What to Buy If Oil Has Bottomed

By
Keith Schaefer
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0

I’m saying farewell to numerous companies that have been in oil price fantasy land and refuse to adapt to the new paradigm.

For too long, many of them have been:

  • Accumulating copious amounts of debt
  • Drilling prospects that are not justifiable at current sub $55 oil or even sub $75 oil
  • Relying on easy equity markets to get them through

I mean, production and reserves may be able to be bought (a lot) cheaper than drilling right now. The bigger firms with large cash positions are salivating at this prospect.

And I know who these companies are.

Maybe through blind luck, or tact, I called the top for oil and went to cash back in late summer of 2014—and kept cashing in. I was hoping for an opportunity to buy the best of the best stocks at fire sale prices.

“Luck is what happens when preparation meets opportunity.” – Seneca

Fortunately, I got my wish. I made good money in 2014 while oil and energy stocks got hammered. You can even see my whole track record for yourself.

And now I have just begun deploying my capital.

These are the stocks that move first, and move the most.  That’s where I want to be with my investments. To learn what they are–Click Here.

 

 

How to Pick the Best Stock

By
Keith Schaefer
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0

What do you do if a respected friend gives  you a stock tip?

Stock tips should be avoided at all costs—nothing replaces old fashioned research.

And with oil stocks, 10-15 minutes of research can tell you almost all you need to know—if you’re looking for the right data points.

In my six years of energy investing, I’ve come to rely on THREE points that tell me quickly if I want to own the stock or at least do more research on it.

(It’s really four points, but I’m considering proven management a given.)

In this short video, I tell what you need to know, and where to find that information.  Save yourself hours of research, and angst—watch this 6 minute video.

keith youtube

 

 

 

 

 

 

 

 

 

 

EDITORS NOTE:  I know what stocks to buy now, and when to buy them.  I have a “cheat sheet” on each of the 4 Top Junior Producers to own.  These teams have real currency and know when to use it-and with the downturn in oil prices, they will be able to pick off assets from weaker groups.  FIND OUT NOW to see what I’m going to buy, and when I’m going to buy them.

 

The Best Stocks Move First, and Move the Most

By
Keith Schaefer
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0

I’m saying farewell to numerous companies that have been in oil price fantasy land and refuse to adapt to the new paradigm.

For too long, many of them have been:

  • Accumulating copious amounts of debt
  • Drilling prospects that are not justifiable at current sub $55 oil or even sub $75 oil
  • Relying on easy equity markets to get them through

I mean, production and reserves may be able to be bought (a lot) cheaper than drilling right now. The bigger firms with large cash positions are salivating at this prospect.

And I know who these companies are.

Maybe through blind luck, or tact, I called the top for oil and went to cash back in late summer of 2014—and kept cashing in. I was hoping for an opportunity to buy the best of the best stocks at fire sale prices.

“Luck is what happens when preparation meets opportunity.” – Seneca

Fortunately, I got my wish. I made good money in 2014 while oil and energy stocks got hammered. You can even see my whole track record for yourself.

And now I have just begun deploying my capital.

These are the stocks that move first, and move the most.  That’s where I want to be with my investments. To learn what they are–Click Here.

 

Is it Time for a New Paradigm?

By
Keith Schaefer
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0
Why are producers spending ANY money right now?  I’ll tell you why—you can’t shrink yourself to greatness.  But there is one very good reason to stop spending completely—Mergers and Acquisitions.

Now, nobody knows how long sub-$50 oil will last (and always remember that producers get $5-$10 less than WTI).  Morgan Stanley just came out and said it would be a long time.  US boutique brokerage firm Sanford C. Bernstein—considered some of the smartest money on the Street—said oil prices would rebound quickly.

Trust me—the only thing I know for sure in this oil market—is that nobody knows when the turn is coming or how steep or shallow it will be.

Producers are getting the message that this oil price downturn could last.  Virtually every other energy producer in both Canada and the US has announced a scaled back 2015 budget—many of them twice.  Round 1 was 20-30% right after the Saudis said—NO CUTS on Nov. 27.  Round 2 was January—and then the cuts went to 50-80%.

But even at that level–have they scaled back far enough? Because there are two key reasons to preserve capital right now.

1.     It’s going to be tough to add debt over the next few months.  The banks are worried about energy prices.  Reserve evaluations for 2014 year end are yet to come.  That means every dollar available to a company today is worth far more than when it was rolling in the door like a flood when prices were much, much higher.

