Schacter is a fan !haven't checked it yet against the tape
please dyodd
After the break, the week in oil and gas with josef schachter of schachter asset management in calgary. We'll be right back after this.
This is jeff.
>> Howard: Another wonky week in the world of oil. Crude has come off the boil in recent days backing off from 75 to just under 70. Last night david cockfield told us he had no idea why it's doing the bob and weave right now. But that if things get hairy again internationally or hurricanewise crude might go up $10. What does josef schachter think? He is standing by in calgary. How you doing josef? >> Josef schachter: Superior good to be with you.
>> Howard: What do you think why it did come back from 70 to 75?
>> Josef schachter: We have in a trading range. Any time you have any concerns you will go near the high end. When you have a little quieter and storage numbers are okay you willÑI go into a lower end of a band my guess is we're in a low 60s to let's say high 70s kind of environment right now.
>> Howard: That's a big wide band that's $20.
>> Josef schachter: I think that's what we got to expect during the summer. If hurricane season comes and hurricane seasons closes in the gulf of mexico production we will see prices move to the high end. The other thing is the american refiners are trying to build ethanol-based gags lines for the summer from -- gas lines from the summer -- gasolines from the summer. So that will cause disruption as well. So between supply issues and political issues we're going to have a wider trading range than probably people are used to. >> Howard: Let me read you something here. 20 of 40 analysts traders and brokers said price also drop next week much 20 of 40. What does that tell you nobody knowsÑI what's going on?
>> Josef schachter: Yeah. I wouldn't want to any time i see gas prices in calgary under a dollar i fill up. So that's my approach to it.
>> Howard: That's verisigntific. Now what about gas natural gas. We had wilf gobert on a week and a half ago he said he thinks natural gas is more the play now. >> Josef schachter: Natural gas prices were very strong, if you remember during hurricane season double digit prices i think we were $14, $15 at the time. We're now sitting at $6.25 for aco today which is the canadian benchmark for a thousand cubic feet. That's at the lower end of the range. I think that that priceÑi this summer will go higher. I think that we were very lucky last year with a -- this year with a very warm winter period in january. Mother nature won't always cooperate with warmer weather. We could have a normal winter or a colder than expected winter. My expect is that natural gas prices will firm up this summer and be quite a bit firmer next winter. So the natural gas stocks have been hit very hard here relative to the oil-based securities. So there are some great buying opportunities. When we go into top picks later in the next show, some of the names that i have are gas-focused names. >> Howard: 20 seconds left. Are you more inclined to be investing in gas than oil these days?
>> Josef schachter: That's where the bargains are so I'm a value vevt you buy what's out of favour when the market is going nuts you let them have it. I'm also a long-term investor. I think this energy cycle has quite a few years it in. In taxable accounts i think you have to be more careful about trading. But in nontaxable accounts your rrsp you can move around positions. Right now the bar grains in natural gas stocks. Going back they were the oily-based ones. >> Howard: Got to go but we'll see you on "market call tonight". Josef schachter in calgary. That's "the business news" for this evening. Stay tuned for market market. Josef will take your calls. You can catch "the business news" every night at 7:00 P.M. And 11 P.M. Eastern many I'm howard green. Thanks for watching. Have a great evening and great weekend. See you back here with me monda
>> Howard: Welcome to "market call tonight", I'm howard green. Our guest from calgary this evening is josef schachter from schachter asset management. He's here to take your questions on energy stocks. If you want your questions answered give us a holler tollfree: >> Howard: Welcome back to "market call tonight", josef.
>> Josef schachter: My pleasure much.
>> Howard: Let me ask you a geopolitical question to start here. We had that development in bolivia this week with morales. How worried are you about certain latin american countries as far as investing right now?
