Blue chip stocks – not a poker game

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Investing in conservative blue chip stocks may not have the allure of a hot high-tech investment, but it can be highly rewarding nonetheless, as good quality stocks have outperformed other investment classes over the long term.

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Investing in conservative blue chip stocks may not have the allure of a hot high-tech investment, but it can be highly rewarding nonetheless, as good quality stocks have outperformed other investment classes over the long term.

Historically, investing in stocks has generated a return, over time, of between 11 and 15 percent annually depending how aggressive you are. Stocks outperform other investments since they incur more risk. Stock investors are at the bottom of the corporate “food chain.” First, companies have to pay their employees and suppliers. Then they pay their bondholders. After this come the preferred shareholders. Companies have an obligation to pay all these stakeholders first, and if there is money leftover it is paid to the stockholders through dividends or retained earnings. Sometimes there is a lot of money left over for stockholders, and in other cases there isn’t. Thus, investing in stocks is risky because investors never know exactly what they are going to receive for their investment.

What are the attractions of blue chip stocks? 1. Great long-term rates of return.

2. Unlike mutual funds, another relatively safe, long term investment category, there are no ongoing fees.

3. You become a owner of a company.

So much for the benefits – what about the risks? 1. Some investors can’t tolerate both the risk associated with investing in the stock market and the risk associated with investing in one company. Not all blue chips are created equal.

2. If you don’t have the time and skill to identify a good quality company at a fair price don’t invest directly. Rather, you should consider a good mutual fund.

Selecting a blue chip company is only part of the battle – determining the appropriate price is the other. Theoretically, the value of a stock is the present value of all future cash flows discounted at the appropriate discount rate. However, like most theoretical answers, this doesn’t fully explain reality. In reality supply and demand for a stock sets the stock’s daily price, and demand for a stock will increase or decrease depending of the outlook for a company. Thus, stock prices are driven by investor expectations for a company, the more favorable the expectations the better the stock price. In short, the stock market is a voting machine and much of the time it is voting based on investors’ fear or greed, not on their rational assessments of value. Stock prices can swing widely in the short-term but they eventually converge to their intrinsic value over the long-term.

Investors should look at good companies with great expectations that are not yet imbedded in the price of a stock.

How To Trade Stock, Timing Is Everything

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Aim for the best timing in stock market trading. It is the only option for a successful stock market investor learning how to trade stock.

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The following article lists some simple, informative tips that will help you have a better experience with how to trade stock.

Aim for the best timing in stock market trading. It is the only option for a successful stock market investor learning how to trade stock.

In order to raise capital and invest in the business, companies issue their stocks and the public may then buy and sell. The price varies depending on the supply and demand. This is what a stock market trader takes full advantage of.

The business of stock market trading can offer better profits to the investor compared to ordinary stock enterprise. The stock market offers a wide variety of stocks to choose from for any investor to go on with stock trading. There is always a moving stock out there amongst the thousands of others registered.

However, a careless attempt to proceed with stock market trading can produce undesirable result. Big losses can be incurred if the market trend is not properly predicted. Small profits would also frustrate the purpose of doing stock market trading. An uninformed stock trader may also end up waiting for that decisive moment that would never come.

Market Timing

The more authentic information about how to trade stock you know, the more likely people are to consider you a how to trade stock expert. Read on for even more how to trade stock facts that you can share.

To avoid the adverse effects of poor stock market trading, investors use market timing to forecast when the market will change its course. Market timing presumes that the decisive point can be predicted ahead. The direction of the market is predicted through a thorough examination of the price and economic data.

Best Timing

The consistency of such trend prediction is subject to many factors, that is why the aim of any would-be successful investor is best timing. At first glance, market timing sounds like a guaranteed way to make it big. This however requires exertion of considerable effort and persistence in carefully studying the various factors this is the proper way to learn how to trade stock.

Avoid mere speculating. Speculating is a desperate move when the investor hasn’t done his homework.

Investors also buy stocks because they got a hot tip from someone. Most of these tips however prove to be false, as they are mostly given by parties with vested interests.

Market timing requires involvement in research to know the company’s history and calculate the trend by charting the movement of the stock’s price. This involves analysis of the value of the stock to come close to accurate in predicting the trend. This is ideal in developing standards for when to buy and when to sell for the investor must accurately settle on the proper time to sell. One must also correctly determine when to regain, reselling the stock bought when it reaches its peak value. This way, the maximum profits can be realized.

Is there really any information about how to trade stock that is nonessential? We all see things from different angles, so something relatively insignificant to one may be crucial to another.

A ‘Call’ On The Price of Uranium?

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Uranium stocks are moving higher because of the rapid rise in the spot price of uranium. We talked to Strathmore Minerals Chief Executive Dev Randhawa about how his company may be thought of as an unexpired call option on the uranium. Because it is next to impossible to directly purchase uranium and benefit from that commodity’s rising price, many investors are turning to the junior uranium development companies, such as Strathmore Minerals.

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Interviewer:
Before we talk about the potential of uranium shortages and the steep price rise in that energy source, could you explain how you got started with this idea, and what is the philosophy behind Strathmore’s acquisition program of uranium properties?

