Josef Schachter: Next Oil Stock Entry Point as Iran War Spikes Prices
Summary
Oil Market Outlook: Guest outlines two price paths tied to Iran conflict duration, with potential spikes toward $120–$150 if disruptions persist and a retreat to $70–$80 if resolved sooner.
Energy Security: Emphasis on secure supply routes (Straits of Hormuz, convoying), and the strategic importance of sourcing away from Russia and unstable regions.
Canadian Opportunity: Strong bullish case for Canadian Energy and broader resources over the next decade, supported by secure supply, long-life reserves, currency tailwinds, and potential foreign capital inflows.
Natural Gas & LNG: Natural gas remains a favored area with perceived bargains; Canada’s LNG build-out and new pipeline routes (west/south) are pivotal to unlocking value.
Pipelines & Midstream: Extensive discussion of approvals, timelines, TMX, Coastal GasLink, and potential expansions underscores the role of Oil & Gas Storage & Transportation in enabling growth.
Portfolio Strategy: Trim oversized oil winners after big runs, wait for pullbacks post-conflict, and build diversified exposure across E&P, heavy/light oil, NGLs, gas-levered names, and services.
M&A and Consolidation: Continued consolidation expected as foreign buyers return; historical cycles suggest multiple expansion and potential outsized returns in an Energy Supercycle scenario.
Key Companies Mentioned: References include SU, CNQ, OVV, VET, TOU.TO, POU.TO, NVA.TO, SCR.TO, TCW.TO, STEP.TO as examples within Canadian energy producers and services.
Transcript
I'm Charlotte Mloud with investingnews.com and here today with me is Joseph Shakar. He is president and author at the Shaker Energy Report and a 40-year veteran of the industry on both the buy and sell side. Thank you so much for being here. Great to have you back as always. >> Oh, Charlotte, it's a pleasure to be with you. Definitely not boring times in in the energy sector. Uh, lots going on, lots for us to talk about. >> Yes, we have so much to get through today and thank you very much for agreeing to come on. I know this was a little bit more short notice than some of our usual interviews, but it's a very volatile time in the oil market right now. We had prices rising this week past the $100 mark. Of course, right now we've gone back below that once again, but I wondered if you could start by talking us through this volatility we're seeing. Is this typical when we have conflict breakout as it has in Iran over the past couple of weeks? >> Yeah. Uh I think when we were talking last we had a a bullish view on the price of oil going starting in Q2 when we thought you know OPEX production would would show that they can't increase and then in Q3 we thought global inventories would come down. So that was our bullish thesis but we we were looking for prices to maybe average for the year $70 WTI. You know, if you remember in our discussion with maybe $80 in Q4, um, if we were right about the tightening of of supply and demand, well, all of a sudden, the war starts. And, uh, so right now the the, you know, the the key thing is how long does it last? Um, and and what is the reason that they want the war? Uh, is it to destroy their ballistic missiles, which right now can reach Europe, but they were building those that could go all the way to the United States. they had Russian and North Korean help to do that. Um the second of course was um they had you know the drone manufacturing that they were using um you know in in previous wars with Israel and um they were providing them to the Russians to use against Ukraine. There's a reason you know to stop that. And then last was the nuclear issue. they and their discussions with um you know um the the you know presidential adviser Whiteoff who is involved in negotiating with Iran. They said that they had enough fishable materials. I think it was 480 um 460 kg of material at the 60% level and it would only take 10 days or so to take that to 90% and have a nuclear weapons 11 weapons. So that was another issue. So um now um and they also at 60% could do dirty bombs, you know, suitcase bombs and you know and and so that was an issue. So right now the president is saying um our target in the war is to destroy their missiles to destroy their missile and drone manufacturing capability and to destroy their navy. So let's start with the last one. They've destroyed 50 plus ships. So the and this is coming from the um you know the um chairman of of of the joint chiefs um you know general at general Kaine who said they've destroyed their navy so there's no way they can block the straits of Hormuz which was the big concern um of mining or blocking the straits they cannot do that so if the US goes to convoying um the shipping out of the the area it'll take some time to do that they've got to get the destroyers and you know frigots in the area they need Britain to help. They need they need France to help. And interestingly, China might even help because China wants the oil and and the product. So, if you have a big enough navy, that could stop it. Um, and so that was the the one side. Um, on the other side, the leadership, they wanted a regime that was not, you know, supporting terrorism. And of course, the new fellow who's in charge, Kmeni's son, his wife was killed, his parents were killed, his, you know, one of his children was killed. So he's not going to be friendly and he's even going to probably be tougher and more hawkish and more adversarial