>> Josef schachter: I think it's pretty clear that in some of the countries that have this leftist view, venezuela, of course bolivia and now peru, these countries and also there's concern about the mexican elections coming up that these are issues where these countries are saying that the price of oil is not $20 anymore or the price of copper is not dollar a price of copper $300 there's been a very big win for the companies. They're saying that the stakeholders the people in the country which are in many cases very poor deserve to see a better shake. What's happening of course they've gone to these extremist views.çó I would put it out these countries need a lot of foreign capital. If they don't treat the foreign capital properly in the case of bolivia the money to put in that pipeline and to bring on the natural gas came from brazil. If brazil doesn't continue to support them with that financial support, that country will not see any upside. So i think that's there's going to be a little bit of a wake-up call here. They're not going to be able to go to that extreme view. It will be a difficult place to invest for quite a while.
>> Howard: How is all of this best worked out?
>> Josef schachter: I think that the countries need to realize that the money doesn't come easily and it doesn't without some requirement, ee, a rate of return. But I do believe that we're going to see the share split change. I think in the uk north sea we saw them go from 40% tax rate to a 50% tax rate. We're seeing of course venezuela do changes in theres. Russia takes 80% of the upside over $25 in terms of wti. I think there's going to be a different split. In canada, of course, as we see these prices go up canadian government taxes are going up they're not taking a higher percentage of the split but its companies are more profitable the cheque sizes to ottawa and the provinces who are the owners of the resources are going up quite a bit. We see that from the surpluses in alberta, saskatchewan doing a lot better. Newfoundland is a lot cockier now because of the money coming in the door. The game has changed quite a bit.
>> Howard: Let's go to our first call allan in winnipeg beach, manitoba.
>> Hello, howard, excellent show. Josef, I'm interested in santoy resources. Can you give me your views on the guatemalan project what you see as any political risk involved with that. Thank you. >> Josef schachter: I don't know anything about the guatemalan project. I had ron in my office a week ago he was talking excitedly about his uranium prospects both in labrador and in saskatchewan. This fall they're going to be focused on those drilling in saskatchewan. They're right now doing up all the airborne surveys and things like that. So he was most excited about that. He didn't really talk about guatemala so i will pass on that. I own some of the shares here. He has done well. He's a guy that you want to follow. So i would just stay with the santoy position. I don't know anything about the guatemala. But the political situation there again is part of this whole issue of leftist politics. These people need foreign capital. They need foreign expertise. Ron and his people definitely have that capability. Could create some value. I don't know about the specific project though. >> Howard: Doug now in orillia.
>> Hello to you, josef. My question is on tyler. The stock has been dropping like crazy. It has been very high volume for trade. Do you still own this stock or have you sold. Can you slain what's going on. I'll hang up and wait for your answer, thank you.
>> Josef schachter: This one has been on a roller coaster a lot of us are not happy with management. It's been one where people have been very frustrated, including myself. I had a meeting today with the chairman gregg smith and the ceo jp they were jp just was in mexico with a mining analyst from the brokerage side separately with a mining company that likes the project that was looking at it. The issues here are simply lack of in terms of the information flow it's not been the way we expected it to be. Drill results haven't been consistently coming out. They had some last week 19 holes i believe in the lab. They should be coming out on more regular basis bases. Second the drill rigs didn't come out in april they showed up in march. Bottom line we want to see a resours still. They're going to start that in may. Could take a couple months to come out. The key thing is the bears are saying there's maybe 100 million tons of .3. The about you tell us and peopleñr who believe it and our people believe there could be 300 million ton at this point.
>> Howard: So you're not bailing?
>> Josef schachter: Oh, no. The only way to make money in resources is find good people and projects and find the people who have the project being big enough and being patient. >> Howard: There you have the member a point at which you would say hey, I've lost enough here?
>> Josef schachter: I've had problems where I've been upset wanted to talk to management and have revalidation of the view that the project is attractive i have that after my meeting today. I own the stock. Am i happy with the stock price no. It has been a very volatile one. I have some stock that's a lot cheaper at 20, 30 cents but also have some $1.25 paper which I'm4 about. But I believe the upside could be multiples of the price that it is today. That's why you have portfolios. My sterling is record highs, if i look at my net worth in the portfolio for this week we had a very good win it was an upside week even with the interruptions of the problem with tyler. You have to take a portfolio approach. That's the way I've done it for years. I'm not complaining. >> Howard: We will take a short break. And have top pick number one after this. Please stay with us.