Dev Randhawa:
Several years ago, Strathmore Minerals started with the idea of acquiring properties “out of the money?at very cheap prices in the belief that the uranium prices would recover so that our assets would be worth more. No one was paying attention to the commodity we chose: uranium. Strathmore Minerals is basically a call on the price of uranium. That’s how we started the company. This strategy is similar to what Lumina Copper (AMEX: LCC) used and what Silver Standard used. For example, the chairman of Silver Standard Resources (NASDAQ: SSRI) is on our board of directors. Our first step was to buy every pound we could for as cheaply as possible. The second step is to buy property that we think we can put into production. We are actively looking for those.

Interviewer:
But uranium has a powerful environmental stigma. Why, then, are you enthusiastic about this type of energy source?

Dev Randhawa:
As with most people, when I began investigating uranium, I thought this was bad stuff. I thought of Three Mile Island and everything else. The more homework I did on this, the more I realized that nuclear power is clean and safe. That is primarily what uranium is used for now. It should be known that no one ever died at Three Mile Island. No one actually died at Chernobyl. Yes, people got sick. Compare that to coal or the oil spills in the fossil fuel sector, and the damage it has done to the environment. The problem is no one is championing nuclear energy. Frankly, the “greenies?have done a great job of burying the story. As I did homework, I found out France relies on nuclear power for about 78 to 80 percent of its electricity needs. I realized that somebody did a great job lobbying and built a very unhealthy picture toward uranium, when really it’s needed. We don’t talk about the cost of coal. We don’t talk about global warming. But, look at what coal has done. Global warming is a function of fossil fuels. That is why you are seeing a growing positive response to nuclear power. For example, one company has applied to put a new nuclear reactor into the US.

Interviewer:
To what do you attribute the recent, steep price rise in uranium?

Dev Randhawa:
Since last year, the price of uranium (U3O8) has climbed back steeply back up. At one point, the price was moving up about $1/pound per month. Uranium’s price is more in line with the price of oil as opposed to other commodities. For a long time, we’ve only produced on the average about 90 million pounds, when we needed 140 (million pounds). There’s been an imbalance for a number of years. This extra came from foreign sources, or from internal US inventories. Since the 1980s, we’ve been using more uranium than we have been producing in the western world. As a result, the extra that we’ve needed has come from Russia, the US government or inventory that utilities had.

Interviewer:
But most investors, let alone the consumer, don’t know that uranium’s spot price has nearly tripled, since bottoming three years ago. Why is that?

Dev Randhawa:
Uranium only makes up one percent of the cost of running a nuclear reactor. The biggest factor in why uranium prices can go up, even more rapidly than gold, is that uranium is insensitive to its use. Uranium prices can go much higher. In casual conversations with a few Toronto analysts, some believe it can go up to $80 or $100/pound. For example, if the price of gold tomorrow went to $800/ounce, it will affect someone’s purchasing decision. The guy might say, “I was going to buy this ring and now it’s up 70 percent because the price of gold is up. Maybe I will buy a silver ring instead.?The same occurs with other commodities. People may change their purchasing decision based on a commodity price doubling.

If the price of uranium went to $44/pound, the average consumer’s electricity bill might go up a few dollars. It is not going to force someone to turn off their power. However, if the price of oil doubled tomorrow, many of us would be driving smaller vehicles. It would make a fundamental difference in how we behave. That’s not going to happen with the price of uranium. It’s like buying pencils for your office. It’s not going to change the way you do business. Even if no nuclear reactors come onboard for the next few years, the ones already there will need the pounds (of uranium). We have a shortage coming up.

Interviewer:
Why do you believe a uranium shortage is in the cards?

Dev Randhawa:
Bottom line is: the nuclear reactors are going to run out of fuel. You have to know that permitting takes a long time in the uranium industry. It’s not like finding a gold property tomorrow and maybe two years from now you are pouring gold. Typically, the permit takes at least three years out. Because nuclear reactors need it, that’s what is causing the price rise. Demand has kept going higher, but production has fallen off the chart. In this industry there are only about half a dozen companies exploring for uranium. At one time, back in the late 1970s and early 1980s, there were almost 150 uranium companies. There hasn’t been any underground mining since the early 1990s. And that doesn’t even include a wild card: there has been talk that by 2020, 90 percent of the nuclear reactors coming onboard will be for China.

Interviewer:
And what would reverse uranium’s steep price rise?

Dev Randhawa:
The only thing that could kill this market would be if Russia discovered it had a lot more pounds to sell. Or the US government, through USEG, came up with more pounds. When we first entered the market, eight years ago uranium rose to around $17-$18/pound. Then it fell. What happened was the U.S. government sold their uranium to a private group, who turned around and dumped it into the market, from then until last year. In October of last year, the Russians were also dumping uranium onto the market for their hard cash.

Interviewer:
If replacement value for uranium comes in the form of exploration costs to find and mine this energy source, what would that cost be?