A producer may be able to generate a positive return on dollars spent today—but  is that in the best interest of the company and its shareholders if that dollar can earn a better return in six months?

2.     The industry already has casualties—and here reserves and production may be able to be bought (a lot) cheaper than drilling.

a.     Southern Pacific (STP-TSX) has declared bankrupty
b.     Privately held Laracina recently defaulted on a portion of its debt
c.      Connacher (CLL-TSX) is desperately exploring alternatives.

The longer the oil price is low, the more opportunities will arise for producers.  They will be able to buy assets at bargain basement prices – if they have capital available.

Another use for cash that could be better than drilling?–buy back their own shares.  If there is a low oil price for a long time, it’s possible that equity prices could get so beaten up that a share buyback provides a better return than drilling wells.

Of course, sometimes it does make sense to keep drilling
1.     The company has to drill a minimum number of wells to hold/earn the land, or perhaps a farm-in agreement.
2.     Their wells still provide a good return on capital even at current prices, (cough cough hack hack)
3.     For larger oilsands producers–if they have already spent most of the capital for a large scale SAGD (Steam Assisted Gravity Drainage) project, then it may make sense to add a few more wells to optimize it.

Otherwise it’s hard to make a case to be spending any of your precious capital right now.

That’s especially true of any tight oil plays, where a third of the oil the well will ever produce comes out in the first 12 months; the decline rates are that high.  That first year makes or breaks the return on that well—even though it may produce for another 10-20 years.

The problem is that stocks get crushed when you stop drilling.  Like I said in the lead of this story—you can’t shrink yourself to greatness.

The penalty for falling production is that the market will punish your stock price making it harder to raise equity and grow.  But perhaps it’s time for a paradigm shift. Given what has happened over the last few months to equity prices, it’s hard to believe there’s a lot more downside for a producer who tries something a little different.

Take Trilogy Energy (TET-TSX) for example, which is managed by the Riddell family—scions of the Canadian industry.  They own 50% of their own publicly traded flagship company, Paramount (POU-TSX) (which owns a big chunk of Trilogy).

Trilogy recently announced that it would reduce its 2015 budget by 75% and that any wells they did drill would be completed but not put on production.  They cited that one third of the reserves are produced in the first year, so why blow down the reserves into a low commodity price.

The Market responded immediately with a 13% drubbing–but the stock has almost recovered to pre-announcement levels.

Now, they were the first to get radical, so maybe it’s understandable that the market will over react.  But what happens to the second, third or fourth company to be so bold?

Almost on queue, Rock Energ (RE-TSE)  announced on Monday that it is virtually eliminating its 2015 capex budget, taking it down to a meagre $25 million.  They will only focus on activities that confirm proof of concept, capture new opportunities and preserve existing inventory (ie: wells to hold or earn land).
Rock is targeting a long term view to value creation and plans no further capital spending on development drilling until commodity prices improve.  The market responded by adding 6.7% to Rock’s share price. Now granted it was an up day for most energy stocks, while the day Trilogy was punished was generally a down day, but it does seem like the market might be starting to see the merits of this kind of strategy.
Going forward there is likely to be a much less negative reaction, especially as investors get their heads around the logic of it.

So maybe it’s time to challenge conventional wisdom.  Maybe it’s time for a new paradigm where management teams get rewarded for preserving liquidity instead of running to stand still on cash flows.

Why The Turn In Oil Could Be Closer Than You Think

By
Keith Schaefer
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0

Since oil really started crashing, the media can only talk negatively about oil.

These are the same talking heads who had no clue about the impending 50% plunge in prices. Why do we listen to them—instead of paying attention to facts?

Here is one fact….US gasoline and oil demand is surging.

That may surprise you, but it’s happening—and in a bigger way than anybody expected.

The reason that you haven’t heard about it? The media isn’t going to write headlines on surging US gasoline demand while oil prices are trading under $50 per barrel.

Writers are looking for stories focused on how far oil is going to fall. If the word “glut” can’t go in the title—forget it. Fear sells more than greed.

The weekly EIA release showed gasoline demand in the United States up a staggering 800,000 barrels per day higher than the same week last year. That continues a recent steady string of big Year-on-Year (YoY) increases.

Gasoline demand in the United Stated over each of the past four weeks is up on average over the prior year by 725,000 barrels per day.

consumption

Looking at total oil consumption vs. just gasoline consumption–the demand growth is even larger.

In the numbers released this week, YoY total oil consumption increased 1.2 million barrels.  Over the past four weeks the average increase of total oil consumption year on year has been 917,000 barrels per day.

