Martin Davies

Energy. OPEC expects a balance in the oil market sometime in 2016. Incremental oil demand globally is up by 500,000 in 2013 by 1.8 million barrels a day by 2014, and this year it is going to go up by 2.5 million. There has never been a time in modern history where oil/gas has had 2 years in a row of negative capital expenditures over the previous year. It looks like next year’s forecast will be down by 10% versus 20% from the previous year. The Canadian oil product is probably the lowest price on the planet. Companies who cut their capital expenditures to below cash flows are the ones that are going to be sustainable in business.

Hold or Sell? We know that Suncor (SU-T) is very aggressive because it is the hostile takeover bid and they want to get more oil sands assets. The classic risk/reward strategy is in your favour, so Hold onto your shares.

Just reported their quarterly report and it was great reading, allowing them to increase expectations and what they are going to produce, and reduce their CapX to do it. Their capital efficiency is remarkable. Drilling in south east Saskatchewan, which is all light oil. They have been doing this for a long, long time. Good management. Likes the company a lot. Dividend yield of 8.5%.

New management is going through a transition of long life and very low decline assets. That, coupled with some recent asset sales, has allowed them to get the balance sheet in good shape. Balance sheet concerns are probably going to go away over a period of time. It’s just a matter of patience.

He likes the company. Cut their dividend down to $0.10 a share, which was the right thing to do. They were punished for this initially, but in the long run they will be rewarded because of the sustainability of the company. A great deal of their production is on very low decline long life assets through the use of water floods. Most assets are in Saskatchewan. A good place to be.

Have some very interesting assets, most of which most are outside of Canada. Have extraordinarily high valued properties in France, Holland, Australia and recently in Germany. They have a very careful approach on looking at sustainability. The dividend rate is now where they can afford to change their CapX to make sure it is sustainable. The turning on of their current Irish Sea project is going to be significant for them. This is a company that is going to be paying a nice dividend. Large ownership by management. Good, long term investment.

Just reported a solid Q3. Slightly bumped their production guidance and the dividend looks pretty stable. Had reduced their operating costs quite nicely. Great company because of the way they can advertise these larger volumes over the existing infrastructure, and drive down the operating costs. Dividend yield of 6.6%.

Vermilion (VET-T) or Suncor(SU-T)? Doesn’t think a portfolio should be built on highly concentrated positions, so he would suggest looking at mutual funds or ETF’s (such as iShares S&P/TSX Energy (XEG-T) that give you some advantages of diversification.

(A Top Pick Nov 27/14. Down 15.16%.) (November 27 was exactly the time that the Saudis announced they were going to open the spigot.) He was thrilled to see that the Canadian Natural Royalty package is now in with the PrairieSky Royalty (PSK-T) assets. This is going to be a consolidation of the 2 best royalty packages in Canada. (See Top Picks.)

(A Top Pick Nov 27/14. Down 14.04%.) Does a lot of natural gas projects globally. Made a large acquisition to diversify into Latin America. It looks like it is going to be a good, long term investment. However, there was a sharp drop off of CapX globally and this company’s backlog came off sharply in the quarter. He trimmed his position a little.

(A Top Pick Nov 27/14. Down 41.99%.) This has been disappointing. Was surprised at the amount of commodity-based sensitivity and activity based sensitivity that the company had. Also, when the differentials are very wide, there is a lot of use of their type of assets, but when differentials on heavy and light crudes are very narrow, it means that they have less so. He is going through his numbers and may change his opinion on this company.

Has a great sensitivity to natural gas. The operating cost structure is in good shape. There have been some excellent processing plants that have been joint ventured with Altagas (ALA-T) that allow them to get this gas on stream. There will be a big change on his valuation and perception, it we go ahead on an LNG project on the West Coast. He likes the company. Has been hit by heavy, relentless foreign selling, but has heard that the Shorts are finished and some of them are covering.

How would you evaluate their Board of Directors, and what impact does corporate governance have on this? It is probably more important for these companies to have a good set of governance aspects, to different parts of diversified type of board with a variety of different experiences, different industries and a good compensation system. This company’s board and management have a fairly large investment of their after-tax dollars in this company.

Natural gas. Now going more and more towards base load electrical generation, but there are always going to be large swings that come with heating and cooling degree days. There are massive amount of production coming off the Marsalis that seems to be swamping the continent. We are going to be living with lower price natural gas for a while.

Company has been executing exactly as they had said they would do in the last quarter. More importantly, they have a sustainable business plan of being able to have huge changes in their ability to control costs and CapX, and have great access to capital. Highly sensitive to natural gas prices.