Dev Randhawa:
Realistically, it would be $20 to $22/pound. I know some are going to say they can do it for less. By the time you take your exploration costs, development costs, and so on, you really need to get $22 to $25 for most properties to go into production and still make money. That’s why most of what you see in the market are ISL (in situ leach) projects. On one property we discovered, it would cost between $16 and $17/ pound to pull it out of the ground. But on others, it might take $20 – 22/pound to pull it out of the ground, after labor costs and sell it on a forward contract. Canada is producing the most uranium because of the grades. Some say Canada has the lowest cost, but that’s not quite accurate. What they mean to say is that the cash costs are the lowest. People forget that it costs up to $2 billion to put some of these into production. Cameco (NYSE: CCJ) was a creature of the government at one time. They were treated that way.

Interviewer:
Earlier you noted that investing in Strathmore Minerals was “basically a call on the price of uranium.?Can you clarify what you meant by that?

Dev Randhawa:
As uranium prices, the share price of Strathmore Minerals should rise. If you look at Bema (Amex:BGO), when gold prices were at $265/ounce, what was it worth? As the price of gold moved up, it had value. Has it gone into production yet? No. Silver Standard (NASDAQ:SSRI) is similar, but it has had to tell its story because people are so focused on gold. The key for investors is not to go where the crowds go, but to go where you can find value. If you believe that nuclear power is the place to be, and the shortage is real, you have got to own uranium stocks.

Interviewer:
What sets Strathmore Minerals apart from any other exploration companies in this sector?

Dev Randhawa:
I challenge any junior exploration company to show an individual who has actually put an ISL (in situ leach) uranium mine into production, including Cameco. They just aren’t around because the industry has been dead since the early 1980s. There aren’t many experts left in this business. The last standing geologist, which Cogema had, was David Miller, who is now working with Strathmore Minerals, as our head consultant. He is the one who has put the Strathmore strategy together. We’ve been looking in southern and eastern Africa. Strathmore is going wherever there are pounds that others have overlooked. Our competitive edge is a database we acquired from Kerr McGee (NYSE: KMD), which used to be number one in the uranium industry. Recently, we announced properties in Wyoming that could be satellite ISLs. We have enough pounds there that we could throw one of them into production. But we still need higher prices. We are still in the acquisition stage.

Strathmore is going to be very aggressive in picking up properties that we think have pounds in the ground or smaller properties that we think can be ISL-able in the US. Everything we’re looking at in the US is for ISL. In Canada, we have over 700,000 hectares in the Athabascan region. That’s a major asset for us. It’s one of the richest areas in the world for uranium. Some of our targets are near existing mines. In Quebec, we’ve got a large property that was drilled by Uranerz. Robert Quartermain has certainly been a part of that strategy. That’s what he did with Silver Standard, and that’s what we’re doing here. We are aggressively going after properties. When sophisticated investors meet our team, they see the story we’ve got and they see our management. You’ll see why we were able to millions of dollars in financings. Our strategy has been to buy the has-been properties, the low fruit in all the trees. And that’s what we’ve been doing.

*****************************************
Devinder Randhawa

Mr. Randhawa founded Strathmore Minerals Corp. in 1996 and is currently the Company’s CEO. Mr. Randhawa also founded and is currently the President of RD Capital Inc., a privately held consulting firm providing venture capital and corporate finance services to emerging companies in the resources and non-resource sectors both in Canada and the US. Prior to founding RD Capital Inc., Mr. Randhawa was in the brokerage industry for 6 years as an investment advisor and corporate finance analyst. Mr. Randhawa was formerly the President of Lariat Capital Inc. which merged with Medicure in November 1999 and the was the founder and former President and CEO of Royal County Minerals Corp. which was taken over by Canadian Gold Hunter (formerly International Curator) in July 2003. Mr. Randhawa also founded Predator Capital Inc., which became Predator Exploration. Mr. Randhawa received a Bachelors Degree in Business Administration with Honors from Trinity Western College of Langley, British Columbia in 1983 and received his Masters in Business Administration from the University of British Columbia in 1985.

Investing In The Stock Market: How To Get Started

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In the world we live in today there is no shortage of access to investment information. This in itself however, can be an enormous problem. Asking questions about how to invest, where to invest, and what to look for, can bring you many answers from lots of different sources. The trouble is diving through all the clutter to find relevant information to suit your needs.

So when looking to invest in the stock market, where should you start?

First things first, invest in wh…

investing, finance, stock market, money

In the world we live in today there is no shortage of access to investment information. This in itself however, can be an enormous problem. Asking questions about how to invest, where to invest, and what to look for, can bring you many answers from lots of different sources. The trouble is diving through all the clutter to find relevant information to suit your needs.

So when looking to invest in the stock market, where should you start?

First things first, invest in what you know. If you are trying to evaluate a company, make sure you know how it works. The great Warren Buffett has often been criticized for not investing in technology during the dot-com boom. His answer was simple. If you don’t know the business model, what the company does on a day to day basis, or how it generates revenue now, and in the future, then stay away from it. It is because of this that he has earned billions of dollars year after year for himself and his investors.

Once you know the types of companies to look for, you’ll need ideas. Message boards, newsletters, financial news shows, and stock screeners are all good places to find ideas. Stock screeners are especially useful, because in addition to finding ideas, you can narrow the search down as you go to fit your qualifications. I’ve personally had good luck using the screener at http://finance.yahoo.com.