This is jeff.
>> Howard: Welcome back to "market call tonight". Energy is on the menu tonight with josef schachter joining us from calgary. Top pick number one is delphi energy. Not a particularly familiar name. A 5.25 stock, $5.24 today. It's in alberta.
>> Josef schachter: It's alberta and B.C. $300 million market cap as of this week. $311 million. The stock is at $5.24. We started recommending it to our institutional investors in march of this year. March 24th at $4.87 i believe in looking at my numbers. The company's current production is 6400 B.O.E.S a day. They're focused on natural gas. They have a deal with a large enp company where they have access to their lands in an area called big foot and big stone. They will be about 7,000 B.O.E.S a day in the second quarter. We're using that the company will be doing just over 7,000 B.O.E.S a day for the year. Exiting in the fourth quarter at 8,000 B.O.E.S a day. That will give you $1.52 in cash in the fourth quarter. The company has a five year reserve life index so we have five times cash flow multiple. That gives us a stock price that we have of sorry of $7.60. So 45% increase. We like the company most attractive thing about it is they have at least three to five years of work ahead of themselves on this project with this major the majors is providing them with rigs. They're just completing a pipeline system that will allow them more further upside to bring on more production. This is a company you buy you hold on to it for a couple of years. These guys are in the jean marie trend which is a very prolific natural gas trend in northwestern B.C. And alberta. It's a name i would put as a core holding to buy and hold and sit it with. >> Howard: Biggest risk with this besides commodity prices?
>> Josef schachter: Commodity prices and infrastructure. Given who their joint venture partner is but encana, that's the kind of partner you wanted to be in bed with.
>> Howard: And price you paid for this one?
>> Josef schachter: We started recommending it at $4.87. My cost is about $4.90. I own this one as well.
>> Howard: Let's go to john in toronto.
>> Thanks, howard. Josef, viro. Would you buy it, atçó these prices just a quick thought onÑi tyler, josef, when you initially called for a five or 10 bag run i don't care about that I'm just hoping for an up on it. When they're starting to drill, be careful on those calls. Thanks josef. >> Josef schachter: First thing on the vero it's a spin-off from true energy.]úA3 the company is now doing about 2,000 B.O.E.S a day of the we have a target on this one of $11.52. We're expecting them to do about $26.75 B.O.E.S a day with an exit around 3500 which gives us about $1y on 80 annualized cash flow. Based on that we come up with a target based on their reserve life index of $11.50. We have recommended that since $5.71 on february 10th of this year. The stock already up about 19%. We like it it's a core holding. Gas-focused they're involved in the rock creek formation which is very prolific trend and we like it. Going back to tyler -- >> Howard: Let's leave tyler alone.
>> Josef schachter: People should be patient and have diversification.
>> Howard: Vero do you have a position in them?
>> Josef schachter: Yes.
>> My question is on suncor i would like to know whether or not jos josef you own this stock would you recommend buying this stock here. Do you think it will go beyond $10, 52-week-high. Thanks a lot.
>> Josef schachter: I think you will see an excess. Oil prices are trending higher as we go into the latter part of this year. Oil is in short supply. This is a crown jewel for canada on the tar sands. Very much loved by foreign investors particularly the americans. To me it's not a value, it's not a cheap stock. So it's, it's very well valued based on the facts and fundamentals. >> Howard: What would be a cheap price for it? A.
>> I have to pass on that one howard. We haven't done enough work on the models for me to say that. For people who want a conservative name it definitely is a core holding. One where you will see a lot of continued foreign interest in.
>> Howard: No piece of that?
>> Josef schachter: I do not own that.
>> Howard: Let's go to break. When we come back over's second pick of the evening. Please stay with us. >> Closed captioning of this program is brought to you in part by desjardins financial security. It's all about balance... don't let stress take control
>> Howard: Okay we're back with josef schachter in calgary. Top pick number two is real resources. Do they have real resources, josef?
