- Despite mostly upbeat Q2 results, my stock picks aren’t moving higher.
- Sentiment is still negative in the energy market, capping energy stocks gain.
- Painted Pony and Point Loma are underperforming.
- Prairie Provident and Granite Oil are my two favorite buys right now.
Here are the current holders of Point Loma Resources (PLX).
|Evenergy Company Ltd.||Investor||Jianjun Cui, Director of Dayou Energy Ltd., the parent company of Evenergy Company Ltd., is on the Board of Directors||8,375,000|
|Terry Meek||Director, CEO||1,922,691|
|Doug Dafoe||Director||CEO of Ember Resources Inc.||115,690|
|Steve Dabner||Director, Chairman||VP Exploration of Madalena Energy Inc.||60,000|
|Kevin Baker||Director||Director at Calfrac Well Services Ltd.||6,052,011|
|Al Kroontje||Investor||Owner of Kasten Resources Inc.||4,410,291|
Source: Cadotte Capital Partners
Insiders own 22% of outstanding shares.
Disclosure: I am long PLX. Not for republication on Seeking Alpha.
- Last week’s sell-off was a one time event: Stability in the oil market should return.
- Selling overleveraged and low netbacks oil producers.
- Adding to my favorite Canadian E&Ps.
Last Wednesday was a test for energy investors. Did you resist the urge of following the masses by selling your energy holdings?
I resisted. I added to my favorite energy holdings last Wednesday, which are Gear Energy, Point Loma Resources and Raging River Exploration. Those companies can survive low oil prices and then thrive once oil prices rise.
Here are my recent moves in the market.
First, I sold all the lithium explorers I bought last month: Critical Elements, Nemaska Lithium and Natan Resources, now Enforcer Gold. I was lucky to turn out a profit on this: Critical Elements skyrocketed 50% after investors learned the company had hired a communication firm for a year.
This experience would be cash neutral at best if it wasn’t for this gain. Just for example: Enforcer Gold switched its focus to gold exploration after I bought the stock for its lithium properties. All in all, this is another point to not speculate on the market.
Second, I sold TransGlobe Energy. It turns out the Canadian assets aren’t as transformative as I thought they would be. I first estimated netbacks at C$11.50 per barrel for total consideration of 6X 2017 FFO. Instead, netbacks were as low as C$6 per barrel in Q4, which implies an estimated price tag of over 10X 2017 FFO.
The Cardium light oil acreage should provide interesting returns according to past presentations from Angle Energy. Management will drill these lands only in late 2017. Therefore it will take some time before shareholders see something good from these assets.
I sold what was left of my position in MEG Energy for a sub-50% gain. WTI at sub-$50 won’t be enough for MEG to sell its pipeline at a good price. Hence share price appreciation will be limited in the short-term.
I added massively to my positions in Point Loma Resources, Gear Energy and Raging River Exploration using these gains.
I bought back Tidewater Midstream and Infrastructure on Friday after selling the stock two weeks ago. Support was limited below the 200-day moving average.
Low AECO prices in Western Canada may delay growth projects by producers and lower flows in pipelines owned by TWM in the short-term.
I am now heavily positioned in the oil and gas sector with a strong presence in junior Canadian E&Ps with low leverage and high netbacks. Those companies can survive at $50 WTI and thrive at higher prices.
Disclosure: I am long GXE, PLX, RRX, TWM. Not for republication on Seeking Alpha.
I am now well positioned for 2017 after another series of move in my portfolio.
- I added to my positions in Painted Pony Petroleum and in Gear Energy by selling part of my position in MEG Energy. I am preparing my portfolio for lower oil prices.
- I opened a position in Tidewater Midstream & Infrastructure.
- I bought back shares in TransGlobe Energy. TransGlobe’s Canadian transformation is a game changer to me. Plus the acquisition metrics are very good for TransGlobe shareholders.
- I opened a position in Point Loma Resources.
I made a quick analysis for Point Loma Resources after hearing about the stock on Seeking Alpha. The stock is indeed trading at a very low 6.3X Year-End 2016 FFO. I estimate FFO of C$17.92 per barrel at year-end 2016. Furthermore, the company holds no debt except for convertible debentures and plans to grow production aggressively next year. In other words, the multiple should be higher.
Lower heavy crude from Venezuela will benefit Canadian heavy oil and tighten the price differential of Canadian heavy oil versus WTI.
Finally, the new push for natural gas pipelines in the Northeastern US will force TransCanada to lower its transportation tariffs. Else it will face a severe decrease in its market share in Eastern Canada.
Disclosure: I am long GXE, MEG, PLX, PPY, TGL, TWM. Not for republication on Seeking Alpha.