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General Market Comment. He likes how oil inventories are down, but the problem is winter is over soon and demand falls by 2-3 million barrels per day by June. World inventories will rise by 200-300 million barrels by then. There is 500,000 barrels per day of export growth out of the US and Saudi Arabia has cut exports to the US as a result. He looks at US inventory, production and international movements as the key statistics. He sees US production going up 1.2-1.5 million barrels per day this year, along with Canadian production growth, this will absorb all the growth in World oil demand this year. By April, he expects to see inventories build in the US and OECD countries and prices will return back below $50 US/barrel.
Energy Bull Markets Comment. He is near term bearish on oil prices, but thinks this will help fuel the next bull market in energy. The Reserve Life Index has fallen to 5-6 years – the lowest level in decades. Companies want to see flat production in 2018 and will pay dividends and pay down debt with surplus cash flow. He is bullish on natural gas stocks, but sees about 20-30% downside on oil company stocks in the next quarter. This will set the stage for the next long-term bull market. He sees WTI at $100-$150 in 3-4 years from now. Many companies are priced below book value today, but have room to go to 2 times book value – a 400% upside potential.
US Natural Gas Market Comment. He is very bullish on natural gas prices in the US. Cold weather has knocked inventory down, with 93 bcf drawdown this week. He expects US LNG exports to rise from 2-3 bcf per day up to 9 bcf per day in the next two years creating more markets for Canadian gas into the US.
He thinks this company wanted to repair their balance sheet and is now showing some traction. Victor Lee knows Canada and they could become an acquirer in the future. The dividend could also increase. The stock has been boring, but it is trading below book value and on cheap cash flow multiples. It does not have the sizzle; it does not have light oil or Monteney natural gas. He would pick this for less volatility with 10-15% upside per year.
This company has a bond maturing next year and the performance of the stock has been poor. It has production of 6713 boed in Q4 down from 8609 boed the year before. The balance sheet has been the problem and people are worried whether they will be able to extend the bond. It is very high risk.
This company has a lot of its business in the US, where the Bakken and Permian plays are very prolific. The stock could really run, but the problem is the debt to equity ratio and are carrying $1.8 billion in debt. He thinks the stock will drop below $3 before rallying to $7 next year. There are other names in the drilling space that are better like Trinidad and Ensign.
This company has a lot of its business in the US, where the Bakken and Permian plays are very prolific. The stock could really run, but the problem is the debt to equity ratio and are carrying $1.8 billion in debt. He thinks the stock will drop below $3 before rallying to $7 next year. There are other names in the drilling space that are better like Trinidad and Ensign.
He says this company has assets in Turkey where natural gas is priced three times higher than Canada. The company has not completely tested their well there and their pilot well will not be online until 2019. Over 95% of Turkey’s natural gas is imported, so the potential is great. If the stock was under $2 it would make sense. He believes there are better options in Canada – this is too speculative at this time.
