Investing

is now the time to invest in oil stocks?

  • Last Updated:
  • Oct 18th, 2017 11:36 am
Tags:
Deal Addict
User avatar
Dec 21, 2005
4946 posts
301 upvotes
Markham
jerryhung wrote:
Sep 28th, 2017 11:54 am
IPL $26, wow, what a run from $23 in a week, +10%

Meanwhile, other pipelines aren't up much :( especially my ENB, ENF
Crazy returns on the ipl call options...probably an easy double/triple
:idea: :) :lol: :razz: :D
Deal Addict
User avatar
Oct 1, 2011
4704 posts
643 upvotes
jerryhung wrote:
Sep 28th, 2017 11:54 am
IPL $26, wow, what a run from $23 in a week, +10%

Meanwhile, other pipelines aren't up much :( especially my ENB, ENF
ENF is sucking hard! But the dividends are delicious. I don't intend to sell it anytime soon.
Deal Expert
User avatar
Sep 19, 2004
20130 posts
3042 upvotes
Waterloo
peanutz wrote:
Sep 28th, 2017 2:01 pm
ENF is sucking hard! But the dividends are delicious. I don't intend to sell it anytime soon.
I know, but look at IPL with juicy dividends too and +10% in a week, I want to have my cake and eat it too :P so let's pop +10% please ENB/ENF
Which Credit Cards to sign up? >> Jerry's List of Credit Cards with $200+ Welcome bonus/Aeroplan & AMEX Churning FAQ
AMEX Personal 60K || Business Platinum 75K || Biz Gold 40K || SPG 25K
Member
Jan 8, 2009
450 posts
69 upvotes
parex PXT has been really good to me. bought it about two-three weeks ago and was touching 20% gains earlier this week. going to hold for a few more weeks though
Jr. Member
Jun 28, 2016
197 posts
83 upvotes
secol wrote:
Sep 29th, 2017 11:20 am
parex PXT has been really good to me. bought it about two-three weeks ago and was touching 20% gains earlier this week. going to hold for a few more weeks though
For me, this is Raging River. Up >21% from my purchase price in August at the close today. Suncor and Imperial Oil are also >10% gainers for me since I purchased in August, and I'm up almost 10% on a CNQ purchase from June. All the pipelines look great too (even if ENB is lagging at only a 4% rise due to Line 3 issues). The only unhappy oil stock for me is CPG, which I bought too early in April and then added to in late May and early July. I'm still down about 10% there, but it's far outweighed by everything else.

I'll be holding until the sell side analysts start revising down US oil production for 2017 and 2018. Looking at the latest monthly report (the EIA 914 for July) the EIA's weekly estimates overestimated production by almost 180,000 bpd, as they have been for a few months now. With the EIA's short-term energy outlook estimating around 9.2 million bpd for August and Harvey taking a bite out of September production, it looks to me like they would need to average > 9.6 million bpd through the fourth quarter to hit their targets. US oil production may hit 9.6 million bpd by December 31st, if Shale really hustles (after subtracting out GoM and Alaska's probable growth, US shale needs to grow by about 300,000 bpd in the last 4 months of the year to hit that target) but I don't see how it could average that. Presumably, missing all their 2017 targets due to Eagle Ford stagnating and the Permian underperforming will also effect sell side analysts' targets for 2018 growth (and will at least effect where that growth is starting from) which I would guess should trigger another leg up for this rally. Obviously, sudden global recession, OPEC deal falling apart... etc... could cause this plan to backfire, but I think the balance of risks is still in favour of oil bulls (on the other side of the geopolitical board, a disruption in Iraqi Kurdistan could take 600,000 bpd off the market, for example). For now, I'm holding, but my crystal ball gets pretty murky past 2017, so I'm not sure how long before I start trimming my positions.
Sr. Member
Aug 17, 2008
543 posts
159 upvotes
More nat gas than oil, but the international sentiment remains the same.

Petronas unit puts Alberta assets on the block
CALGARY
OCTOBER 3, 2017

Malaysia's Petronas is taking another step back from Canada after abandoning plans for a major natural gas-export plant earlier this year.

The state-run company's Canadian unit, Progress Energy Canada Ltd., has put oil and natural gas assets in Alberta's Deep Basin exploration region on the block, hiring BMO Capital Markets to run the sale, according to the bank's web site.

Calgary-based Progress did not immediately return messages seeking comment on Tuesday.

The move follows the abrupt cancellation of its $11.4-billion liquefied natural gas terminal planned for Lelu Island near Prince Rupert, B.C., a decision that stoked concerns about the overall competitiveness of Canada's energy industry.

Petronas and its partners had spent $400-million on site development plus an average of $2-billion per year drilling for natural gas on lands in northeastern British Columbia acquired when it bought Progress for more than $5.5-billion in 2012.