than his father was. So I think that the regime issues are still out there and um and while the Americans are saying that they're attacking and they've destroyed over 5,000 targets already, um there still are these ballistic launchers. So originally when this started, they had 450 of them. Um, and then hit over 2,000 ballistic missiles according to the US government. Then, uh, with the attacks that they've had between the Israelis and and the United States with good intelligence, in the first week they knocked off 150. So, you're down to 300. This week, they knocked and you know, over the last few days, they talked about knocking off uh, you know, another, you know, 150, but there still are missiles out there. And if you look at the, you know, the news at night, uh, you hear about attacks that have not only gone into Israel, but there was another, you know, attack that went towards Turkey, which was shot down by NATO. Um, and all of the Arab countries in the area are still getting drone attacks. There was even a drone attack against refinery, a drone attack against a desalinization plant. So until the Americans have taken away all of the ability of of uh of Iran to attack its neighbors, I don't think the war is over. And um and then the pressure will still be on uh uh look, I think this new fellow Kamani, the son has a bullet, you know, has a bullseye on his back. And uh you know, I think the you know, if the Americans get a chance or the Israelis get a chance, um you know, he's very he's part of the IRGC. He's supported by the IRGC. got elected because of the IRGC. These hardliners want to control it. It's like, you know, they're drug lords. They control the the economy. They control the money of the flow of oil. They've used it to, you know, to increase their military. And so, until they're degraded sufficiently, and this is where the optimism I have comes in, there's two militaries in the country. There's the IRGC, which is what everybody knows, and they're the ones oppressing their people, and there's a group called the ATEH. This is the old conventional military of the government uh you know in power and they really have not been heard from. And so if if the Americans have worked diplomatically to get to the leaders of Yates and said when we have degraded the IRGC sufficiently then you can come out and finish them and it'll be the Iranian people you you supporting the Iranian people that make the regime change because the other choice is government and the United States sending in troops. Nobody wants that. And regime change when it's forced doesn't work. It has to be from the people. So I'm watching the attack. I'm watching any news flow coming from there. And if something like that did happen in the next week or two, you could look at an end to the war by the end of March. On the other hand, this thing could drag out for weeks. Even though President Trump wants it to end uh because he's got political issues with the midterm elections and of course the high cost of energy. The gas price has gone up. Um, we've had in in the write up we just did to our clients, we said that we thought the price of oil would get up to 100 if it dragged through the end of March, but we said if it takes into April or May, we could grow above the 2008 high of $147 a barrel for WTI and we could reach 150. So it's a question the price of oil matters how long the war lasts and how long it takes for uh traffic from the straits of remuse where pe ships can go from the Persian Gulf load up in Saudi Arabia load up in you know guitar if it's going to be natural gas LNG natural gas uh and until we know those things uh even though the the Trump administration yesterday was trying to uh quiet everybody's down and you know it's not going to be a long war we're going to send troops in. Um but the the nuclear um you know as I mentioned the the comment from I watched on CNBC today the 460 kg at 60%. The Americans need to get that the or the UN you know the UN has to be the receiver of it or the United States or someone to get that out of the country because it's not needed at that level for nuclear power in in power plants. This this is this is weapons grade or near weapons grade. Um, so to me, uh, there's still time here. Um, is it two to three weeks or is it two to three months? That will tell you where the price of oil is going to go. >> Really helpful to unpack how you're looking at this situation. Clearly, there's so much uncertainty. And we'll talk a little bit more about your price scenarios, but before we go there, I do want to touch a little bit more on you're mentioning the commentary from Trump over the last day or so saying that this is pretty much over. Can you can you talk a little bit about why he's saying that? Is this just an attempt to calm the market even though it looks like it will continue going on for at least some time further? >> Yeah, because you're getting different messages from Pete Hex, the Secretary of War, and you're getting um you know, even from people in the White House, different messaging from what President Trump is doing. And also, President Trump gives a different messaging from day to day depending upon what news flow is going and what he needs to say uh to calm the nerves out there and calm pricing. Um so, you know, we were at $1, you know, $119, uh and uh and uh at the high, you know, intraday Sunday night. Um and now we're looking at the price around $84. So, it's really come back a lot. Um and should it stay in that 75? Oh, it just went down again. 