Don’t trust me; go directly to the EIA website yourself .  The numbers are easy to see.

Contrast this 917,000 barrel per day demand against the oil oversupply “glut” that is guesstimated at 1-1.5 million barrels per day.

If this is not a short blip up in US oil demand, this by itself goes a very long way to balancing the oil market.  And remember, this demand response excludes any similar demand response that might be happening globally.

This 900,000 barrel per day increase in demand in the United States is off of a consumption base of 19 million barrels per day of oil consumption.  On a percentage basis that is a 4.7% increase in demand.

Meanwhile, the rest of the world consumes a much larger 73 million barrels per day of oil.

Isn’t it possible that oil consumption in the rest of the world would also go up as the result of a 50% drop in prices?  Probably—but high quality, recent stats are hard to find.

The rising US dollar (10-15%) means the 50% drop in oil prices isn’t quite as large in the rest of the world.  But all countries are getting a pretty big drop in oil and gasoline prices relative to recent years.

What Does History Tell Us?

This initial demand response has been much stronger than expected—but can it last?

The 2008 oil price crash saw demand crash on the back of the housing bubble induced financial crisis.  There is no crash in demand now.  This is a supply induced oil price decline.  The most similar oil price crash therefore occurred in 1986.

In September of 1985, tired of losing market share Saudi Arabia decided to increase production.  Oil prices fell 50% over the next few months.  By the second quarter of 1986 the demand response was evident.

Oil demand had surged by nearly 2 million barrels per day globally off of a starting demand base of 59 million barrels per day.

Today we have a larger global demand base of 92 million barrels per day, so a similar percentage increase in demand would equate to a 3.1 million barrel per day response.

Again that is more than enough to eliminate the perceived 1 to 1.5 million barrel per day oversupply situation.

Now I want to be clear here, I’m not saying that I know that the global oil demand response to these much lower prices is going to be 3 million barrels per day.

What I am saying is:

  • The initial observed US demand response has been a surge of a million barrels per day
  • The rest of the world consumes more than three times as much oil as the United States and they may also have a demand response to lower prices
  • The best historical reference case oil crash had a demand response of 2 million barrels off a much lower level of consumption

There is a case to be made, that the demand response alone may have already eliminated the oversupply situation.  We won’t know that until a few months from now when all of the available data is available.

Demand Is Increasing, What About Supply?

There is of course a second force to consider in addition to demand–that being supply.  After all it was surging US shale production growth that caused the current oversupply situation in the first place.

There is one chart that sums up what has been happening with global oil supply over the past several years.
Here it is.

non-opec

Global oil demand has been growing at a rate of about 1 million barrels per day every year.

OPEC production has been basically flat. There are more than a few people who don’t think there is any spare capacity inside OPEC available to grow production.

That means that it has been up to Non-OPEC countries to provide the increase in supply needed to offset global demand growth.

As you can see from the chart above, all of that supply growth has come from the United States, with an assist to Canada and a small pat on the back to Brazil.

And do you know where every bit of that American oil production growth has come from?

Shale. It has saved the world from an oil price spike in recent years. It is the only option for keeping production at a high enough level to supply the world’s thirst for oil.

Do you know what $50 oil does to shale production? It puts a BIG dent in it.

Not all at once, but it has already had an immediate impact on drilling permits and drill rigs.

baker-hughes

And with shale’s high early year decline rates, a drop in drilling is going to show up in production very quickly.

Now Is The Time To Start Preparing For The Rebound

It is hard to see the light at the end of the tunnel when oil continues to struggle to maintain $50 per barrel and the media fills the headlines with gloom.

But early indications are that the demand response to lower oil prices is strong–shockingly strong.

On top of that the huge decline in rig counts has laid the seeds for a significant slowdown in US production.

We have had oil crashes before, but we haven’t had one where five million barrels per day of production come from a source like shale that has extremely high decline rates.

When demand is up by almost one million barrels a day, the supply response doesn’t have to be near as big to bring the oil market back into balance.

The media is telling us one thing, but the facts are telling us another.

The facts–and the stock charts–are telling us that now is the time to be looking at oil stocks, even if it looks like oil itself is going lower.  The good news is that you don’t need to stray from the very best companies—these are the stocks that respond first, and respond sharply.

I’ve already identified the three best oil producers to buy in order to play a rebound in oil prices.  In fact, I just bought all three yesterday.