So you’ve found some companies worth looking into, what next?

1. Insider trading — This is anyone who is considered to have an inside knowledge of the company, and also has money invested in company stock. This could be someone who owns 10% or more of the company, a director, CEO, CFO, etc. Watching when the insiders buy and sell stock, and at the prices they do it, can be very useful in predicting a stocks future. You don’t want to buy a large stake in Company X when all the people running it are getting out. Therefore it’s always a good idea to watch what the “smart money” is doing.

2. P/E ratio — The price to earnings ratio can also be a useful tool in evaluating a company. The P/E ratio will tell you if the company is relatively undervalued, or overvalued. A company that is undervalued should have a P/E ratio that is lower than other stocks in their sector. This is a great value to plug into a stock screener to find profitable companies.

Note: P/E can be manipulated (think Enron). Also P/E ratios vary wildly depending on the sector you are looking in. Technology stocks could have an average P/E ratio of 60, while oil companies could have an average P/E ratio of 10. Whenever I evaluate a stock, I don’t look at the P/E against all other companies, but I look at it against their competitors in the same sector.

3. Technical analysis and charts — This is another tool that can help you see where a company has been, where the company stands now, and where it’s headed in the future. It shows the company in a graphical form where you can see the stocks activity and volume over a period of time. You can find many tutorials on the internet about this, and you can even get a free DVD that shows you the basics from http://www.technitrader.com.

4. Management team — Some people just look at earnings, charts, and other technical ways of evaluating a company. This isn’t always a bad thing but to really know about a company, you should know the management. You should know what other companies they have been involved with in the past, and how they did when they were there. You should also know where they plan to take the company you’re evaluating, and in what length of time they have allocated to get there. It’s a bit like evaluating a sports team. You wouldn’t pick a championship team without looking at the coaching staff.

These are a few of the ways to help find companies to invest in. Like with anything though, due your homework, write out your goals, and when in doubt, ask for advice from someone who has already accomplished what you are trying to do. Knowledge is the key to being successful at just about anything.

Greed And Fear

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Greed and fear is what makes the markets move.

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Greed and fear are the major players in the stock market. These two emotions are the
driving force behind almost all market participants – Institutional mangers, stockbrokers,
Investors, traders and yourself.

You might be saying to yourself that greed and fear will never get in the way of my trading,
but believe it or not they will be. It is not something to be ashamed of. It is something you
have to admit to, come face to face with, If you are to become a successful stock trader or
investor.

What do greed and fear look like in the stock market trading arena?

You have been watching a particular stock for some time now. It has set up perfectly, so you pull the trigger. You bought it at the perfect price and now it is moving higher just as you thought it would.

Now greed steps up to the plate and says to you, this is going to be a rocket ship. So you buy some more shares. Or your stock moves a few points and goes passed the price that you decided to get out. Greed tells you this baby is going higher tomorrow so you hang on.

When stocks make strong moves to the upside greed from all the cumulative market participants joins the move.

Stock prices usually fall faster then they go up, and when this happens, fear now steps up to the plate.

Lets look at the example above, where your stock went through your get out price and you held on because greed was by your side. The next morning the stock price gaps down. Their is heavy selling all morning long. Greed is telling you to hang in there the price will come back. The price keeps going down, now you get a knot in your gut, and your knuckles are turning white. Fear is now by your side, but by now it is to late, your nice profit has turned into a loss.

Everyone goes through this until they have mastered the ugly faces of greed and fear. Master this and you are well on your way to becoming a successful stock trader.

Go Stock Trade . com Primer: What is the stock market all about?

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Thousands of people who have money in any type of account for their retirement can consider ourselves participating in the Stock market. But have you pondered about the functionality of how this interesting market works? Imagine being at a regular auction, where instead of nice bits such as cars and antiques are being bidded away, think of bits of public companies being auctioned away.

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Thousands of people who have money in any type of account for their retirement can consider ourselves participating in the Stock market. But have you pondered about the functionality of how this interesting market works? Imagine being at a regular auction, where instead of nice bits such as cars and antiques are being bidded away, think of bits of public companies being auctioned away.

To make a less confusing analogy, think about the role of an auctioneer. The auctioneer’s role is to get the highest and best price for each product. Well, the stock exchanges around the globe kinda operate in the same fashion. The auctioneer role, is called a Market Maker. In a stock sale, there is no stable, set price for stocks, but instead, setting the price is the role of the Market Maker.

The price will fluctuate greatly, because the ying and yang of the market, the buyers and sellers, will bid on either the stock going lower, or higher. Usually when you see a stock price go up, it means that the buy price of a stock has increased. This is vice versa when a stock declines in value.

Now I am sure you have seen visuals on the major news networks of how a stock floor looks. You know, the floor where tons of stark raving mad folks, scream numbers and look at monitors and make trades all day. The trading day starts at 9:30 in the morning Eastern Time, and stops at 4:00 in the afternoon Easter Time. Depending on business news, market forecasts, world events, and a few other things thrown in between, can dictate how much volume a market can have in a day.