>> Josef schachter: They have real resources about half oil and natural gas. This stock is trading today at $22.57. Interestingly this was a $2 stock five years ago. So if you buy good companies and let them do their job they can perform. The company it's grown rapidly. I was at the annual general meeting yesterday jackson is the ceo, frank muler and his team run the exploration side. They were 7300 B.O.E.S a day in '04. They're around 12,000 now. We're thinking they'll average 14,000 this year exit at 16,000. They're going to be drilling about 270 wells spending about $250, $260 million to do it. They've had a fabulous success rate as they move further and further into the deeper basin of western five in alberta president.
>> Howard: What's the biggest risk on this particular one?
>> Josef schachter: They have a good mix of business. Balance sheet very strong only using 35 million out of their $150 million debt line much we like the company because the mix of assets between cbm which is a potential big upside for them the shallower gas, deeper gas that they're going after of the they also have wild cards of some of these deeper oil plays. One stock we've talked about in the past galleon that trend that they've become very successful in the stock of course has been a stellar performer. It's very big corridor. Part of that now goes real resources it's on some of their trend of the land. Three do up the seismic. They have had wells in virginia hills could could be 2,000 B.O.E.S on test can produce a thousand B.O.E.S a day. They have some bigger potential pascal wells as well. So we have, we see the stick stallers annualized cash flow by the end of the year. Seven year proven lri that gives us a $42 from $22 for a nice stable name with as we said 12,000 B.O.E.S a day of current production. It's a nice downside protection with significant upside. The wild card of cbm. It's a nice core holding. I own it and love the story. Management is executed brilliantly.
>> Howard: Let me go through some of the acronyms rli reserve life index, B.O.E.S barrels of oil equivalent and cbm I'm assuming is coal bed methane.
>> Josef schachter: You are three for three.
>> Howard: Let's go to rob in hamilton. Josef, want to get your viewpoints on talisman energy. They're posing three for one stock split. Usually when companies split like that they get stock weakness for a period of time. Do you expect that will happen here or do you think because the resource prices are so strong talisman will just keep going up. Thank you. >> Josef schachter: I like talisman. You saw the stock there was up in the mid-70s there going back in june. I think that they're going to have one of the higher growth profiles. Their results come out next week. They will have done very well from the integration of acquisitions that they made in the uk. Balance sheet they're paying down the debt with these robust cash flows. They're growing in canada as well. I own this stock. I even bought some yesterday. I'm there on this one. I like this story. My view is that the international large cap players, the royal dutches of the world, bps, exxon mobil also have to get back into the game. My view is that one of cnq, encana, talisman, nexten will probably get a bid sometime in the next 12 months. During the next three to five years they're all going to probably get takeover bids. I want to have some diversification in my portfolio. I like some more entrepreneurial names that i get asked about that are $2 or less. I was a buyer yesterday.
>> Howard: Programming note we will have jim bucky the ceo of talisman on "the business news" next thursday night, the 11th of may. So tune in for that. Let's go to michael in toronto. Hi, michael.
>> Hello, gentlemen, good evening. Josef regarding gentry resources what's the split on natural gas versus oil. They are increasing production what will they exit at the end of the year thank you.
>> Josef schachter: They're about 45% oil and liquides about 55% natural gas. Our estimate is they'll do 4400 B.O.E.S a day average this year. Exiting around 4800. We have $7 target on the stock. So it's, it's one that has i think it's about about 18 to 20% kind of upside from where it is. It's $5.60 so probably more like 20% upside. The company is really core areas princess alderson and it's very they've had facilities issues which kind of has halted their progress. They've gotten through those late last year early this year. We think that they have a profile in front of them that could be nice one. We cover it officially a research basis with that $7 target. I don't own it. If you own it it's nice bread and butter name to own in your portfolio.
>> Howard: One more break. When we come back josef schachter's third pick of the evening. Please stay with us.
This is jeff.