These three companies have proven top management teams, low cost oil production and pristine balance sheets.  They aren’t just poised to survive the oil crash, they are going to benefit from it as they are able to pick up distressed assets on the cheap.

I’ve got a full report available on all three of these companies and it is ready for you.  Here is how you get it…..click here.

+Keith Schaefer

The Games Energy Producers Play (on Investors)

By
Keith Schaefer
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0

In a bull market when energy stocks are flying and everybody is making money—like the first eight months of 2014—investors don’t care about what I’m going to tell you now.

It would have been a waste of my time to write this story in January 2014.

But now it’s different; everybody is more cautious and is looking at energy companies and stocks with a sharper pencil in hand.

I see three “games” that energy producers play on investors to make their companies and stocks look better than they really are.  And we do play along willingly with them, so I’m not knocking them.

You can hardly blame the management teams really; the better these companies make themselves look, the more access they have to less expensive capital (i.e. higher stock prices).  In the long run that is good for shareholders.

Game #1 – Half-Cycle Economics

Every oil and gas company has a PowerPoint presentation on its website.  I now pay more attention to what I don’t see in powerpoints.  It’s a Big Red Flag for me if I don’t see IRRs or payback periods for wells in each play.

But even if they do, they are based on “half-cycle” economics—which only includes drilling and operating costs. In the last six years, I can only think of two producers who showed me “full-cycle” economics in a powerpoint–which would include the initial cost of the land or major facility infrastructure—and those are significant up-front costs.

How many industries get to crow about their profitability with a huge portion of their costs not included—and be accepted for it?

Not only that, energy investors allow these producers to write off tens of billions of dollars of assets—their land costs—and the stocks don’t get punished for it.

These powerpoints are made to do one thing, and that thing is help the company get access to as much capital as cheaply as possible.

Game #2 – Look At Our Low Cost Per BOE

Everyone loves to talk about companies on a per BOE (barrel of oil equivalent) basis—it’s how the industry makes natural gas appear in oil-equivalent terms.  Right now the standard is to give oil a 6:1 ratio to natural gas, meaning 6 thousand cubic feet of gas would equal 1 boe of oil.

The main thing to remember with this Game is…there are almost no pure oil producers—especially in the USA.  In December 2014, research firm Unit Economics studied the Q3 2014 financial statements of 33 senior and intermediate domestic energy producers—and found on average they were only 34% oil!  The rest of the production was natural gas liquids (NGLs) and dry gas.

That’s really important to Game #2.  That study showed the average cost per boe for those 33 companies was just under $55/boe in Q3 2014. This was during a time when the US benchmark price—WTI—averaged $97/barrel.  That sounds profitable doesn’t it?

Until you learn the average revenue per boe in Q3 2014 of these 33 companies was $46.30.

Many of these companies don’t say what their revenue per boe is—they just say their cost per boe was $55 and oil was $97.

Game #3 – Look At Us Grow!

This is a more recent game being played as producers cut back on 2015 drilling budgets but say they are still growing well over 10%….which is kind of true.

The typical producer has been telling the market that despite a 30% reduction in capex that they plan to grow production by 10% in 2015.  The producer chalks it up to a high level of efficiency or high-grading of drilling locations or their best-in-industry acreage.

What the producers aren’t telling you….

Is that they are quoting average 2014 production to average 2015 production.  But their Year-End (YE) 2014 production is already either very close to, at, or just over their average 2015 production guesstimate. What investors need to compare is YE 2015 production vs. YE 2014.  In essence, their growth has already ended.

EDITOR’S NOTE–the Saudis know all these games.  They know that to restore balance to the global oil market, they have to go after the American’s Secret Weapon. Learn what they’re really after, and how it could transform your portfolio in 2015.

+Keith Schaefer
 

The Only Bull Market in Gas I See

By
1940bkg
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0

The 50% oil price drop is headline news.  In the media it has been called a plummet, free fall, dive and every other sensationalistic word for large decline you can think of.

It has been impressive, but for some even better fireworks you really need to look at stock prices of junior producers which are much more volatile than the price of oil.

While oil is having a 50% off sale many junior energy stocks are having 80% off sales or more.

Amidst the carnage are some very unusual valuations–the types of valuation you only see in an extremely panicked market.

Chew for a moment on these metrics that apply to one junior producer:

Enterprise Value / Cash Flow: 1.2 times

Enterprise Value / Present Value of 2P Reserves: 0.10 times

Enterprise Value / Present Value of 1P Reserves: 0.44 times

Debt: None

Those aren’t typos.