8034. It's down to 1441 right now just on CNBC in front of me on the TV. So it just keeps on coming down as the calming effect is affecting the markets right now. Um the big thing for me is I you know the if you look at the map of Iran it's a very big country and on the western side of the country is where all the attacks are occurring and that's like half the country and even you know right now there's still bombs you know or missiles being you know being sent from those areas in Iraq sorry Iran to the the the Gulf the Gulf countries also towards Israel you know just turn on CNN and you're seeing that every night. Um but um the eastern part of the country is not being attacked at all and drone manufacturing facilities can be made anywhere. So while they're attacking the drone facilities on the west side, they're not doing anything on the east side. Who knows how many ballistic missile sites are in the east side. So until the Americans can really cover the whole country and and ensure that there is no weaponry there that can be used, you know, if the Americans if they say we won and then they withdraw the two aircraft carriers, all of a sudden, you know, if if uh if Iran decides, okay, now that they're out of the area, uh and it'll take time for them to come back, we may now say, okay, let's upgrade the last little bit we need on the on the on the on the material. and then all of a sudden threatened everybody by saying don't ever attack us again because we have nuclear weapons just like North Korea everybody you know they have nuclear weapons they so you know are they going to be attacked by South Korea or Japan or you know are the Americans going to attack them I think that nobody expects that that would ever happen so again the minute you say you're a nuclear power game changes and so I think Iran is looking at the fact that if they can delay this get the Americans to to leave the area at some point finish up getting this nuclear material, then I think that's going to be um you know a threat that that that that's going to be a problem and a bigger problem than it is today. >> So you had mentioned you see two different price scenarios depending on how long this ends up lasting. So I wonder if you can share any more details on how you see those playing out. Are you are you leaning more toward one direction than another at this point or really just too soon to tell? I think it's too soon to tell. Um, you know, the Americans have done with Israel a a good job of knocking out the weaponry in the in the western part of Iran. The problem is nothing's happened on the east. So, if they decide they need to do that, that drags the war down months another month or two down the road. Um, I would watch, you know, the nightly news. Um, is there more um attacks by Iran on their Arab neighbors? Are they attacking um energy facilities? Are they attacking daliniz plants? Because most of the water that comes into those countries uh comes from dalinated water. They don't have water sources of their own. The biggest amount of dalination plants in in the are in the Middle East. And some countries get 70 or 80% of their water from desalinization. And so if those plants are attacked by Iran, that's not good. So, uh I I would be watching the news every night. uh you know is it going to be one or two weeks like President Trump is kind of hinting at and and that's why the price of oil has retreated or is this going to drag on and if it's in April and there's still attacks going on on the on their neighbors then I think the higher price area that I've talked about you know is a risk. Um so it's too early to tell. I don't think anyone knows. I don't think the Iranians know. I don't think the President Trump knows. Uh I think it's just an issue of watch from day to day. Um, and I think that um, if things calm down, then that's going to be the the 120, you know, might be the high and you we're 119, so, you know, that's that's that. If on the other hand, it drags out and we're talking about this a month from now or two months from now and we're still watching the news every night and seeing attacks, then I think it's going to be the higher case. So, uh, what we what we may want from from the point of view of casualties and and and and the and the problems in the Middle East and and and the poor people that are caught up in this, be it the Iranian population, you know, which would prefer a different leadership, or is it the citizens of the UAE or Bahrain or or even Saudi Arabia um and Israel, you know, that's going to be a problem and there's deaths right across the, you know, the area. And the shocking thing to me was Iran firing missiles at Turkey and Cyprus. You know, do you really want to bring the NATO countries into this? And Turkeykey's got a pretty strong military and they're right on your border. So, there's too many dynamics happening and one bad mistake, one bad mistake by one of the these people either against a refinery, against a port, uh you know, against a tanker, um you know, you know, dalinization plants. you you hit too many of those, all of a sudden all of a sudden this escalates. >> Yeah, there's just so much going on right now. A lot of uncertainty. So, thank you for thank you for sharing your thoughts there. I wonder what you make of these group of seven conversations about potentially releasing oil reserves. It sounds like the US is not very interested in that, but these these conversations