The last couple of paragraphs have mentioned all of the particulars of two major markets, the New York Stock Exchange(NYSE) and the lesser known American Stock Exchange. But there is a third one too! It is called NASDAQ.
Now what makes NASDAQ quite unique from the other two, is that this market is controlled by computers. Despite the technological advances of this stock market, NASDAQ still has the conventional bidding water of NYSE and American Stock Exchange. The buyers and sellers have their own areas to buy and sell stock, and bid through a quote system called Level II.

The great thing with stock trading, is that in order to be successful with trading stocks, you do not have to be in the pit, bidding like a madman on the hunt for their lives. Not at all! You can now use the very computer in your house, or go to a trading office if you live in a big city and trade stocks. Many different internet based brokerages are out there, and have plenty of materials to get you started on your way to becoming a great stocktrader!

PROFIT ON!

How to Find How Much Stock a CEO Holds

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Have you ever been curious about how much stock your company officers hold? Or, are you an investor who needs to know? This article gives a fairly quick method to find out, utilizing information available on the NASDAQ’s web site.

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Corporate officers enjoy many additional benefits over rank-and-file workers. For the uninitiated, it may be surprising to learn the amount of stock compensation they hold. Are you curious about how much stock the CEO and other officers of a particular company control? You can find out very easily.

This is how to uncover the amount of stock held by the officer of any publicly held company. Go to the NASDAQ web site and enter the stock ticker symbol for the company you are interested in. Click on ‘Flash Quotes’. Use the drop down box to select ‘Insider Form 4’. Scan down the list until you find the company officer’s name you are interested in. Click on that name. Go to the top of the list which should be the latest date. Move your eyes to the far right column entitled ‘holdings’. That is how many shares that officer currently holds and controls. Multiply that number by the most recent price for the company’s stock and you will arrive at a dollar figure.

Of course, that figure will change from day to day. You may be amazed at just how high that number is. Consider that this is merely the officer’s current stock holdings. It doesn’t tell you how many shares he has sold in the past; it also doesn’t tell you how many shares the company will grant him or her in the future.

When you start to look at these figures you may find them amazing. If you are currently a company CEO or officer, the numbers will not shock you because you will already be familiar with them. However, if you are currently an employee for a publicly held company you may wonder about the discrepancy between your salary and the officers’ stock holdings.

Some will say, “but the CEO and other officers worked hard for their money”. And that may very well be true. But did they really work any harder than you on a day to day basis? And if they did, does the harder work they did add up to account for the discrepancy between an average worker’s pay and a company officer’s stock holdings? Chances are, the answer is no.

This leads to some interesting realizations about how our economy works. The days of serfdom are supposed to be over, but are they really? We now have an economic feudal system. The real estate owned and tribute collected by a monarch have been replaced with stock compensation for corporate officers and owners. But the serf or worker is the one who does the work. The monarch and his court are still the ones who reap the rewards.

In private companies you probably won’t be able to find out the information that you can find on the NASDAQ web site about publicly traded companies. I think it is a good thing that the SEC or Securities and Exchange Commission requires this information to be available to the public. Of course, it is meant to be available to potential investors. But if you own stock in your company via a 401K plan, then you are an investor.

Besides the NASDAQ web site, you can also find this information on the Securities and Exchange Commission’s web site. In fact, there is a wealth of information out there to discover. In many instances it is actually easier to find on the NASDAQ web site.

Perhaps knowing the value of the stock held by company officers will make you less timid about asking for that raise you’ve been thinking about. Knowledge often equates to power.

Canadian Coalbed Methane Stocks: 7 Things to Know Before Investing

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One of Canada’s leading petrogeologists, Dr. David Marchioni, cautions investors on what they should be looking for, before investing in the red-hot Canadian Coalbed Methane (CBM) Stocks. There are 7 Key Ingredients that make up a successful CBM play. He warns that some Canadian CBM plays are pricey and mature, although many investors are still climbing onboard the bandwagon. Dr. Marchioni also names his favorite CBM stocks.

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More investors are now inquiring about Coalbed Methane exploration companies. Just as uranium miners were flying well below the radar screen in early 2004, coalbed methane exploration may very well be the next very hot sector later this year and next. Historically, coalbed methane gas endangered coal miners, resulting in alarming fatalities early in the previous century. This is the fate suffered today by many Chinese coal miners in the smaller, private coal mines. Typically, the methane gas trapped in coal seams was flared out, before underground mining began, in order to prevent those explosions. Rising natural gas prices have long since ended that practice.

Today, coalbed methane companies are turning a centuries-long nuisance and byproduct into a valuable resource. About 9 percent of total US natural gas production comes from the natural gas found in coal seams. Because natural gas prices have soared, along with the bull markets found in uranium, oil, and precious and base metals, coalbed methane has come into play. It is after all a natural gas. But because it is outside the realm of the petroleum industry, coalbed methane, or CBM as many industry insiders call it, is called the unconventional gas. It may be unconventional today, but as the industry continue to grow by leaps and bounds, on a global scale, CBM may soon achieve some respect. Please remember that a few years ago, there was very little cheerleading about nuclear energy. Today, positive news items are running far better than ten to one in favor of that power source.

