Eric Nuttall

Given tariffs, worries over energy demand are now front and center. This partially explains the disconnect between the oil price and its fair market value (FMV), well over $15/barrel. Don't believe what you hear; believe what you see. For example, yesterday the US Sec. of Energy said, "We want $40, $50 oil," as if US shale producers will magically grow production by 3 million barrels a day. That is what you hear. What we see: last year, oil averaged $76, $10 higher than now, but the rate of US shale growth was the slowest ex-Covid since the rise of US shale. Therefore, that story of low oil price from higher shale prices is false. The price is raise production is about $70. US shale is approaching its peak production rate in the next 1-2 years, much lower than in Trump's first term. This lower shale output will allow OPEC+ to slowly bring back curtailed volumes onto the market starting in April. Oil sentiment has returned to the lows of the Covid lockdown era. This is staggering to him. But this uncertainty creates opportunities.

Last year was a complete disaster. They wasted hundreds of millions in Colombia that turned out to be non-productive. They are deeply in the penalty box in a risk-off market. It's a value trap.

He's been adding; he remains a top shareholder in this. He likes that most of their production is exposed to the Clearwater. Super economical: their payback period on a well is 10-11 months. All companies benefit from a weak loonie, because they sell in USD and bring back that money to Canada. They trade at 3.3x cash flow this year, 2.8x next. Their cash flow yield now is 18% and 20% forward. Pays under a 4% dividend, plus buybacks. He targets $7 in a year at $70 oil.

They are a massive distraction. Say, 1% tariffs on Canadian oil, that means a 7% hit to cash flow MAXIMUM, assuming the loonie doesn't fall further. In one scenario, cash flow rises under tariffs, given the magnitude of a likely sell-off in the loonie. So, tariffs are potentially positive for Canadian oil and gas. Tariffs are noise. He predicts that tariffs won't be in place for long, if they happen, because they are a direct tax on the American consumer in oil, which leads to less money in discretionary spending. Tariffs are complete idiocy and accomplish nothing. It's massively inflationary.

He sold it and did well. His interest in energy service stocks is low, because he doesn't see the US rig count increasing. Gas production growth will happen not until latter this year and into 2026. Pure play natural gas and/or oil will do better. Offshore is a potentially new market for them. Free cash flow is 19%. This and the sector are undervalued. This has good upside.

He owns a lot of shares. It's sold off because Canada is for sale since January due to Trump tariffs; energy is for sale again because of oil tariffs; CNQ is exposed to these factors. US shale production is peaking in the next 2 years, as will non-OPEC supply growth. So, there will be massive demand for companies with deep reserves as the demand for oil grows. It trades at 6.4x cash flow at $70 oil, an 11% free cash flow yield; and a 9% cash return (dividend + share buybacks). This is massively oversold.

A major holding. It yields 9%, which is defendable even at lower oil prices. It's a royalty company, so there's no exploration risk. They have expanded into the US; hopes their next quarter shows US stability. They have done accretive deals in the US and are expanding in the Permian, because there is less room in Canada. Expect modest capital appreciation, but you get a stable 9% dividend. Good for income investors.

Is a major shareholder. Is deep value here. They will grow production by 50% over 5 years while free-cash flowing 70-80% of their current market cap in that time. If/when they hit peak production of 120,000 barrels/day in several years, they can keep their inventory flat for 30 years while cash flow will be mind-blowing. He buys in every dip. He sees 50% upside in one year.

Welcome to the U.S. Has no buyers. Also, Enerplus shareholders (in the merger) are getting CHRD stock and have been selling it. CHRD has 10 years of stay-flat inventory, not decades in the Oil Sands, though is good for a US shale company. Trades at 14% free cash flow yield and returning 75% to shareholders. Deep value, but you need US investors to care in this name (Canadian ones have opportunities in Canada). CHRD is stuck. No catalyst, except higher oil prices which he doesn't expect until next year.

A year ago they had finished many years of buying companies, built inventories, and drilling economic wells in the Montney. Last year, they tried and failed using a new frack technique. So, they spent on that, and got punished. He's their largest shareholder. The new Whitecap deal: WCP is almost stealing this asset, being opportunistic as they should. Veren identified high quality rock, but screwed up that opportunity. This merger is very complimentary: big asset overlap. WCP gets a very high quality asset at a cheap price (due to market volatility). Size matters; big institutions have left mid-caps for dead. The new company will be the 6th/7th-largest producer in Canada with a safe 9% dividend (down to $51 oil) will force big institutions to look. At $70 oil, this boasts 3.1x cash flow, 17% free cash flow yield, and over 20 years of stay-flat, high-quality inventory. WCP will recoup yesterday's 15% losses.

They executed in their drilling. There's been huge multiple contraction among small/mid-caps. He exited around $3.85-3.90. Shares are in an air pocket now, falling on no natural buyers (energy is out of favour). Stock is cheap, given cash flow. They pay half that cash to buy back shares. Are better stocks than this, but wouldn't rule out buying this again.

He exited at a profit. Services have been selling off when gas/oil was recently weak. The problem is that drillers have gotten too efficient. That said, this is looking tempting, trading at 3x EBITDA and 32% free cash flow yield.

Very well-run mid-cap, yielding 7.5%. Other stocks may have better valuations, but HWX has done a great job in the Clearwater, but prefers Tamarack. They have several successful explorations to expand their assets. This offers modest production growth and a juicy yield. He targets $9.

A small cap with no buyers. He owns 10% of the company. The stock has been creamed, even though they did everything they promised. They could sell the company and he strongly wants that. The team has done nothing wrong, but small-cap energy in Canada is dead.

A value trap. The ultimate catalyst (fixing their downstream) keeps getting deferred and deferred. Share buybacks in recent months is sluggish. A very cheap stock, but downstream keeps biting them. He's cheering for them, but look at CNQ instead.