Oil & Gas Industry Outlook & What That Means for Real Estate Development in the Okanagan Area February 24, 2017 Capri Hotel, Kelowna BC 1
As a 40-year veteran of the Canadian Investment Management Industry, Josef Schachter has experienced several exceptional and turbulent global economic and stock market cycles. With his primary focus on the Energy Sector, Josef is able to weave global political, economic and monetary issues with current energy data into a compelling story of what’s going on in the sector, what is to come, and why. Josef currently provides Oil and Gas research coverage to Maison Placements Canada for their institutional clients, as well as consults and delivers presentations to various boards, companies and organizations. Effective April 2017 Josef will begin producing the Schachter Energy Report for individual and corporate subscribers. For more information please go to www.schachterenergyreport.ca. Josef I. Schachter 2
Josef I. Schachter Josef is most noted as a frequent guest on BNN and is regularly quoted in news publications and financial reporting agencies. He is also a regular on various radio shows including Michael Campbell’s “Money Talks” on the Corus Network and is a regular Guest Speaker at the annual World Outlook Financial Conference in Vancouver. The Business Edge Magazine awarded Josef their “Stock Picker of the Year” in 2003, 2004 and 2007. More recently, he has been acknowledge as the first analyst in Canada to predict the Oil Price Plunge of 2014. Prior to establishing his firm Schachter asset Management Inc. in 1996, Josef was the Market Strategist for Richardson Greenshields, a Director of RGCL and a member of its Investment Policy Committee. He holds a Chartered Financial Analyst designation and is a past Chairman of the Canadian Council of Financial Analysts. 3
WTI Crude Oil – 2016 WOFC Forecast Bull Market Transition Period Transition Period Q1/16 actual Target Range Q2/16 – US$40-45/b Actual US$52/b Source: StockCharts.com, January 15, 2016 Target Range Q3/16 – US$40-48/b Actual US$52/b US$26.05/b Target Range Winter 2016-2017 US$48-64 US$55/b so far 4
S&P/TSX Energy Index – 2016 WOFC Forecast Transition Period Bull Market Reached 125.84 Low Source: StockCharts.com, January 15, 2016 Target High Q4/16 220 – reached 5 230.93 Dec/16
Crosscurrents Effecting Oil Prices POSITIVE NEGATIVE • World-wide Central Bank QE • High and rising crude oil • High depletion of reserves inventories in US (shorter proven RLI’s) • China and India economic • Expensive new infrastructure growth slowing required to bring on new • Europe/Japan demand negative production vs. prior years • Infrastructure delays due to • OPEC glut continues even during environmental concerns and current winter months resolving Indigenous peoples’ • New supplies from Iran, Iraq and concerns Libya in 2017 could be greater • Social unrest in many OPEC than 1.0Mb/d countries (Nigeria) • If Nigeria resolves its difficulties • Middle East hot spots in the Niger delta it could raise • OPEC January cut of 890Kb/d production by a further 600Kb/d is the first of 3 to 4 cuts which • Worldwide storage levels may total 3-4Mb/d nearing full capacity 6
32.5Mb/d cap 7
Problem: Inventory Build Continues During Peak Winter Demand Season What happens when we enter the shoulder season and demand falls by 1.0-1.3Mb/d? Production in January 2017 by OPEC was 32.1Mb/d creating a glut/build of 1.0Mb/d 8
OPEC Crude Oil Production Source: OPEC Oil Monthly February 13, 2017 9
OECD Inventories Currently 10 Days Too High 10
11 Source: Calgary Sun, 1986
Weekly Inventory Balance Sheet February 1, 2017 Source: EIA US Petroleum Balance Sheet February 10, 2017 12
US Crude Stocks Source: EIA US Petroleum Balance Sheet February 10, 2017 13
Total 5Mb/d Total 3Mb/d Total 3Mb/d 14
1997-1998 15
2000-2001 16
Russia and OPEC Raise Production Just Before Cuts Russia production expected to rise in Q4/17 and significantly in 2018 17
Speculative Long Positions Total of 1B contracts with US$55.24/b Brent spec holdings US$107.68/b US$110.55/b US$42.41/b US$26.05/b $US77.28/b 18