This debt free company is trading at just a hair more than one time cash flow.  Even more jaw dropping is the fact that the company is trading at 10% of the present  value of its reserves–as calculated by its reserve auditors.

You know what else is good about this company? It’s stock chart:

image1

The drop (or free fall if you prefer) in oil prices has really laid a kicking on this sector.

But this company doesn’t even produce oil.  This company produces natural gas and sells it into a high price environment.

Normally when I see this kind of valuation (assuming I’ve seen something this cheap before) I’m inclined to run the other way.  When the market hates something this much it is generally for good reason.

But in a market panic like we have today in the Canadian junior energy space, there is a complete vacuum of buyers.  The result of that in some instances is virtually no connection between stock price and true company value.

This company trading at one time cash flow and a fraction of its reserve value is called Valeura Energy (TSX:VLE). The Pink sheet symbol is PWNRF.

Valeura produces natural gas exclusively in Turkey.

image2

Source of image: Francona.blogspot.ca
On the political risk spectrum Turkey isn’t exactly ideal like North America, but it also isn’t a terrifying proposition for investors like Iraq or some African nations.

The neighborhood is a bit rough, but Turkey is stable.  In fact, Turkey is a walk in the park after you  hear the other success stories this management team has done.

Valeura’s President & CEO is Jim McFarland who started building a Libyan producer called Verenex Energy in 2004 at $2.50 per share and sold it to CNPC (China National Petroleum Corporation) in 2009 for $11 and a 37% annualized gain for shareholders.

The Libyan government eventually blocked that transaction and shareholders and forced a sale to the Libyan Investment Authority for $7.29 which was still a 22% annualized gain for shareholders.

Director Abby Badwi built and sold Rally Energy, with Egyptian assets.  Then Badwi went on to build up Bankers Petroleum (BNK-TSX) in Albania.  This group (both management and Board) has a pretty successful track record.
image3

I’ve struggled for a long time to get bullish on North American natural gas.  There are seasonal trades to be had, but I believe a prolonged recovery could be difficult, given the huge drilling inventory of natural gas wells the industry is chomping at the bit to get after.

It is a nice problem to have unless you are a North American natural gas producer.

In Turkey however, natural gas is not an oversupplied commodity.  I’m sure you are aware of how reliant the continent of Europe is on Mr. Putin and Gazprom for its winter natural gas supply.

Effective October 1, 2014 the Government of Turkey announced a 9% increase in natural gas prices which means the price received by Valeura is expected to rise from $9.64/mcf to $10.25/mcf.

With a very reasonable 12.5% government royalty, operating netbacks for Valeura are $44 per boe. That will give this company better netbacks in Q4, 2014 than some pure North American light oil producers were getting with WTI at $90 per barrel.

In the third quarter of 2014 Valeura averaged 997 boe/day of production 99% of which was natural gas.  With three successful exploration wells drilled in the third quarter another 400 to 450 boe /day of production could have been added in October.

That would mean that Valeura is going to increase fourth quarter production by over 40%.  It will also increase its realized natural gas selling price in the fourth quarter by 9%.

Even with the recent share price increase on the back of successful drilling results Valeura is barely trading at over 1 times cash flow.

Over the longer term a potential catalyst to remedy this discounted valuation is possible in the form of a farm-out or joint venture on Valeura’s Banarli license.  Valeura believes that there could be a significant gas opportunity below 3,000 metres where abnormally high pressures are believed to exist.

The depth of this opportunity makes it too expensive for Valeura to chase on its own, and a transaction with a larger partner on Banarli might finally get the market to pay some attention to Valeura.

One Valeura insider, Scott Lamacraft who is CEO of Cormark Securities thinks Valeura’s share price is too good to resist.  In recent weeks he has increased his equity stake in the company from 6.85 million to 8.5 million shares so that he now owns roughly 15% of the company.

For 2015 Valeura is expecting to grow production by 10 to 15 percent with drilling funded by cash from operations and cash on the balance sheet.

With North American shale producers facing oil prices that make the prospect of drilling wells uneconomic, Valeura’s high netback natural gas opportunity in Turkey looks very appealing.  That is especially true when you consider that Valeura’s valuation is still less expensive than virtually anything you can find in North America.

+Keith Schaefer

How Much Oil Goes Missing at $50/barrel?

By
Keith Schaefer
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0

This is the worst time of year for world oil prices to hit a five year low for North American energy producers.

That’s because they typically evaluate their reserves at fiscal year-end—and that usually matches the calendar year.  That means reserve evaluations are done with the current price “deck” looking forward (often called “strip pricing”) at December 31.