CBM is the natural gas contained in coal. It consists primarily of methane, the gas we use for home heating, gas-fired electrical generation, and industrial fuel. The energy source within natural gas is methane (chemically, it is CH4), whether it comes from the oil industry or from coal beds.

CBM has several strong points in its favor. The gases produced from CBM fields are often nearly 90 percent methane. Which type of gas has more impurities? No, it isn’t the natural, or conventional, gas you thought it might be. Frequently, CBM gas has fewer impurities than the “natural gas?produced from conventional wells. CBM exploration is done at a more shallow level, between 250 and 1000 meters, than conventional gas wells, which sometimes are drilled below 5,000 meters. CBM wells can last a long time ?some could produce for 40 years or longer.

Natural gas is created by the compression of underground organic matter combined with the earth’s high temperatures thousands of meters below surface. Conventional gas fills the spaces between the porous reservoir rocks. The coalification process is similar but the result is different: both the coalbed and the methane gas are trapped in the coal seams. Instead of filling the tiny spaces between the rocks, the coal gas is within the coal seams.

One of the past problems associated with CBM exploration was the reliance upon expensive horizontal drilling techniques to extract the methane gas from the coal seams. Advanced fracturing techniques and breakthrough horizontal drilling techniques have increased CBM success ratios. As a result, a growing number of exploration companies are pursuing the early bull market in CBM. Market capitalizations for many of these companies mirror similar “early plays?we mentioned during our mid 2004 uranium coverage (June through October, 2004). Industry experts told us there would be a uranium bull market. Now, we are hearing the same forecasts about CBM.

SEVEN TIPS BY DR. DAVID MARCHIONI

We asked Dr. David Marchioni to provide our subscribers with his 7 Tips to help investors better understand what to look for, before investing in a CBM play. Dr. Marchioni helped co-author the CBM textbook, An Assessment of Coalbed Methane Exploration Projects in Canada, published by the Geological Survey of Canada. He is also president of Petro-Logic Services in Calgary, whose clients have included the Canadian divisions of Apache, BP, BHP, Burlington, Devon, El Paso Energy, and Phillips Petroleum, among others. He is also a director of Pacific Asia China Energy and is overseeing the company’s CBM exploration program in China.

Our series of telephone and email interviews began while Dr. Marchioni sat on a drill rig in Alberta’s foothills, the Manville region, until he finished outlining his top 7 tips, or advices, on how to think like a CBM professional.

1) COAL SEAM THICKNESS

Is there a reasonable thickness of coal? You should find out how thick the coal seams are. With thickness, you get the regional extent of the resource. For example, there must be a minimum thickness into which one can drill a horizontal well.

2) GAS CONTENT

Typically, gas content is expressed as cubic feet of gas per ton of coal. Find how thick it is and how far it is spread. Then, you have a measure of unit gas content. Between coal seam thickness and gas content, you can determine the size of the resource. You have to look at both thickness and gas content. It’s of no use to have high gas content if you don’t have very much coal. The industry looks at resource per unit area. In other words, how much gas is in place per acre, hectare, or square mile? In the early stage of the CBM exploration, this really all you have to work with in evaluating its potential.

3) MATURITY LEVEL OF THE COAL

This is the measure of the stage the coal has reached between the mineral’s inception as peat. Peat matures to become lignite. Later, it develops into bituminous coal, then semi-anthracite and finally anthracite.

There is a progressive maturation of coal as a geological time continuum and the earth’s temperature, depending upon depth. By measuring certain parameters, you can determine where it is in the chemical process. For instance, the chemistry of lignite is different from that of anthracite. This phrasing is called “coal rank?in coal industry terminology.

4) PERMEABILITY

When you are beginning to think about CBM production, this and the next item must be evaluated. How permeable is the CBM property? You want permeability, otherwise the gas can’t flow. If the coal isn’t permeable at all, you can never generate gas. The gas has to be able to flow. If it is extremely permeable, then you can perhaps never pump enough water. The water just keeps getting replaced from the large area surrounding the well bore. The water will just keep coming, and you will never lower the pressure so the gas can be released.

5) WATER

In a very high proportion of CBM plays, the coal contains quite a lot of water. You have to pump the water off in order to reduce the pressure in the coal bed. Gas is held in coal by pressure. The deeper you go, typically the more gas you get, because the pressure is higher. The way to induce the gas to start flowing is to pump the water out of the coal and lower the “water head?of pressure. How much water are we going to produce? Are we going to have to dispose of it? If it’s fresh, then there may be problems with regulatory agencies. In Alberta, the government has restrictions on extracting fresh water because others might want to use it. One could be tapping into a zone that people use as water wells for farms and rural communities. Both water quality and water volume matter. For example, Manville water is very salient so nobody wants to put it into a river; this water is pushed back down into existing oil and gas wells in permeable zones (but which are also not connected to the coal).