are happening. So, do you think that's something that would actually end up happening? Well, the countries that are most caught up with lack of inventory in terms of commercial stocks are Europe and Asia. And so, right now, um, China has said that they don't want their, uh, refineries shipping diesel or jet fuel out of the country. Uh, you have other countries in in Asia doing the same thing. Uh, Japan is is looking at putting on price caps, you know, for to make sure and they'll use their reserves. uh many of these countries like Japan have no indigen you know their own sources of energy so they've got to import everything um in the case of China they might consume 17 18 million barrels a day but they produce only four so you know 4.2 to 4.3. So a lot of that is imported. So the first thing that's going on is the United States to to cool the worries in Asia is they've said to the uh to India, we will remove uh Russian sanctions for 30 days and you can buy their oil. Now the Russian oil prior to the end of February um if the price of oil for Brent was 65, they were selling their oil at 40 to $42 US a barrel. Now with the sanctions being removed for India um and and there's no oil coming from Iran, there's no oil coming from Venezuela. So two of the three uh countries that had sanctions on them were selling to India and to China are no longer able to do that. So the price of oil even though we're looking at, you know, $80 today, you know, is it 85 or 80? you know, every minute I'm looking there, um, the price that that Russia's getting is US $70. They're 10 bucks less than the last price. So, if we're 85, they're getting 75. If it's if it's 100, they're getting they're getting 90. So, you compare that to the 40 that they were getting just in the last few days of February, and it's a dynamic change to their cash flows. And that's why the United States President Trump had a conversation with uh with President Putin yesterday because they would love to start pushing um them being Russia to deescalate in Ukraine and possibly move them to a a peace deal. Um and with pressure from Europe because of all the problems they're having uh they you know and Ukraine now um you know it realizes that you know that they're in they're in a pos positive side from the point of view that they can provide drones to help the Arab countries against the Iranian attacks. But on the other side, you've got Europe that's facing a financial pressure from higher energy prices, be it oil and natural gas, that they're saying, "Look, you want more checks for to run your country and you want more money from us. We're putting pressure on you um to um move to a peace deal, even though it may not be what you want, uh it's it's what what probably you can get." That's a very interesting nuance to the situation as well. I want to talk with you also about what's happening to the oil stocks during this price volatility that we're seeing. I looked at some of the big names and it seems like there there are some fluctuations when oil was going past 100, but not not massive swings. So, what were you seeing among the oil companies and is that is that typical when we have this type of big moves in the market in the price? Yeah, you got to break it out between the um oil and gas and between gas that's domestic and gas that's international. So, let's start with oil. Many of the oil stocks from the lows in April of last year when we were, you know, we talked about, you know, a buy signal then and we were saying, you know, it's a table pounding buying opportunity. The stocks did well and some of them have doubled or tripled from those lows. So, unbelievable performance there. natural gas stocks. Some of them have moved if they had a liquids portion. Some of them that only are dry gas or don't have a lot of liquids have not done anything. So the ones that have really done well on the oil stocks, we've been telling our clients if you had a four or 5% waiting in your portfolio and now it's 10 or 12% because the stock is more than doubled. Do you really want to have a overweing? you know, it's not like you're owning Royal Bank or, you know, well, remember in the old days, Northern Nortell, you know, do you really want to have an overweighted position like that? And so, we're saying maybe pair it down, harvest some of the gains, you know, get your cost out, um, bring it down to a, you know, four to 5% position. And if we are right about the bullish scenario into the end of the decade, you'll make you'll make money on that again. But it's but again from a portfolio prudence point of view bring it down to a a proper position. If you are a long-term investor then um you may decide look I don't mind disproportionate positions so you may stay with it. Um you know and you know look at Nvidia you know people who have big Nvidia positions did they pair them down or not or did they say because that you know they love the name or Apple you know pick the pick pick what you want in the tech sector. Um, I think the the pairing down makes sense. I've done that myself and u in the STR report that's coming out on Thursday, they'll see that I've done that for our holdings. Um, where I've said some of the oily names have had such a big run that pairing them down more than a double from from the April low. Uh so, you know, again, the prudence issue in my case um and um and so I think that that is something for people to consider. Natural gas stocks, many of them have not moved, not at all. Um and