It shelved the multibillion-dollar proposal in July, however, citing high costs and unfavourable market conditions, including a global glut of liquified natural gas.

The company still maintains holdings in B.C.'s Montney region and is said to be considering acquiring a minority stake in a rival export development led by Shell.

In northwest Alberta, Progress is marketing production equivalent to 5,500 barrels of oil per day plus drilling rights on more than 400,000 acres of land. It is also selling ownership interests in three gas-processing plants and a network of pipelines.

Other companies with significant land holdings in the region include Canadian Natural Resources Ltd., Cenovus Energy Inc. and Seven Generations Energy Ltd., according to marketing materials.

Canada's energy industry has seen a raft of exits by major foreign companies this year, with multinationals selling off high-cost oil sands assets in favour of more profitable prospects.

This year also saw independent Apache Corp. sell its Canadian holdings for proceeds of $459.5-million.
Sr. Member
Nov 28, 2010
874 posts
118 upvotes
Brampton
So much for this rally. That being said, will the TSX ever actually do anything unless it's heavily boosted by an oil recovery?
Jr. Member
Aug 16, 2015
119 posts
11 upvotes
endokuken wrote:
Oct 6th, 2017 1:06 pm
So much for this rally. That being said, will the TSX ever actually do anything unless it's heavily boosted by an oil recovery?
Big banks, timber lumber pulp and weed seem to the best places to be on the tsx.

Aside from maybe enb ipl and su i will be avoiding the energy sector like the plague.
Newbie
Jan 27, 2016
84 posts
30 upvotes
Toronto, ON
Saudi king and Russia met yesterday for the first time in a long time. Wonder what they were discussing? Possibly IPO soon?
Jr. Member
Jun 28, 2016
197 posts
83 upvotes
Am amused.

EIA report was bullish. Rig Count was bullish (particularly the sharp drop in international rigs and continued drops in Texas). Tropical Storm Nate is bullish. Kurdistan is bullish. Diesel demand is bullish.

Oil Prices: ⬇⬇⬇

Anyway, as I mentioned on the 20th of September, I'm taking this opportunity to start CVE (bought this morning at $11.95). If we're still falling next week, I'll be happy to add some more to my oil producer/pipeline positions. Considering how fundamentals are looking, this seems to me like exactly the sort of time when one should 'buy the dip.'
Jr. Member
Aug 16, 2015
119 posts
11 upvotes
Wavelet wrote:
Oct 6th, 2017 3:41 pm
Am amused.

EIA report was bullish. Rig Count was bullish (particularly the sharp drop in international rigs and continued drops in Texas). Tropical Storm Nate is bullish. Kurdistan is bullish. Diesel demand is bullish.

Oil Prices: ⬇⬇⬇

Anyway, as I mentioned on the 20th of September, I'm taking this opportunity to start CVE (bought this morning at $11.95). If we're still falling next week, I'll be happy to add some more to my oil producer/pipeline positions. Considering how fundamentals are looking, this seems to me like exactly the sort of time when one should 'buy the dip.'
Could be because all the car companies are talking about electric vehicles...
Oil's future is uncertain to say the least. The best strategy is clearly to buy the mega cap diversified oil companies. ENB CVX XOM SU CNQ.

You can compare the charts of Chevron vs Granite oil for example. Avoid the little guys at all costs.
Jr. Member
Jun 28, 2016
197 posts
83 upvotes
kilburn305 wrote:
Oct 6th, 2017 9:58 pm
Could be because all the car companies are talking about electric vehicles...
Oil's future is uncertain to say the least. The best strategy is clearly to buy the mega cap diversified oil companies. ENB CVX XOM SU CNQ.

You can compare the charts of Chevron vs Granite oil for example. Avoid the little guys at all costs.
I have the opposite view. The large Caps have limited upside if oil rises, compared to their small/mid-cap counterparts, and the large caps are at enormous risk from electric cars. SU and CNQ have assets which they expect to produce oil for 40-50 years. If peak oil arrives in 2030 and that results in prices cratering, then those assets are never going to make a satisfactory return, and their safety premiums will collapse if an investor is lucky (if one is unlucky, they will be swallowed by their debts). The same is actually true of CVE, mind you, but it has a lot more upside if oil prices rise, so I'm willing to tolerate the risk.

As for what car companies are talking about, that's just sentiment. This has been the best year for oil demand growth since 2010 (the recovery from the financial crisis) next year is projected to be solid as well (unless we get a surprise recession, ruining these projections) and, after that, oil production will be falling off a cliff unless prices sustainably rise into at least the low 60s. Electric cars are a major, long-term threat to oil demand growth, but the key word is long-term. They're not a threat this year, next year, or, really (even if we make very optimistic projections) any year before 2023 or so. Even then, they'll just be slowing demand growth for some years, not stopping it, while depletion will require the replacement of 3-4% of global production/year at costs above current costs.