>> Howard: Few minutes left with josef schachter of schachter asset management in calgary. Solana resources venture exchange stocks your third pick of the evening. Don't recall you mentioning this one before. But tell us now why you like it. >> Josef schachter: I have mentioned it before. It had a name before called you a dowelis then changed it to solana. The company is involved in colombia. This country is one of the safer places one of the more open places they may benefit from the problems in bolivia and ecuador so equipment and manpower may switch over to colombia. There's an election going on there may 28th I would be watching that to be careful. The company, the stock we recommended to our institutional clients when it was $1.37. It ran to over $3 got a bit ahead of itself on some drilling news. Backed off to about $2. They did a financing about a month ago at $2. Bait some of that issue as well. It was well placed with the institutional market. The stock is around $2.22. What we like about it is they're drilling wells that have quite high impact. Two are going to be completing soon that could be thousand B.O.E. A net to the company. Also drilling quite a few projects in the next six months. A play called alamo. Zeyos which they have 33.75 and others. We also like it's defensive on the downside. 71 cents cash per share after the financing. Nice downside protection. I met with management this week.ÑI they're very excited by the successes that they've had. The reserves to them look like the stock is quite undervalued. So as they get the development on the play called whyaÑicaries they think there will be a significant reserve. That would then give the more backing to the stock. What we like by the is portfolio in front of us. We have a $5 target on it. It's one of the higher risk of the names we talked about tonight . >> Howard: You said you bought some at the $2 issue price much did you have some before at a lower price?
>> Josef schachter: I had some $1.30, 30 days after we put on it recommended list.
>> Howard: We'll continue to that watch. That as we say every night do your own research and check with your own financial adviser before making any investment decisions. Let's go to nova scotia earl is there.
>> Josef do you have insight into earnings per share on find energy.
>> Josef schachter: Find energy is one of the companies we covered. We're very big fans of this. The stock was $11.81 today at the close. I'm just going quickly to my model here. We like the company. They have announced they're going to build we thought they were doing they have a facility which was doing $30 million they drilled to fill it. They've now said they're going to expand this facility at pembina west to 50 million. They've had a lot of success in what's called the rock creek formation. They last year did 6,000 B.O.E.S a day. Exited the year at sorry they did 3246 exited 5100. We're using 6,000 in our model with an exit of around 8,000 this year. That gives me cash flow of $1.85. We have a $15.84 target. And we think this company potentially could get taken over later this year early next year. It's one where bill davis and his team have done a search where they took a property and developed took it to the phase where it was an very attractive property to trust then maximize. We think sometime in the next nine months to a year they will do the same again. We have a $15.84 target which gives you 25% rate of return. So we like it. I own it. It's a great core holding. Management is again done an excellent job. The company has 75% of it natural goose, 25% is oil and liquids. >> Howard: Let's get in one more if we. Can jacqueline in thorn hill, ontario. Hi.
>> Hi, thank you for taking my call. My question is on cnq. It's going down every day. So they make some changes from swet oil. Can you explain what is going on is it buy, hold or sell.
>> Josef schachter: Bottom line it's a buy. The company had somewhat disappointing results because of their hedging. Also they didn't get as much drilling so their flarl gas production numbers were a little less. I like this stock. I own this stock. I think this stock is something thatçó will probably go into the 70s before the end of the year. It's a very good core name. The horizon project is coming along very nicely which is their tar sands project. It should be on in ale 08. Again this company is i believe will be get overtures in the next few years. Once they get the big capex from horizon out of the way some major will come and knock on the door it will definitely be at a considerably higher price maybe north of 100 in the next two to three years. As a core holding definitely stay with it. It has weakened because I think as you head into the later in the year flarl gas prices improve and he@ty oil different shalls are stock will do quite a bit better. Definitely stay with it.
>> Howard: Just about 20 seconds left. You talk about overtures. Where do you think they'll come from the U.S. Or china? A
>> Josef schachter: I think they could come from pb, royal dutch, exxon mobil, you know chevron it could be as well from asia. I think all of these companies especially the private sector ones are desperate to replace their decline rates. Many of them are not able to do it they're under attack. >> Howard: Got to go. Sorry josef to cut you off. Good on see you again thanks. Josef schachter of schachter asset asset management. Monday night paul forward necht that's it for tonight. Call us on monday there's the number and there's the e-mail address. Have a great weekend. I'm howard green. See you monday night.