50 each. The company, with major holdings in all of the popular shale regions, has been a long-term target of buyout rumors. Maybe this time the speculators will be right.
“But my money is on Range Resources. It is a major player in the Marcellus region that just happened to announce significant expansion in the area this morning. Coincidence? Doubt it. It looks more like advertising.
“Range is the right size for a buyout. With a current market value of $7 billion and another $3 billion or so in debt, a buyout could come with a price tag of just over a third of Exxon’s purchase. Whoever decides to grab the company (think Shell or BP) would automatically get more than 180 Mmcf of daily gas production out of the Marcellus region.
“Of course, this is a long-term play. With gas prices plunging to ultra-low territory in recent months, any company purchasing gas assets now has a long-term outlook. With non-conventional plays hotter than a barroom pistol, major producers like Exxon are flocking to the sector in hopes of finding larger profits than their current low-margin deepwater prospects.
“For all of you fans of deepwater drilling, that is bad news, even horrid.”
Read why here.
*** Hey, lookie there. Gold’s up today. With word that Congress is ready to budget yet another couple trillion bucks, the dollar’s a tad bit weaker today.
As I write, gold is up by $3.70 per ounce and the dollar’s down just $0.0019 against the euro. Doesn’t look like buyers of either asset have much conviction.
Today’s just a short-term turnaround in the recent trend. Expect more strength from the greenback and more weakness from the gold market. By the time we sing Auld Lang Syne in a couple of weeks, gold will be trading for $1050 per ounce. That’s when you should be a buyer again.
Original source for this article: Contrarian Profits
A Hot Future for Geothermal
Latest News about traditional investments.
Marin Katusa and Marc Bustin, Editors of Casey’s Energy Report, bring their analysis for the future of this hot alternative energy resource.
Marin Katusa and Marc Bustin (Casey’s Energy Report):
Co-Written by Marin Katusa & Marc Bustin, Editors of Casey’s Energy Report
Capturing energy from the earth’s heat is pretty easy pickin’s for geologically-active areas of the world like Iceland, Indonesia, and Chile. In some locations, hot fluids are so near the earth’s surface that heat from naturally-occurring hot fluids can be directly circulated through buildings for heating. Iceland, in particular, takes advantage of this low-hanging energy fruit.
However, in most areas of the world where geothermal energy is captured, the heat is used to generate electricity.
Conventional Geothermal Energy
Unlike some of the more common alternative energies — hydro, solar, and wind — geothermal is impervious to weather conditions. This independence means it provides excellent base load electricity.
Currently all commercial geothermal electricity is generated by so-called conventional systems, whereby naturally- occurring hot water or steam is accessed at comparatively shallow depths in areas of very high geothermal gradient. Wells are commonly drilled to depths on the order of 2 km. The water or steam they produce is used to spin turbines that in turn generate electricity.
The success and sustainability of a geothermal reservoir in large part depends on managing the reservoir. For a reservoir to be sustained, the natural and induced recharge of fluids must balance the produced fluids. Almost all reservoirs require the produced water to be re-injected in order to maintain reservoir pressure. Because naturally-occurring water and steam are necessary, potential development is generally restricted to areas near volcanic activity.
But the geographic limitations of geothermal energy may be about to change — and create a much rosier picture for the future of geothermal energy.
Enhanced Geothermal Systems (EGS)
Conventional geothermal systems are possible only in relatively limited geographic areas. The real prize in accessing geothermal energy – and at a much larger scale – is through enhanced (or engineered) geothermal systems.
In EGS, hot rocks are artificially fractured, commonly at great depths. Water is injected to contact the hot rocks and then produced back to the surface; the energy captured is used to generate electricity. These are very expensive ventures, with costs in excess of $10 million dollars as a starting point — ten times the cost of a geothermal well. Current EGS projects are still experimental, and most have substantial government backing.
A relatively advanced EGS experimental system is currently underway in Australia. Here, granites producing high heat due to radioactive decay at depths greater than 3 km are seen as viable geothermal reservoirs. In South Australia alone, some 23 companies have filled licenses covering 110,000 sq km where suitable hot granite is believed to exist at accessible depths.
Once such a plant is built, it will be tapped into a virtually limitless supply of energy that’s available without cost, 24/7. Successful implementation of EGS plants will be the break-out technology for geothermal energy.
Is Geothermal Economically Viable?
A workable technology is one thing, and economic viability is something entirely different. As you can see from the chart below, not all energy sources are created equal when it comes to cost per kilowatt-hour.
In terms of production cost, geothermal certainly holds its own at 6.5 cents per kilowatt-hour — about the same as wind. Coal and nuclear power are still powering the way ahead with their 4-5 cent/kWh generation costs, but with natural gas at 7 cents and petroleum topping 10, geothermal has already proven itself to be a viable alternative, not only on the economic front but on the environmental front as well.
In terms of current worldwide energy production, geothermal — along with solar — is a drop in the bucket:
Given the fact that geothermal energy is only a minor player in the worldwide picture for energy, why are we still bothering with it?
Because in terms of economics, geothermal energy trounces solar and wind.
Here’s what we mean:
1. Geothermal energy does not depend on weather. The sun doesn’t shine around the clock or even every day; neither does the wind blow all the time. In contrast, hot rocks are there 24 hours of the day, seven days a week. The predictable amount of electricity makes it easy for geothermal companies to sign long-term energy contracts without worrying as much about underproduction or “wasted” production.
2. Lower capital costs. Even though solar panels have gotten much cheaper to make, the construction costs of a large solar farm are still extremely high. Recent estimates place the cost of solar energy to be upwards of US$10,000 per kilowatt-hour (kW) whereas wind is around $1,700-$3,000/kW. Geothermal is similar to wind at US$1,600-$2,800/kW depending on location, though due to reasons 1 and 3, geothermal is economically superior to solar and wind. In fact, these numbers put geothermal on par with building a coal plant under the new requirements for carbon capture.
Geothermal capital costs are relatively low for two reasons. First, there’s no need to sequester, or capture and stash, any carbon emissions. This requirement alone can add 40-60% to fossil fuel projects. Second, geothermal power plants enjoy the best of both worlds: they require less land than wind and solar projects, and fewer permits than coal and nuclear because they’re less hazardous.
3. Higher load factor. Utility companies, and anybody buying power from them, have to consider load factor: the difference between nameplate capacity (how much the generator is designed to produce) and actual production. The smaller the difference, the higher the load factor, and the more money the utility will make. For a wind farm, the load factor is generally 30-40%, and even lower for solar farms. In contrast, geothermal power plants can generally operate near 90%, since, as we said before, hot rocks are always available.
On an economic basis, geothermal has a virtually unique advantage among the “green” energies. Its power plants can compete with those fired by coal or natural gas even before any government subsidies. For geothermal operating companies in the United States, the government subsidies that Obama is showering upon the alternative energy sector are pure icing on the cake.
And best of all, geothermal companies are virtually off the radar of most investors. For those keeping an eye on geothermal technology and geothermal companies, a window of great opportunity will open.
This kind of research is typical of Casey’s Energy Report and its research team, led by Marin Katusa. And with a stock pick record of 19 winners in a row — a 100% success rate over 11 months — Marin’s insightful research has made a great deal of money for his subscribers.
As a special year-end offer, we have drastically lowered the price of Casey’s Energy Report – but only until December 18. Sign up for a 3-month trial today and receive 40% off the subscription price PLUS a free holiday gift! Click here to learn more.
Original source for this article: Contrarian Profits