6) FUNDING

To be able to access land and do some initial drilling, i.e. the first round of financing, it would cost a minimum of C$4 million. This would include some geological work and drilling at least five or six wells. In Horseshoe, that would cost around C$4 million (say 1st round of finance); in Manville, about C$9 million. This is under the assumption that the company doesn’t buy the land. The land in western Canada is very expensive and tightly held. Much of the work is done as a “farm in?drilling on land held by another for a percentage of the play. (Editor’s note: During a previous interview, Dr. Marchioni commented about his preference for Pacific Asia China Energy’s land position in China because comparable land in western Canada would have cost ?100 million or more.?
7) INFRASTRUCTURE

The geology only tells you what’s there, and what the chances of success are. You then have to pursue it. Can we sell it? Gas prices are “local,?meaning they vary from country to country, depending whether it is locally produced and in what abundance (or lack thereof). How much can we extract? How much is it going to cost us to get it out of the ground? Are there readily available services for this property? Will you have to helicopter a rig onto the property at some incredible price just to drill it? Will you have to build a pipeline to transport the gas? Or, in China as an example, are there established convoys for trucking LNG across hundreds of kilometers?

One addition, which we have mentioned in previous articles, and especially in the Market Outlook Journal, “Quality of Management Attracts PR,?it is important that the CBM company have experienced management. This would mean a management team that includes those who have gotten results, not only a veteran exploration geologist but a team that can sell the story and bring in the mandatory financing to move the project into production.

There are two primary reasons why many of these coalbed methane plays are being taken seriously. First, the macroeconomic reason is that rising energy costs have driven companies in the energy fields to pursue any economic projects to help fill the energy gap. Coalbed methane has a more than two decades of proof in the United States. The excitement has spread to Canada, China and India, where CBM exploration is beginning to take off. Second, the fundamental reason is that exploration work has already been done in delineating coal deposits. There are, perhaps, 800 coal basins globally, with less than 50 CBM producing basins. In other words, there is the potential for growth in this sector.

Canadian Coalbed Methane Stocks: 7 Things to Know Before Investing

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One of Canada’s leading petrogeologists, Dr. David Marchioni, cautions investors on what they should be looking for, before investing in the red-hot Canadian Coalbed Methane (CBM) Stocks. There are 7 Key Ingredients that make up a successful CBM play. He warns that some Canadian CBM plays are pricey and mature, although many investors are still climbing onboard the bandwagon. Dr. Marchioni also names his favorite CBM stocks.

coal, china, coal bed methane, natural gas, stocks, investing, canada, exploration, mining

More investors are now inquiring about Coalbed Methane exploration companies. Just as uranium miners were flying well below the radar screen in early 2004, coalbed methane exploration may very well be the next very hot sector later this year and next. Historically, coalbed methane gas endangered coal miners, resulting in alarming fatalities early in the previous century. This is the fate suffered today by many Chinese coal miners in the smaller, private coal mines. Typically, the methane gas trapped in coal seams was flared out, before underground mining began, in order to prevent those explosions. Rising natural gas prices have long since ended that practice.

Today, coalbed methane companies are turning a centuries-long nuisance and byproduct into a valuable resource. About 9 percent of total US natural gas production comes from the natural gas found in coal seams. Because natural gas prices have soared, along with the bull markets found in uranium, oil, and precious and base metals, coalbed methane has come into play. It is after all a natural gas. But because it is outside the realm of the petroleum industry, coalbed methane, or CBM as many industry insiders call it, is called the unconventional gas. It may be unconventional today, but as the industry continue to grow by leaps and bounds, on a global scale, CBM may soon achieve some respect. Please remember that a few years ago, there was very little cheerleading about nuclear energy. Today, positive news items are running far better than ten to one in favor of that power source.

CBM is the natural gas contained in coal. It consists primarily of methane, the gas we use for home heating, gas-fired electrical generation, and industrial fuel. The energy source within natural gas is methane (chemically, it is CH4), whether it comes from the oil industry or from coal beds.

CBM has several strong points in its favor. The gases produced from CBM fields are often nearly 90 percent methane. Which type of gas has more impurities? No, it isn’t the natural, or conventional, gas you thought it might be. Frequently, CBM gas has fewer impurities than the “natural gas?produced from conventional wells. CBM exploration is done at a more shallow level, between 250 and 1000 meters, than conventional gas wells, which sometimes are drilled below 5,000 meters. CBM wells can last a long time ?some could produce for 40 years or longer.

Natural gas is created by the compression of underground organic matter combined with the earth’s high temperatures thousands of meters below surface. Conventional gas fills the spaces between the porous reservoir rocks. The coalification process is similar but the result is different: both the coalbed and the methane gas are trapped in the coal seams. Instead of filling the tiny spaces between the rocks, the coal gas is within the coal seams.

One of the past problems associated with CBM exploration was the reliance upon expensive horizontal drilling techniques to extract the methane gas from the coal seams. Advanced fracturing techniques and breakthrough horizontal drilling techniques have increased CBM success ratios. As a result, a growing number of exploration companies are pursuing the early bull market in CBM. Market capitalizations for many of these companies mirror similar “early plays?we mentioned during our mid 2004 uranium coverage (June through October, 2004). Industry experts told us there would be a uranium bull market. Now, we are hearing the same forecasts about CBM.

