Craig Porter, senior portfolio manager at LOGiQ Asset Management

Focus: Resource stocks
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MARKET OUTLOOK
We remain positive on the outlook for oil in 2017. If not there now, we’re getting very close to a global supply/demand balance. It was just announced that OPEC has been about 90 per cent compliant to their production quotas in the first month of the program. This is high in comparison to previous announced quotas, and has given support to the oil price this morning. Demand should increase throughout the year as global economic growth improves, led by the U.S. and China. Until there is further clarity on a proposed border tax by the U.S., Canadian energy producers are likely to lag behind their southern counterparts.

Natural gas has had a weak start to the year with the warmer weather we have experienced this winter. We saw this last year that warm winter led to inventories ballooning above seasonal levels. Over the last year, significant demand for natural gas from industrial users, power generation, and LNG exports have helped to draw inventories down. U.S. storage is currently about 11 per cent below last year’s levels and only slightly above the five-year average, even factoring in the current warm weather. The weather forecasts for the rest of February in the major North American consuming regions show temperatures above normal, likely leading to weak sentiment for the commodity and the producing stocks in the near term.

I’m not a raging bull on gold, but expect there to be lots of volatility in the commodity this year, which will provide trading opportunities. Announcements from the Trump government, numerous elections in Europe and continuing Middle East issues should fuel interest in bullion.

TOP PICKS

WHITECAP RESOURCES (WCP.TO)
Majority of the company’s production is light oil from Alberta and Saskatchewan properties. The company looks to have one of the best production growth profiles in the industry this year (15 to 17 per cent) while paying out a three per cent dividend all within the confines of cash flow. The company bought a large Saskatchewan land play off Husky last year, where initial results on a handful of wells are producing results well above the previous owner.

SPARTAN ENERGY (SPE.TO)
Spartan is a low-cost Saskatchewan oil producer, who plans to grow production by low double-digit numbers using existing cash flow. Even in a low US$50 oil price environment, for some of their plays they can still drill wells with 100 per cent IRRs. Due to their balance sheet and strong market support, they were able to buy a great light oil acquisition from ARC Resources ($700 million) at the end of last year. The properties had very low (12 per cent) declines, which helped the company’s overall metrics. Spartan has been oversold recently.

RAGING RIVER EXPLORATION (RRX.TO)
Raging River is a focused light oil producer in the Viking formation of Southwest Saskatchewan. The company just released their year-end reserve report, showing lower costs and improving reserves and cash flow on a per-share basis. The company continues to test newer technology and longer-length wells in an attempt to improve economics. Their shares have been overly punished by sellers out of the U.S. We have added recently on weakness.
 

PAST PICKS: SEPTEMBER 12, 2016

TOUMALINE OIL (TOU.TO)
I still own and like this name. Tourmaline, while still a great story, may lag in the short term due to the outlook for natural gas (see above). I may add on further weakness.

• Then: $36.80
• Now: $30.56
• Return: -16.96%
• TR: -16.96%

WHITECAP RESOURCES (WCP.TO)
I still own and like this name.

• Then: $10.56
• Now: $10.65
• Return: 0.85%
• TR: 1.92%

TORC OIL AND GAS (TOG.TO)
I still own and like this name.

• Then: $7.88
• Now: $7.27
• Return: -7.75%
• TR: -6.55%

TOTAL RETURN AVERAGE: -7.19%