1 2015 The Energy Crisis An Investment Opportunity January 31, 2015 Westin Bayshore Hotel,...
Transcript of 1 2015 The Energy Crisis An Investment Opportunity January 31, 2015 Westin Bayshore Hotel,...
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2015The Energy Crisis
An Investment Opportunity
January 31, 2015Westin Bayshore Hotel, Vancouver
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2014 Oil Glut Coming Window For
Canadian LNG Closing
February 1, 2014Westin Bayshore Hotel, Vancouver
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Sell:High Debt Leveraged Energy CompaniesHigh Cost Oil Companies
Oil SandsSAGD
Dividend Model Companies
4Source: Lightstream Q3, 2014
$1.4B
$1.9B
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Lightstream Resources Ltd.
Source: StockCharts, January 2015
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Penn West Petroleum Ltd.
Source: StockCharts, January 2015
7Source: Stock Charts, January 30, 2014
Target Q4/16
Bull Market 2001-08 Energy Index Up 5.3X in 7.5 years
Bull Market Transition Phase
S&P/TSX Energy Index
8Source: Stock Charts, January 2015
Final Low Next Few Weeks
S&P/TSX Energy Index
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History of Oil Price PlungesOver Last 30 Years $WTI/b
Plunge Timeline
Peak Oil Price $
Trough Oil Price $
Decline %
Months Peak To Trough
Recovery Price 6
Months Later % Gain
Recovery High Price 1 Year
Later $1986 -1987 31.17 9.95 68 6 16.60 67 20.001990 -1991 41.15 17.45 58 5 23.10 32 24.031997- 1998 23.15 10.65 54 14 19.00 78 27.15
2000-2001 36.90 17.12 54 14 29.45 72 29.45
2008-2009 147.27 33.55 77 8 75.00 124 82.002011 114.83 75.71 34 4 110.05 45 110.05
2014 -2015E 107.68 44.20 59 7 80.00 80 85.002014 -2015E 107.68 38.00F 65 8 80.00 110 85.00
Asian Financial Crisis
Dot-Com Bubble and 9/11
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1980-1990 Energy Bear Markets
Source: StockCharts , December 2014
Light Crude Oil $/b
11Source: The Economist, March 6th, 1999
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2000 – PresentEnergy Bear Markets
Source: StockCharts, January 2015
Light Crude Oil $US/b
13Source: Calgary Sun, 1986
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Close Up Of 2009 Bottom
Light Crude Oil $US/b
4 Months 4 MonthsSource: StockCharts, January 2015
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US Inventories at Peak
January 16, 2015 EIA report showed 398Mb
Source: OPEC Monthly Report, January 2015
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Reasons for Current Energy Bear Market
Source: OPEC Report, January 2015
We note the three phases that this energy bear market has gone through:
Phase 1: Excess Oil Production
30.8 Mb/d production
OPEC Dec/14
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Phase 2: Demand Decline
Germany, France, Italy and the UK
Japan
Source: OPEC Report, January 2015
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1. Russia • Annex Of Crimea Region• SE Ukraine Fighting• Support of Syria’s Assad
2. Iran/Islamic State• Slow Down Shiite/Sunni Sectarian War (Iraq/Syria/Lebanon)• Force Iran To Complete Deal On Nuclear Weapons Program
3. Venezuela • Force Regime Change – Remove Maduro/Chavez
4. Shut In High Cost North America Production• Shale Oil US & Canada – Remove Growth Upside And 500K – 800Kb/d by Q3/15• Heavy Oil – Now Uneconomic – Shut In 500Kb/d• Slow Down Or Get Deferment Of Oil Sands Expansions• Stripper Wells US – 300,000 Wells Which Average 15b/d – Total Production
1.4Mb/d – See 500Kb/d Shut In.
Phase 3: Oil As A Weapon
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Why We Expect One More Price Decline Below US$40/b
Note: Speculators Net Long 199,388 lots: OPEC Oil Monthly Report January 2015
Material Long Positions
Negative Market Positions
Source: OPEC Report, June 2008 Source: OPEC Report, April 2009
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OPEC Production in Excess of Demand
Source: OPEC Report, January 2015
21Source: The Week, December 12, 2014
22Source: OPEC World Oil Outlook 2014
Oil Demand Outlook 2013 – 2019The reason to turn bullish!
