Full episode: Market Call for Friday, July 28, 2017
Josef Schachter, president of Schachter Energy Research Services Inc.
Focus: Oil and gas stocks
I remain in the bearish camp expecting that we will see WTI crude oil breach US$40/bbl once the summer driving season ends. Between demand falling by 1.0Mb/d once the summer driving ends and the weaker fall shoulder season arrives, as well as OPEC’s excess production of 1.0Mb/d, it appears that a notable rising glut will be seen. Also, U.S. production continues to rise despite crude prices falling nearly US$10/bbl to US$45/bbl.
Note: On all our recommendations we recommend being patient and waiting for a very attractive buying opportunity in Q4/17, when crude prices finish their bear market in the low US$30’s.
GRAN TIERRA ENERGY (GTE.TO)
This is a billion dollar market capitalization Colombian-focused oil company, with production in Q1/17 of 29,878 boe/d. The company is growing via the development of new zones found in producing fields and via the drilling of 12 high-impact exploration wells. The stock trades below book value of $3.40 per share and below the last financing done at US$3.00 per share (now US$2.27 per share) in November 2016. Gran Tierra reports in U.S. funds and we look for them to have CFPS of US$0.40 in 2017 and US$0.58 in 2018. Our one year target is $5.50. The stock would be a great purchase at less than $2.60 per share.
BELLATRIX EXPLORATION (BXE.TO)
This is a $150M natural gas-focused company with production in Q1/17 of 34,750 boe/d. Their focus is on the liquids rich Spirit River play. The stock is cheap relative to book value and discount to NAV. We see cash flow per share of over $0.80 per share in 2017 and over $1.20 per share in 2018. They have excellent hedges in place for natural gas for this year and the next. Our one year target is in excess of $10/share. The stock would be a great purchase at less than $2.70 per share.
WESTERN ENERGY SERVICES (WRG.TO)
This is an oil service company with drilling and service rigs operated in both Canada and the U.S. Insiders own 11% of the outstanding shares. We see trouble ahead for the sector if oil prices decline as we expect and the stock is already very cheap (and near historically low valuations), but might get a bit cheaper. Our price target for this current $100M market cap stock is $4.80 per share in 2018 (book value in Q1/17 was $5.45 per share). We look for cash flow to come in at $0.22 per share this year on $180M of revenue and to $0.48 per share in 2018 on over $300M of revenue as we see the industry improving in utilization and pricing next year. The stock would be a great purchase at less than $1.30 per share.
PAST PICKS: JANUARY 9, 2017
PENGROWTH ENERGY (PGF.TO)
- Then: $1.86
- Now: $0.98
- Return: -47.31%
- Total return: -47.31%
GRAN TIERRA ENERGY (GTE.TO)
- Then: $3.78
- Now: $2.94
- Return: -22.22%
- Total return: -22.22%
SDX ENERGY (SDX.V)
- Then: $0.70
- Now: $0.75
- Return: 7.14%
- Total return: 7.14%
TOTAL RETURN AVERAGE: -20.79%
Note: The only stock that I own currently is SDX Energy. My family members and I remain shareholders of this position bought over 3 years ago. The outlook on volume growth is significant and there is exploration upside as well. We have a $2.00 target for the stock in 2018.
I never bought the other names. I see them as attractive going forward and may purchase them in the future.