Sentiment can rule an oversupplied market, but we're not really in one of those anymore. Distillate days of supply are back where they were at this time of year in 2011/2012/2013, as are gasoline days of supply. US crude inventories (while still elevated) have been dropping like a stone for six months, while the WTI/Brent spread widens (from already very wide levels) indicating that global supplies are tightening more quickly than US supplies are. For the first time since 2014, the fundamentals are good and getting better. These can be ignored for a while, as the talking heads on CNBC spout nonsense (my favourite explanation of the oil price falling on Friday was that it was caused by Hurricane Nate shutting down 1.2 million bpd of oil production in the Gulf of Mexico) but the actual physcial spot market is starting to play a larger role in dictating prices, as actual physical supply becomes harder to come by, and the actual physical market does not run on sentiment.
Jr. Member
Aug 16, 2015
119 posts
11 upvotes
You can have whatever view you want. The mega caps are doing much better than pey, gxo, baytex, cresent point and many of the other crappy little yield traps we have. go compare charts, that is fact.

The big guys will have the resources and leverage to go into renewables or whatever. The little players will just go bankrupt.

As for CVE, theyre not exactly small... Im still holding out hope that I will beable to sell my shares for a profit someday.
Jr. Member
Jun 28, 2016
197 posts
83 upvotes
kilburn305 wrote:
Oct 7th, 2017 7:44 pm
You can have whatever view you want. The mega caps are doing much better than pey, gxo, baytex, cresent point and many of the other crappy little yield traps we have. go compare charts, that is fact.

The big guys will have the resources and leverage to go into renewables or whatever. The little players will just go bankrupt.

As for CVE, theyre not exactly small... Im still holding out hope that I will beable to sell my shares for a profit someday.
There is more upside because their charts are poor. Charts are price -- not the fundamentals of the businesses. Small and mid-caps have been underperforming through this bear market because they're perceived as risky, and there certainly is elevated risk there. However, there is also a lot more upside. CPG is currently trading at 0.57 times its book value, while Suncor is trading at 1.6 times its book value, whereas, in in the 5 years prior to 2014, CPG traded at between 1.45 and 2.1 times book value, while SU traded between 1 and 1.54 times book value. In other words, the assets Suncor owns are about as expensive now as they were when oil was trading around $100/barrel in 2014, while CPG's assets cost about 25% of what you would have paid then. Why has this happened? Because investors realize that CPG cannot generate significant earnings with oil prices below $50/barrel, and that it has actual bankruptcy risk in this price environment (although far from any immediate risk) while SU, having completed or shelved all of its growth plans, can produce more free cash flow than it was producing in 2014.

On the other hand, if oil trades at $60-65/barrel, then SU's cash flow will roughly double (according to its Dec presentation) while CPG's earnings will go from basically nothing to 10-15% of its current market cap (based of CPG breaking even around $50 and exhibiting the $50 million change in earnings per $1 change in oil prices mentioned in its last annual presentation). Both of those are good for investors, but one might have 30-40% upside (SU) while the other (CPG) could easily double or triple if oil spends 6 months at $60/barrel. I will note here that I don't mean to compare cash flow and earnings. The issue is that SU is basically marketing itself as a machine which, while showing very little growth in the future, will spit out cash flow for investors from existing assets, while CPG says that it is going to 'organically grow production' at a modest rate, which means that they need earnings for capex, exploration and to replace land that's run out of oil. It's a meaningful difference between shale (which needs to combat rapid depletion) and SU (which has multi-decade assets).

As for renewables, investing in them is a good idea. I like Transalta Renewables a lot, for example. However, trying to invest in renewables via Shell or Exxon is not a very good idea, as their spending in that direction is inconsequential compared to the value of their oil assets. Just look at Exxon: $22 billion/year in capex (these days, when it's cutting back) compared with virtually no renewable spending. Among the mega-caps, the biggest renewable spender is Shell, which in spending about $25 billion on capex this year and has announced plans to possibly spend as much as $1 billion/year in renewables by 2020. If you look at this spending and compare it with the debts these companies have, it seems pretty clear that the collapse of their fossil fuels business would drive them all into bankruptcy (just like the small- and mid-caps).

I should note that I'm not trying to endorse CPG specifically here. It's just the one I know best off the top of my head among what you call 'the crappy little yield traps' (by which you seem to mean every E&P company in Canada except for SU, IMO and CNQ, regardless of their fundamentals). This sort of difference is seen anywhere you compare small- and mid-caps with the large caps in the E&P sector. In a bear market, they will underperform, but, in a bull market (if they make it there) they are very likely to considerably outperform.

Top