Medium-term oil demand outlook in the Reference Case Mb/d
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US Oil Production Peaking NowCrude Oil Field Production US
4Mb/d
3 Years
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Non-OPEC Crude Oil and Liquids Production Growth
Source: Short-Term Energy Outlook, January 2015
Millions barrels per day
Need to Knock-out this Growth
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US Rigs by Target Oil & Gas
1 2
3
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Target Rig Count US Q3/15
1,633 RigsJan 23/15
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Major Shale PlaysOil & Gas Revenue Index
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2
27Source: OPEC Report, January 2015
14.4 Mb/d Jan 16/15
13.5 Mb/d forecast end of Q3/15
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World Wide Decline Rate = 25%
Source: EIA International Energy Outlook, 2013
Long-Term Crude Oil Supply Growth
29Source: Oil and Gas Investor Magazine – April 2002
Hard To Find Large New Oil PoolsThe Oil Pyramid
30Source: Gable cartoons
31* Top Picks
Large Cap Shopping List
Dividend Investor Shopping List
Company Name SymbolStock Price $
Jan. 27/15Annual
Dividend $ Yield %Book Value
$/shareQ3/14 High Low
* Canadian Natural Resources Ltd. CNQ 36.63 0.90 2.5% 25.60 49.57 31.00Cenovus Energy Inc. CVE 24.67 1.06 4.3% 14.19 34.79 18.72Encana Corp. ECA 16.98 0.28 1.6% 12.81 26.85 13.31Husky Energy Inc. HSE 27.55 1.20 4.4% 21.51 37.31 21.39Paramount Resources Ltd. POU 30.80 N/A N/A 14.43 66.37 21.72
* Suncor Energy Inc. SU 37.63 1.12 3.0% 28.99 47.18 30.89Tourmaline Oil Corp. TOU 37.40 N/A N/A 20.37 59.25 34.47
52 week High-Low $
Company Name SymbolStock Price $
Jan. 27/15Annual
Dividend $ Yield %Book Value
$/shareQ3/14 High Low
* Cresent Point Energy Corp. CPG 30.68 2.76 9.0% 22.88 48.68 21.20* Enerplus Corp. ERF 12.30 1.08 8.8% 10.02 27.05 9.02* Long Run Exploration Ltd. LRE 1.11 0.21 18.9% 5.14 6.09 0.97
Pengrowth Energy Corp. PGF 3.55 0.24 6.8% 6.55 7.78 2.77Penn West Petroleum Ltd. PWT 2.02 0.12 5.9% 14.89 11.00 1.72Vermilion Energy Inc. VET 55.68 2.58 4.6% 18.23 78.24 44.05
52 week High-Low $
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Energy Service Stocks Shopping List
Maison Universe Shopping List
*Top Picks** JIS/Family owned shares
Company Name SymbolStock Price $
Jan. 27/15Annual
Dividend $ Yield %Book Value
$/shareQ3/14 High Low
* CanElson Drilling Inc. CDI 3.61 0.12 3.3% 4.77 8.78 3.35Ensign Energy Services Inc. ESI 9.88 0.48 4.9% 13.52 17.87 9.28Precision Drilling Corporation PD 6.84 0.24 3.5% 8.69 15.65 5.70
* Trican Well Service Ltd. TCW 5.13 0.30 5.8% 8.84 18.19 4.97Trinidad Drilling Ltd. TDG 4.53 0.20 4.4% 8.32 12.89 4.14
52 week High-Low $
Company Name SymbolStock Price $
Jan. 27/15Book Value
$/shareQ3/14 High Low
* Delphi Energy Corp. DEE 1.28 1.64 4.60 1.14* Long Run Exploration Ltd. LRE 1.11 5.14 6.09 0.97
Petromanas Energy Ltd. PMI 0.055 ** 0.14 0.40 0.05Sea Dragon Energy Inc. SDX 0.03 ** 0.09 0.095 0.03
* Serinus Energy Inc. SEN 1.00 ** 3.02 4.02 1.00* Sterling Resources Ltd. SLG 0.245 ** 1.07 0.78 0.185* Tamarack Valley Energy Ltd. TVE 3.60 5.57 7.85 2.57
Touchstone Exploration Inc. TXP 0.335 ** 1.41 1.09 0.25
52 week High-Low $
33* Top Picks
Other Interesting Names to ConsiderCompany Name Symbol
Stock Price $ Jan. 27/15
Book Value $/shareQ3/14 High Low
Bankers Petroleum Ltd. BNK 2.94 2.53 7.45 2.31* Gran Tierra Energy Inc. GTE 2.70 5.35 8.69 2.58
Hemisphere Energy Corp. HME 0.24 0.43 0.85 0.24Pan Orient Energy Corp. POE 1.54 2.11 2.44 1.35Questerre Energy Corp. QEC 0.325 0.93 1.40 0.29Transglobe Energy Corp. TGL 3.68 7.34 9.45 3.23
* WesternZagros Resources Ltd. WZR 0.415 0.81 1.28 0.39
52 week High-Low $
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Reasons For New Energy Bull Cycle
1. Cutback in drilling (30-40%) and high decline rates for shale production (60-80%) could remove 1Mb/d over the next 2-3 quarters.
2. Heavy Oil (Canada/US/Mexico/Venezuela) and Stripper Oil wells (US) are uneconomic at current prices could remove >500Kb/d in coming months.
3. China Strategic Reserve will start adding crude into new facilities currently being built. New facilities can take 50Mb in 2H/15 or 700Kb/d starting summer 2015.
4. Shiite/Sunni/ISIL conflict could impact Middle East producers. Security of supply premium could return. In the past we have seen US$8-12/b premium during outage risk.
5. Global GDP growth of >3%/year would add 7Mb/d to world oil demand by the end of the decade. This would provide 3-4Mb/d of new demand for non-OPEC shale and oil sands and 3-4Mb/d for OPEC members.
35Source: StockCharts , January 2015
Final Low Next Few Weeks
New High2018-2020
100+ 2016-2018
Light Crude Oil $/b
36Source: StockCharts , January 2015
Final Low Next Few Weeks
New High2018-2020
Target 2016-2018
S&P/TSX Energy Index
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Thank you
January 31, 2015Westin Bayshore Hotel, Vancouver