Precision Drilling (PD.TO)

His energy outlook is quite bullish. A lot of the skepticism around OPEC will come to pass, and that is what is really holding back the oil price. Doesn’t think it is unrealistic to see a $60-$65-$70 barrel of oil this year. There is a reason why OPEC wanted to cut production out of left field, as they felt it was really important with non-OPEC members. They want the price to normalize. This is one of the names with more torque. If you think oil prices are going to hit $60-$65, this one is still cheap and has a lot of upside.

Drilling services. As the price of oil rises, exploration companies are going to start drilling again. A lot of service companies’ pricing has been really hurt over the past couple of years. This is now a turnaround time where these companies are going to be able to start increasing their prices. This also has exposure to the US, which will take some of the seasonality out of it.

This stock has done well over the last 6 months. The stock has moved up when they have not come out with great results. People are anticipating something. It is quite liquid so it is easier to trade. He likes to hold things for about 3 years. The recovery in the energy sector will benefit them.

The oil rig count dropped from 1600 down to 400, and even to 300 at one time. We are now down about 70%. It’s a very countercyclical Buy to start looking at a driller here. A signpost on getting constructive on energy service names, particularly the drillers, is the return on pricing power, and he is starting to see that. Feels they have the highest quality rig fleet, and would be the 1^st call if producers are going to accelerate capital programs.

One of Canada’s leading drilling companies. It looks like energy is coming back. Pick axe companies really move, and he thinks you are in the early stage. Thinks OPEC is going to move the price higher and this is a good time to be buying energy services.

Oil service companies need the right timing. They have to have solid balance sheets. Over the last couple of weeks there has been a run on these companies so hold on. He does not know how many more rigs will be put to work.

*SHORT* (Pairs trade with a Long on (SES-T). (Top Pick July 5/16, Up 24.70%) With commodity dependant names he feels it always makes sense to pair them. He has taken his short off. He still feels they are in a bit of trouble here.

*SHORT* (Pairs trade with a Long on Secure Energy Services (SES-T). Their debt to EBITDA is north of 6% at the moment, and there is an absolute glut of rigs in North America that are idle. This will lose pricing power, because as rigs come off contract, they are being renewed at much lower rates.

(Market Call Minute.) The best of the drillers. If you don’t own, make sure oil doesn’t retreat to $40 before buying.

Drillers and oil services are the very leveraged part of the oil space. It is the most aggressive and that is reflected in the share price movement. He would prefer CPG-T or CNQ-T, or pipeline & infrastructure names. If you are bullish on oil over the next little while you might want to use PD-T to play it.

He believes they will be a survivor. They spent the last number of years upgrading their drilling rigs. You have the potential to make a great deal of money when this industry changes.

Even if oil increases to $55-$60, the increase in cash flow from producers will all be deployed into the fields and there will be an increase in drilling, but there will still be too much capacity in idle rigs for the service companies to have much purchasing power. This name would have to go to $4 for him to be interested. If it rallied much above its current price, he would consider Shorting it.

(Market Call Minute.) This will be the 1^st driller to move when the drillers eventually move. He would be a buyer at $4.50-$4.75.

(A Top Pick Nov 21/14. Down 41.55%.) This has a lot of potential to recover quite substantially from here. The number of rigs has declined by about 2/3, but production has only come down by about 5%. Recently made an agreement with Kuwait to build 2 large rigs. This is a good Buy at current levels.

They are the last to recover. It will be around for the next cycle, but there are tough quarters over the next year. It is not time to buy yet.