SEVEN TIPS BY DR. DAVID MARCHIONI

We asked Dr. David Marchioni to provide our subscribers with his 7 Tips to help investors better understand what to look for, before investing in a CBM play. Dr. Marchioni helped co-author the CBM textbook, An Assessment of Coalbed Methane Exploration Projects in Canada, published by the Geological Survey of Canada. He is also president of Petro-Logic Services in Calgary, whose clients have included the Canadian divisions of Apache, BP, BHP, Burlington, Devon, El Paso Energy, and Phillips Petroleum, among others. He is also a director of Pacific Asia China Energy and is overseeing the company’s CBM exploration program in China.

Our series of telephone and email interviews began while Dr. Marchioni sat on a drill rig in Alberta’s foothills, the Manville region, until he finished outlining his top 7 tips, or advices, on how to think like a CBM professional.

1) COAL SEAM THICKNESS

Is there a reasonable thickness of coal? You should find out how thick the coal seams are. With thickness, you get the regional extent of the resource. For example, there must be a minimum thickness into which one can drill a horizontal well.

2) GAS CONTENT

Typically, gas content is expressed as cubic feet of gas per ton of coal. Find how thick it is and how far it is spread. Then, you have a measure of unit gas content. Between coal seam thickness and gas content, you can determine the size of the resource. You have to look at both thickness and gas content. It’s of no use to have high gas content if you don’t have very much coal. The industry looks at resource per unit area. In other words, how much gas is in place per acre, hectare, or square mile? In the early stage of the CBM exploration, this really all you have to work with in evaluating its potential.

3) MATURITY LEVEL OF THE COAL

This is the measure of the stage the coal has reached between the mineral’s inception as peat. Peat matures to become lignite. Later, it develops into bituminous coal, then semi-anthracite and finally anthracite.

There is a progressive maturation of coal as a geological time continuum and the earth’s temperature, depending upon depth. By measuring certain parameters, you can determine where it is in the chemical process. For instance, the chemistry of lignite is different from that of anthracite. This phrasing is called “coal rank?in coal industry terminology.

4) PERMEABILITY

When you are beginning to think about CBM production, this and the next item must be evaluated. How permeable is the CBM property? You want permeability, otherwise the gas can’t flow. If the coal isn’t permeable at all, you can never generate gas. The gas has to be able to flow. If it is extremely permeable, then you can perhaps never pump enough water. The water just keeps getting replaced from the large area surrounding the well bore. The water will just keep coming, and you will never lower the pressure so the gas can be released.

5) WATER

In a very high proportion of CBM plays, the coal contains quite a lot of water. You have to pump the water off in order to reduce the pressure in the coal bed. Gas is held in coal by pressure. The deeper you go, typically the more gas you get, because the pressure is higher. The way to induce the gas to start flowing is to pump the water out of the coal and lower the “water head?of pressure. How much water are we going to produce? Are we going to have to dispose of it? If it’s fresh, then there may be problems with regulatory agencies. In Alberta, the government has restrictions on extracting fresh water because others might want to use it. One could be tapping into a zone that people use as water wells for farms and rural communities. Both water quality and water volume matter. For example, Manville water is very salient so nobody wants to put it into a river; this water is pushed back down into existing oil and gas wells in permeable zones (but which are also not connected to the coal).

6) FUNDING

To be able to access land and do some initial drilling, i.e. the first round of financing, it would cost a minimum of C$4 million. This would include some geological work and drilling at least five or six wells. In Horseshoe, that would cost around C$4 million (say 1st round of finance); in Manville, about C$9 million. This is under the assumption that the company doesn’t buy the land. The land in western Canada is very expensive and tightly held. Much of the work is done as a “farm in?drilling on land held by another for a percentage of the play. (Editor’s note: During a previous interview, Dr. Marchioni commented about his preference for Pacific Asia China Energy’s land position in China because comparable land in western Canada would have cost ?100 million or more.?
7) INFRASTRUCTURE

The geology only tells you what’s there, and what the chances of success are. You then have to pursue it. Can we sell it? Gas prices are “local,?meaning they vary from country to country, depending whether it is locally produced and in what abundance (or lack thereof). How much can we extract? How much is it going to cost us to get it out of the ground? Are there readily available services for this property? Will you have to helicopter a rig onto the property at some incredible price just to drill it? Will you have to build a pipeline to transport the gas? Or, in China as an example, are there established convoys for trucking LNG across hundreds of kilometers?

One addition, which we have mentioned in previous articles, and especially in the Market Outlook Journal, “Quality of Management Attracts PR,?it is important that the CBM company have experienced management. This would mean a management team that includes those who have gotten results, not only a veteran exploration geologist but a team that can sell the story and bring in the mandatory financing to move the project into production.

There are two primary reasons why many of these coalbed methane plays are being taken seriously. First, the macroeconomic reason is that rising energy costs have driven companies in the energy fields to pursue any economic projects to help fill the energy gap. Coalbed methane has a more than two decades of proof in the United States. The excitement has spread to Canada, China and India, where CBM exploration is beginning to take off. Second, the fundamental reason is that exploration work has already been done in delineating coal deposits. There are, perhaps, 800 coal basins globally, with less than 50 CBM producing basins. In other words, there is the potential for growth in this sector.