Keith Schaefer has taken a look at the big oil sector themes and tailored his investment decisions accordingly. The Oil and Gas Investments Bulletin publisher says the price of oil will stay range-bound between US$80 to US$105 per barrel for the time being.
And despite hopes for a turnaround in the natural gas industry, Schaefer says 2012 will likely be a “washout year” one that could see prices sink below C$3 per million British thermal units (MMBtu) through December (2011) and January, normally a peak time for the industry.
“I think there is a very good chance that you could see natural gas getting shut in next spring,’’ said Schaefer. “Producing gas and the pipeline companies may well say we are not going to accept your gas because there is so much gas in the system and we can get it for cheaper somewhere else. So we are not going to use your gas right now.”
In that kind of climate, the Vancouver-based blogger says investors will continue to find opportunities in both dividend paying stocks and the oil and gas services sector. One of the major trends he sees is a move towards deeper wells and longer horizontal lengths. It is why he is focused on a niche player like Canadian Energy Services & Technology Corp. (TSX: T.CEU, Stock Forum), a dividend paying company, which designs and implements fluid systems for down hole drilling.
“I bought that stock at $5 a little over a year ago,’’ he said.
Having seen its stock price more than double to $11.93 on Thursday, Canadian Energy has a market cap of $654.9 million based on 54.9 million shares outstanding. The 52-week range for the stock is $13.57 and $8.26.
“They are in the sweet spot because they don’t have to raise huge amounts of money to buy new equipment like the drillers and the frackers do,’’ Schaefer said. “So they are assigned a higher trading multiple,’’ he said. [The term “frackers” is a reference to an oil and gas production technique known as fracking].
Schaefer also likes the fact that management owns roughly 25% of the stock and Canadian Energy is grabbing a bigger slice of the growing U.S. market. “They grew 80% last year. I think they are going to grow by 50% according to their latest numbers that just came out last week.”
On October 18, 2011 the company said it will pay a cash dividend of 4 cents on common shares on November 15th to shareholders of record on October 31. That was just before it reported a net profit of $9.5 million or 17 cents a share, up from $5.3 million or 15 cents in the same period last year. Revenue in the quarter was $121.9 million, up from $78.4 million in the year earlier period.
Keith Schaefer is a former newspaper journalist, who worked at the Vancouver Province before moving into the public relations sector and launching a newsletter focusing on the oil and gas sector. He said Oil and Gas Investments Bulletin subscribers are predominantly North American males, who are over 50 years old and tend to have disposable income to play with.
“I think the smart money right now is going towards yield, anything with a dividend,’’ he said. “That leads me to the more expensive stocks. Last year, we were buying a lot of juniors. But we have sold most of those. We have rolled the profits into higher priced, dividend-paying companies.”
Still, if pressed on the subject, he can quickly come with what he calls “cheapies with a chance that people might want to have a look at.”
Wind River Energy Corp. (TSX: V.WVR, Stock Forum). Trading at 33.5 cents a share on Thursday, the company has a market cap of $19 million, based on 56.4 million shares outstanding. “They have a play down in Northeast Montana, close to the North Dakota border that looks like it has potential for both Bakken and for some conventional targets, both above and below the Bakken,’’ Schaefer said. The Bakken is an oil-rich geological formation that straddles part of Montana, North Dakota, and Saskatchewan.
He was referring to the company’s Phat City leases, which cover 57,097 acres. The company is aiming for multiple oil pay targets at depths of under 7,000 feet. “We are waiting on drill results from that company, literally any day,’’ Schaefer said.
Border Petroleum Corp. (TSX: V.BOR, Stock Forum). Trading at 21 cents on Thursday, the company has a market cap of $22.5 million, based on 107 million shares outstanding. Having recently raised $23 million, the junior is geared up for drilling on the Slave Point light oil play, where the company has a big land position [about 27 square miles] located in north central Alberta.
Investors in Border Petroleum are speculating that [geologically speaking] its property is a mirror image of ground that has been drilled by Pine Crest Energy Inc. (TSX: V.PRY, Stock Forum) “[Pine Crest has done fantastically well,’’ Schaefer said. Closing at $2.42 on Thursday, the company has a market cap of $473 million, based on 195 million shares outstanding. The stock trades in a 52-week range of $3.19 and $1.47. “They [Pine Crest] have made lots of discoveries. Now the market is waiting to see what Border comes up with,” Schaefer said. “So if they hit, the stock is going to do fantastic. If not, that is why it is 20 cents and not $20.”