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COMMENT
There is finally a structural bull market for oil. Goldman Saks and JP Morgans are now calling for $80 oil in Q3. The party is just starting. His fund is up 70% this year. Stocks fell so much last year that they are up quite a lot. Even at $60 oil, you can buy stocks at 2-3x cashflow. These used to trade at 7-8x. Best measure is free cashflow yield. Companies need to commit to meaningfully increase dividends and buy backs. OPEC will be out of spare capacity by the beginning of next year, global off-shore is in decline and US Shale hyper growth is over.
BUY
Has always been an aggregator of plays and then sells them. Just sold their anchor property. Currently developing their Oak property to sell in the future. They have good liquids exposure. Trades at a modest premium with 3.6x enterprise value to cashflow next year at $60 oil. A very unique story. Buying for the potential value of their future plays. Good candidate for the ESG movement.
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BUY
Established a 6% weight at $1.28. The hope is their appraisal results from the Clearwater play is positive. Potential $440M potential de-risk value that is worth half the market cap. Most people are not aware they are pursuing this. An inefficient market where you can make profit. Trading at 3.5x next year enterprise to cash flow at $60 oil. Target multiple is 6x. At $70 oil, you can look forward to $3.60.
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BUY
Has been picking away at it around $2.05. Volume has dried out. A name that will bring online 12 wells with good expectations. The name could trade at 3x next year's cashflow. With incremental production, it is trading at 1.9 2 year out cashflow. Super inexpensive. Would buy this over Arc Resources.
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PAST TOP PICK
(A Top Pick May 15/20, Up 137%) A core holding for him. Must own if you are bullish on oil. Using all free cashflow to de-lever. 2.6x debt to cashflow next year at $60 oil. Spending some money to scale production to reach critical mass. Trading at under 5x cashflow with 33% free cashflow yield. Once debt is paid down, they can start increasing dividend and buybacks. At $60 oil, target is $10.80, $70 oil would be $18.64.
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PAST TOP PICK
(A Top Pick May 15/20, Up 189%) Was taken out by Whitecap. Whitecap is now a net-negative emitter. They inject CO2 into the ground. From an ESG perspective, it is a great candidate. They are scaling up to increase market cap. Bigger you are, more radar screens you hit. Whitecap could trade at 6x which is $8.40.
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PAST TOP PICK
(A Top Pick May 15/20, Up 87%) Only large cap he owns. The most near term catalyst. Has had time to digest the Husky assets. They have lots of assets that are non core that they can sell. The leverage they have taken on is being paid off faster than planned. At $60 oil, would trade at 9% free cashflow yield. At $70 it doubles.
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BUY
Has done a fantastic job at scaling up and increasing their assets. They have 2 new core plays with some of the best economics in Canada. At $60 oil, trading at 2.9x enterprise value to cashflow at 23% cashflow yield. Small cap light oil names is getting more attention. Still excited about it. (Analysts’ price target is $3.50)
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BUY
Really undervalued right now. Free cashflow is $1.8B and their market cap is $1.9B. Speaks to how undervalued it is. There is uncertainty in Dapple with environmentalists taking them to court. The results should be in favour of ERF. Even if it is against them, it is not material. Balance sheet, inventory depth is good. At $60 oil, $12.28 target.
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