so there's bargains there and one of the stocks we have a uh every issue we we look at the whole uh in area of 32 companies we cover and we say are there any stocks that are in bargain territory in in the months of January and February there was an oil name um you know Strath Kona which we thought was a bargain at the time 26 $27 and it's 343 36 today 3631 so you're getting a nice dividend plus we thought there was good capital gain potential that's worked in the issue that's coming out. We we have a natural gas stock. So, I won't say it because I don't want clients to see it first. Uh but we have a natural gas stock that uh pays a small dividend, but the reality is uh they're very levered to higher natural gas prices and they're now drilling again uh for liquids rich wells, which they weren't doing because of the tough times that the industry went through. So, we like the sector natural gas. It's our still our favorite area. We like light oil natur you know and and natural gas liquids uh and uh we think that uh the pipeline issue for Canada is becoming more and more important. I think uh you know you've heard people coming out more and more saying uh either you know we need to go west with another you know natural gas line uh we need to you know we need to have more LNG you know the six bill BCF a day if all the plants get approved FID and built uh and now we're hearing about potentially a pipeline going south um you know is South Bow going to be rejervenating the you know the old XL part of the line and bring it down to the Gulf Coast or the Midwest. So, um, I think people are now realizing, um, you know, we've talked about this before, but let me bring it in context because I think it's very important for people to know. The biggest producer of oil in the world is the United States, 24 million barrels. They consume under 22 million. So, they are a net exporter. They bring our oil down, but they export their light cruds from the Perium Basin that they can't man they can't up, you know, use in their in their in their refineries at the Gulf Coast. can then you go to Saudi Arabia at 10.5 then you go to Russia at 9.3 then you go to Canada at 6.1 and then you go to China at 4.2 too. So if countries around the world do not want to be dealing with Russia and if they do not want to be dealing with Saudi Arabia because of human rights issues and other things that they're concerned about or the Straits VMU's issues, you know, potential disruption, uh then Canada sits in a very position behind the United States and so countries around the world are going to be calling, you know, Prime Minister Carney and say, "Look, you know, find a way to get oil to us. Find a way to get us natural gas. find us a way to get us pod ash, find us a way to get us sulfur, all you know, get us forest products, all the things that Canada has that's in our wealth, um, you know, in terms of our exports. Interesting. The the biggest export is energy. So, oil and natural gas is our biggest export, you know, surplus. The second is gold. Precious metals are a big factor now, uh, at at 5,000 an ounce. Uh, silver at, you know, wherever we are, 100, wherever, 90, who knows? every that again that moves like crazy. Um so I think that people um should be looking at the natural resource sector be it uranium, be it copper, be it you know anything that you know that that we do that we produce and that we are a lowcost producer of if we can find the markets and if the government of Canada now realizes the only way to pay for our social services, the only way to handle our debt, the only way to you know to provide to provide for the you know the growth of the our you know of the population be immigration or natural ederal growth is we need to have a bigger pie. We need more money coming in to both the you know the federal government provincial governments the you know and the people working in the industry the companies the the and investors need to have an adequate return that means we will sit here with maybe a five or 10 year period of enormous growth in our resource sector all across the board so while I'm here sitting about energy um it you know somebody could be here talking about uranium or or talking about forest products or talking about you the, you know, the rare earths. Uh the the big thing is all of those are are all positives for the economy longer term. But again, it requires everybody at the table agreeing from from the federal government, provincial governments to First Nations. And if we can get everybody at the table, I think um Canada has a fabulous opportunity in the in the next decade. >> I think it's really good to highlight the opportunity in Canada. Are you seeing those groups starting to come together a little bit more cohesively than they might have in the past? >> Well, the federal government is is saying some of the right things, but the key thing is the approval process and how quickly it takes. Um, in the United States, they're talking about approving um, you know, new uh, LNG facilities in 6 months. um and you know between the state and federal doing that uh they're now approving more land to be opened u you know for uh drilling uh on on the Gulf Coast in Alaska you know the north slope of Alaska we are doing those kinds of things you know on the west coast no drilling occurring um east coast we haven't seen any in years um you know there's an issue of pipelines through Quebec u you know so there's so many things still to be resolved and