I outline some potential winners and likely losers below, but first make sure you understand what I’m talking about.

Reserves is a very important technical term—it separates all the arm-waving potential oil a company could produce—down to what can be economically produced using the forward “strip”.  Most importantly, it is THE thing, the asset, which acts as collateral for their bank debt.

And this industry uses A LOT of debt.

Again, the amount of physical oil in the ground doesn’t change because price changes, but amount of economic oil does, and reserves is economic oil.

However, proven undeveloped and probable reserves could potentially decline in size but most important to the bank is the value of these reserves, which are now going (a lot?) lower after this recent oil price move down. 

Reserve reports come in out March or April, based on Dec. 31 pricing. The bank lines, or amount of credit or debt that a bank is willing to lend to energy producers, is based on a company’s reserves. And like I said, reserves are the collateral for that debt.

It would be bad news if a company has already used most or all of their existing bank line in the push to boost 2014 production—and then the year-end reserve valuations end up being the same or lower than the previous year.

Banks don’t want to lend a higher value than the reserves of the company. So if there is a reduced reserve value, the producer could see their bank line get cut.  And if they already owe more than their newly reduced line, producers may be forced into issuing new shares (which would be done at low, firesale stock prices) or sell assets to cover the portion of the loan called by the bank.

The knock-on-effect would still be felt for the next few months as producers negotiate the future bank debt that will be made available to them.  Investors should ensure they are investing in companies that haven’t pushed themselves to the limit of their available debt.

At the very least, the company is unlikely to get any sort of increase to their bank line if there is no material change to their reserves year over year.

That’s why reserve reports could be The Next Big Shoe To Drop in the North American energy sector.

In Canada, some names to consider as energy investors head into 2015 are companies like Advantage Oil and Gas (AAV-TSX) and Whitecap Resources (WCP-TSX).  Both have a low debt to cash flow (D/CF) ratios relative to their peers, lots of undrawn capacity on their bank lines and debt is less than 30% of the total Enterprise Value (EV = debt plus market capitalization).

On the flip side, one should be wary of companies like Lightstream (LTS-TSX) and Twin Butte (TBE-TSX) who both have higher D/CF ratios than many of their peers, and debt that’s over 75% of EV (90% in the case of Lightstream).

Both companies still have reasonable flexibility with their bank lines now.  But a potential reduction to those lines in the New Year—as a result of lower forecast prices—could put these companies under a lot of stress.

In the US, EOG Resources (EOG-NYSE) stands out as a company in tremendous position with a $2.0 billion bank line with none of it drawn.  On the opposite side of the equation is a company like Quicksilver (KWK-NYSE) who has a meager $6.7 million of undrawn capacity available on their $2.0 billion of total debt and an EV that is comprised of over 90% debt.

Reserves are impacted the most by the prices for the first three years of production. (Many tight oil wells produce half of all their oil in this time). At the end of 2013, WTI was trading at US$98/bbl (C$105/bbl) with the forward curve sloping down to about US $84/bbl (C$90/bbl) by 2016.

In 2014, WTI finished the year at US$53.27/bbl (C$61.92/bbl) and the futures curve is about US$64/bbl (C$74/bbl) three years out.  What this says is—any reserves from last year that weren’t produced in 2014, will now be evaluated at between US$20/bbl (C$16/bbl) and US$45/bbl (C$41/bbl) lower than they were at the end of 2013.  (Note the very different foreign exchange rate from year to year)

So existing reserves will definitely be lower.  Overall reserve growth/decline depends on how much exploration success a company had in 2014.

Things don’t look any better on the natural gas side of the equation either.  Canadian gas pricing at Edmonton—AECO—finished last year at C$3.20/gigajoule (gj) with a 2016 price of C$4.22/gj.  While 2014 looks to finish close to C$3.00/gj while the three year forward outlook is roughly C$3.50/gj.

It all sets up some very interesting M&A possibilities for 2015—especially in Q2, just after reserve reports come out.  But in the meantime, investors should be checking the powerpoint presentations of the oil producers they own—to check what percentage of their debt these companies still have available to them.

EDITORS NOTE—Oil prices continue to collapse.  But one energy-related commodity is in a bull market—and is one of the very few stocks I bought late last year.  Short term and long term, time is on my side with this investment. It’s how investors accumulate True Wealth that frees up your lifestyle. Start profiting RIGHT NOW.

+Keith Schaefer

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