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Why We Need More Take-away Capacity 20
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Energy East – Long Shot (Not Likely) 22
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Approved Jan. 12, ‘17 Unless protest and environmental groups force further delays 24
Infrastructure Impact on Okanagan Area 25
Kelowna Demographics 26 Source: Wikipedia, February 2017
Crosscurrents Effecting Natural Gas Prices POSITIVE NEGATIVE • Strong electrical, consumer • New production and industrial demand Utica/Haynesville/Marcellus taking • Rig count focused on oil, not market share in Eastern Canada - gas negatively impacting Western • Hedge book profits gone Canadian demand • High cost dry gas not being • LNG exports by US Gulf Coast focused on gaining market share and negatively • Large LNG potential in next impacting BC LNG potential decade (we missed 2010- • Infrastructure increases in 2017- 2020 window) 2018 in the US will add 5-7 Bcf/d • Growing demand for natural • US coal receives Trump bump gas from thermal crude oil production WE ARE BULLISH FOR NATURAL GAS WINTER 2017 - 2018 27
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New Liquefaction Capacity Likely to be Required to Meet Growing S/D Gap Opportunity for Canada in 2025 – 2030 5-8/Bcf/d possible relative to current market of 14-15/Bcf/d 29
New Market Opportunities for Western Canadian Gas 30
Moving Forward 31
Oil & Natural Gas Creates Jobs Across Canada 32
Missed Opportunity 2012 -2013 Missed Opportunity 33
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Cheniere Competitive Advantage: Low Cost 35
What a LNG Compression Facility Looks Like Here is what US$5 Billion looks like!! 36
What a LNG Shipping Facility Looks Like Here is what US$2-3 Billion looks like on-shore and US$500M+ for each LNG ship!! 37
S&P Energy Bullish Percentage Index 3 5 1 7 Sell Zone 6 Buy Zone Target Q2/3 - 2017 2 4 8 38
WTI Crude Oil US$/b Now Range bound US$49-55/b BUY Zone <US$34/b late Q2/17 39
Energy Bull and Bear Cycles 1973 - 2017 WTI US $ PRICE PER BARREL TRANSITION TRANSITION 160 BULL MARKET BULL MARKET PHASE PHASE 140 Proven RLI’s 6 -7 Years 120 100 Proven RLI’s 10 -12 Years Proven RLI’s Proven RLI’s 7 -9 Years 80 14-16 Years 60 40 20 0 EIA data WTI February 2017 EXPECTED START OF NEW BULLMARKET
BUY Recommendations Presented Last Year at WOFC on January 30, 2016 41 Source: SAMI, January 27, 2016
Performance of Recommended BUYS Reviewed Feb/4/17 at WOFC 42
Announcement Launch First Issue to be Released in April 2017 For a number of years private/individual clients have asked me for access to my energy research on the industry fundamentals and specific company recommendations. I now feel it is time to launch such a product. Reasons: 1) Research on junior to mid-cap companies has diminished and attractive companies are getting little or no coverage (i.e. SDX very little and IPO none so far). 2) By late this year we expect that a new energy bull market will commence and may last 4-6 years! Having been cautious since Q2/14 (except for oversold rallies) we now see daylight for the sector once the upcoming shake-out in Q2/17 is over. 3) Crude oil could reach >$100/b over the next 3 years and natural gas could exceed AECO $5/mcf. 4) The TSX/Energy Index could triple in the next cycle providing even better gains for the junior and intermediate companies. www.schachterenergyreport.ca 43
Monthly Schachter Energy Report Black Gold Service 12 monthly newsletters focused on: Includes 12 issues of the monthly Schachter Energy Report PLUS: The Macro outlook for the energy 12 interim updates on the energy sector Coverage of small, medium and markets and covered company intermediate Oil & Gas companies, activities Buy/Sell Action Alerts and Energy Service companies, Quarterly Webinar with sector including our Recommended Buy List updates, favourite picks and Q&A $499 Cdn annual subscription $799 Cdn annual subscription www.schachterenergyreport.ca 44
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