the east route to uh is a low probability for either oil or gas or or or you know they keep on talking about uh you know that they would be able to send hydrogen. Well, I don't buy that either. Um so the key is going to be going west and so does the west mean BC or does the west mean um uh through Alaska? The other wild card and I think you and I have talked about is Churchill or or the or the Great Lakes. Um, and uh, so there's there's there's going to be some decisions having to be made between all the players. Uh, I think First Nations are are seeing the benefits economically and ownership wise. I think they want to own Nobody wants to own TMX with the debt that it has. So the government of Canada is going to have to write off a massive amount of debt. And then they can say, okay, to the private sector and to the First Nations, here's what we've done with the write downs. Here's what the value is. Here's the economic return to you. And if it's in the teens and the first nations see it as something they would like to hold longer term um then they would be number one buying in it and then they would also be part of the expansion of the TMX uh which is one of the options here. Uh so there's lots of good things that can happen intellectually in terms of the commentary and you know support from the industry. Uh but until everybody at the table says yes and they have a timeline that's reasonable. The problem is everything takes longer and everything costs more. Just think of coastal gas line. Talk about the TMX expansion. The the budgets were blown way way higher than they were expected to be. And if there's no reasonable number and that they can meet that budget in terms of the cost and do it within the time frame, you know, you know that becomes the issue for investors. You know, if you tell me it's going to be a two million billion dollar project and I'm going to get a 15% return on my equity and all of a sudden it's a $5 billion project and there's three billion more of debt and there's no return on my equity, you know, because all of it's gone to interest payments, you're not going to say, "Oops, I'm not I'm not going to be an investor." >> I think it makes total sense how you're explaining it. I want to go back just a little bit briefly to the oil stock. So, I think we have a good idea of how you're treating oil and natural gas stocks right now as we're going through this volatile situation. But I think this whole oil price spike might have attracted new interest to the sector or maybe people who are invested but they want to now have more exposure cuz they see that these things can happen. So, what would be good entry points in the future that you'd be looking for? I know we just talked about how there's so much uncertainty, but how would you look at that? Well, to chase things now after some of the big runs we've had, I don't recommend doing that. Uh I think there's going to be a pullback. The pullback will be the war is the war is over and then you know we might see $75. Uh just taking into account what happened um in um you know in 2022. The price of crude was $85.81 in February. I've got the prices in front of me. they went to 126.42 uh in the second first second week of March. By the middle of March, you know, two weeks later, it was down to $90. So, the prices can move around quite a bit. And then by the end of the year, they were down below 80. So to me, you know, we need to have a, you know, the war issue uh resolved and then I think we'll see a pullback and that might be a great opportunity because because of the fact that the um the straits have been, you know, shut for so long. uh there's going to be a big pull down on the inventories globally and that was what we were talking before about our bullish view at you know in February was we're going to see Q2 OPEC not being able to grow their production and and in Q3 global inventories coming down now we're going to see global inventories coming down in Q in Q1 and so that's going to that is the thing that's brought everything forward in terms of the price moves now the industry does not need $120 um you is sustained. You know, that's too high. Uh if we see and the and and the cost, you know, at the pump would be too high and the cost of inflation, uh you're hearing more and more about stagflation because stagnant growth and and rising inflation and $120 oil does that. So, um to alone, you know, and and the PPI and the CPI and and the PCE, you know, all those numbers would go up. Um, so I think if we can get into a nice place like $70 to $80, if you remember, I was using $70 for my average in February. I'm thinking now of moving that to 80. Um, because I think we'll be in a 70 $80 environment post war. Is that in April? Is it May or whenever? And I think we it'll be in that kind of range and that will be enough to attract uh foreign investment um into North America. Canada will be one that gets it. Uh we we've talked before about takeovers and we saw you know Kidno taken out by you by a private equity. We've saw oventive come in and buy big asset pool from Paramont and then they bought out new Vista. Uh we had step on the service sector taken over. I think consolidation will continue because our basins are younger and less developed. So in other words our reserve life index in the Montney and Duivere is much longer than the perium and the eagle fur. So the Americans would even come back into Canada. Well, Mventive is coming back again. Our old panadian and