Post by
CdnOilObserver on Jun 17, 2021 10:59am
Patience - Lots of Patience
Oil is flat this morning, but the Canadian Oil Sector is still taking a small haircut.
Crescent Point is trading at the same level as it did months ago when WTI was $10 or $15 cheaper.
If you have not listened to the webinar yesterday hosted by ATB Capital Markets, this is an excellent source of information that will provide you valuable insight into the Canadian Oil Sector, and the outlook for world engergy.
A couple of key takeaways that I learned from the four presenters:
1. Energy in North America is suffering from a bad hangover from the 100's of billions in capital destroyed by the U.S. fracking companies. Money is not flowing into these companies due to these companies failing to live up to their expectations years ago - and Canadian companies suffer becasue of this.
2. Becasue of point #1 and also in part due to the recent fad of ESG investing, super major producers are not investing enough to keep production at levels to meet expected demands. Even with spare capacity by OPEC+, there will be a supply short fall which will support oil prices and push them much higher than what we see today.
3, Canadian Oil Companies trade at a discount as much as 50% to their American counterparts, creating Deep Value investment opportunities.
4. Alternative solutions are decades away. Fossil fuels will still play a very important source of energy for the world - in particular to less wealthy nations that can not afford the new technologies. Canadian companies are leaders in reducing carbon emissions. We dont talk about this enough.
My Oberservations - I have been in this game for over 30 years:
1. I recall a quote from a stock broker Adviser on BNN a couple of years ago " too many (retail) advisers have been burnt by energy stocks and are starting to stay away from recommending them to their (retail) clients" - I believe this will eventually change as advisers look for sources of growth.
2. Fundemental Analysts - are ALWAYS looking backwards - they look at past history and extraploate how things will be - does anyone remember the valuations on some of these companies were in 2018: Vermillion ~$40, Crescent ~$16, Whitecap ~16 - and what are they today? About 1/4 to 1/3 of where these same expecations were two or three years ago.
What these fundemental analysts and generalists are failing to due is performing a deep dive into the factors that are influencing energy today and the future. I believe the upgrades to CPG and others is a little late, and a little understated. Once NCIBs are initiated and dividends returned, mutual funds managers and pension fund managers should jump back into this sector.
My Two Cents:
1. You need to have steel balls and a lot of patience. If you are thinking that these companies should go to the moon tomorrow, you will be disappointed. The higher WTI prices need to work through this sector, these companies first need to clean up their balance sheets, invest in the future, and then pay the owners - Us - by way of a visible, meaningful NCIB and dividend. I believe this will still take a few quarters.
2. Expect Volaitlity - Lots of It. The most important measure for a oil producer is the price of oil. At WTI about $60 most Canadian companies will be profitable. But commodities are always extremely volatile - and that will be reflected in the Risk vs. Reward of the share price. If you dont like it, buy the Canadian banks.
3. Crescent Point needs to visibly demonstrate a significant, meaningful NCIB, and look to increase the dividend, at least to $0.12 annually. The share price of a company is its currency, and at somepoint this company will need to retire their old, tired assets and buy new ones or buy-out smaller private companies to replace and increase production. This company also needs to tie Senior Management bonuses to a high-water mark on the share priice - they need to feel the same pain as the owners of the company.
My Disclosure
1. I'm a small, retail investor holding 50,000 shares at an ACB of approximately $6.20. I'm not day trading or flipping in and out of this stock. I'm here for the long term.
2. I'm not here to hype Crescent or any other company, but I can appreciate the leverage this company should have in relation to WTI. I believe that this company's share price today is trading at a deep discount, and would agree that an appropriate target price should be $12 to $14 based on 2018 multiples.
My Last Thought
This BB can be a great place to share good information about the energy sector and Crescent Point. May I suggest for some to consider not being so belligerent? If you don't like something, that is fine. No one needs to read posts of profanity, name calling, etc. Thanks.
ATB Capital Markets Link
https://us02web.zoom.us/rec/play/o-7EE5eWcVrvta8lBqBTeZE40KyTggm-baWxnLcBbRaLcXp9LWo75WqT2LyzF4kt7cmJM-XA0DoiLW8G.zidOUpdwTf9XAKS6
Comment by
LiquidOctopusV2 on Jun 17, 2021 11:28am
This is the perfect post. Deep, well thought out and a good message for our decorum.