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.