Canada, move to the States, and now, you know, they and now there they will have more production in Canada than they will in the States. And we're seeing uh other companies like Beth sell their US assets and and come back to grow their Canadian assets. So I think foreigners will come back. There's an interesting history. When things are good and and the sector is, you know, and there's a shortage of oil and there's concerns about risk premium, foreign investors come into Canada and they buy up and they overpay. And, you know, that's usually a good sign that we're maybe near the top of the cycle. And so, I think that that's something um that we're going to see again where the foreigners come back. If you go back in the last few years, all the assets that have been sold, the big assets were foreign assets that were bought by CNQ and bought by others. And I think we're going to see that that reverses and uh and we see more foreigners come in just you know taking into account uh you know just you know past cycles you know you know Mike Rose's um you know Berkeley got taken out I believe by anandarko big US firm um and then his duven company was taken out by Shell. So you know the foreigners will come back and you know you look at the Canadian companies with long life reserves um you know be it birchcliffe be it advantage be it you know you know pedo there's so many names um that uh we cover 32 names uh we cover three different groups we cover conservative growth and and and entrepreneurial in the growth area we're trying to get sorry in the conservative area we're trying to get total returns of about 20%. So if you can get four to 6% dividend yield and if you can buy the stocks at the right time i.e. the next correction when the when they're cheaper um you could get 15 20% capital gain and a 20% total return. That's for the the conservative. In the growth you're looking for companies that have 5 to 8% growth in production and as well as having some dividend and or an NCIB and that's where there's a nice group of companies. And then the last are the entrepreneurial ones those that have an exploration focus. And if they are successful with the drill bit, then you can see significant upside. And you take that 9920 to 08 um you know period when we had the last major energy super cycle there were 10 baggers and 20 baggers. That's where they come from on the entrepreneurial side. So for people who have a portfolio like in my case I have most of my assets or over half of them in in conservative because I want the dividend income and I'm comfortable there. But I do have growth and I have entrepreneurial because I do want to have the ability where a company really does a good job with the drill bit that we have the ability to get those outsized returns like we were able to get in that 99 to08 cycle. >> So opportunities across the spectrum in terms of company size and we've got entry points coming up in the future if people want to look at that. >> Yeah, I think that there will be a correction. Will it be because the war is over um and early or will it be, you know, because it's later? But at some point, there will be a pullback in the price of oil. Right now, we're saying if you're if you're overinvested and you have a position that's outsized, maybe take some profits on it. U traders may want to be a little more aggressive. But the key thing is is you want to have exposure to this sector because multiples today are let's say three times depressed cash flow. Cash flow is going up though. But you know going on our prior estimates in February you know trading at you know two and three times cash flow at the top of the cycle they they traded 18 eight to 10 times much higher cash flow because the price has gone up and then the volumes went up because they increased their production. The other one is is NAV. Um some of them you know used to trade uh you know in February at at PDP proved producing assets. Some are now trading at 1 P, but historically at the top they trade at 2P, which is proven plus probable. And so we could see multiple expansions in in in them because the the price of oil goes up, their volumes go up, uh the NAV value goes up, and so all of that creates over time many many u baggers uh on the upside. So uh we've had a hell of a run here. We've had a fabulous run. uh I don't think you should be chasing for investors when we get this correction then they should be building their positions and there's different areas to buy. You want to buy natural gas producers that are going to benefit from LNG. You want to buy uh companies that are light oil that will benefit because condensate is needed for for the heavy oil movement. You want to be buying the you know the heavy oil related names that are in the clear water or or up in the oil sands SAGD. And then you want to buy the service sector because as the price of oil goes up the industry is going to spend more money on drilling and fracking uh and you know pipelining and all the rest of it. And so you want to have exposure to there. So what I recommend people is you know if you're conservative you can find names that fit all four baskets there. If you're growth or entrepreneurial you can find names in each basket. And so you know you know for example we own Trirican. You know we want the company that's the major fracker in Canada. we own that. Um, so I think people should find the names that that they like. Um, you know, from my point of view of what we do in our research, uh, we cover 32 names right now. Um, I've got a part fellow working with me, Nathan Richie, who's joined us on the research side, um, February 1st. So, uh, we we we brought him on board, which is wonderful. And so, people can, uh, uh, go to our website and there's research from our, you know, from historic research there that they can get an idea of what we do. And then uh you know we do really two two things u we have a weekly thing called ion energy which is the macro review which is what you know the major things we've talked about and a lot of people really don't spend time on the macro review and I think that's added value that we do then we cover the 32 companies in our reports and so that's the value that we bring to the table and it's been a success uh we started this in 2017 um and it's grown beautifully and uh we have you know five uh people on the team providing the product to the to the clients and uh um I'm a happy camper. >> Well, we will have all of your links in the video description for people to check them out. And we're coming to the end here, but before I let you go, it feels like every time we're talking, there is some kind of crisis situation going on. I think last time it was Venezuela, now it's Iran. And I wonder, you know, as we move from crisis to crisis, are there other elements in the oil market that people might be overlooking that you think you would want to highlight right now for investors? >> Well, the the politics is going to affect the price. any problem that there is with uh with Russia or any price, you know, if there's Taiwan go, you know, China goes after Taiwan, that's going to be an issue that's going to spike prices up. Uh because it's another, you know, issue of war and the American military may be getting involved. Uh but the the other side of it is the supply. The areas where you can get secure supplies are important. So um right now ne if you're if you want to invest in European natural gas um you've got the Netherlands and Germany as big producing areas the the Norwegian North Sea. So Vermillion is is a company that people could look at for that. Uh there's also companies, you know, if you want South America, you know, there's Colombia, there's Brazil, you know, so there's that. We have a company that's operating offshore at Thailand that's growing its production by the drill bit. Um and so, you know, they're doing well. There's a company called Marin which is offshore Africa right now in uh Nigeria in Namibia with upside there from successful drilling that will get approved and and and we'll bring those productions on. So I think you want to look around the world to the places where you can find more oil where they can bring it on at a reasonable price and then you want security supply. All of those bullish things I just said are in Canada. So, I'll finish with saying um you know we have a cheap Canadian dollar. We're not, you know, to travel overseas is is expensive at 136, but if the price of oil stays in the 7585, we could have parody to the US dollar again. And, you know, people don't remember, just pull out the, you know, you know, the the Canadian dollar charts from, you know, 2020 when there was a positive energy cycle and the Canadian dollar was over was traded over the United States currency. So I think people should be looking at Canada uh you know why pay you know 136 to buy an American secure energy stock when our stocks could could go up just on the currency over time plus of course the the opportunity if the companies do well. So I'm I'm bottom line I'm bullish on Canada and I think the Canadian energy sector is one you should be invested in be it the big boys of Suncor CNQ if that's where you want to be great. If you want to go, you know, lower down to the companies like the termines and the Paramonts and names like that and Birch Cliffs, those are the size companies that we focus on and then smaller than that. So, we we we're filling the gap in that medium and smaller cap space, providing information that uh to to clients to make their decision of what fits their portfolio. they should sit down with their investment advisor, decide what's appropriate for them, um, and then make the decisions and build be ready to build their portfolio when we send out the next buy signal, which hopefully will be in April. >> Okay. Well, perfect place to wrap up, especially for me as a Canadian. So, thank you so much for coming on to talk about what's going on in the oil and gas markets. This is really helpful and hope to do it again soon. >> I hope so, too. Take good care. Have Thank you very much. >> Of course. And once again, I'm Charlotte Mloud with investingnews.com and this is Joseph Shaker. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts, so leave us a comment below.
Josef Schachter: Next Oil Stock Entry Point as Iran War Spikes Prices
Summary
Transcript
I'm Charlotte Mloud with investingnews.com and here today with me is Joseph Shakar. He is president and author at the Shaker Energy Report and a 40-year veteran of the industry on both the buy and sell side. Thank you so much for being here. Great to have you back as always. >> Oh, Charlotte, it's a pleasure to be with you. Definitely not boring times in in the energy sector. Uh, lots going on, lots for us to talk about. >> Yes, we have so much to get through today and thank you very much for agreeing to come on. I know this was a little bit more short notice than some of our usual interviews, but it's a very volatile time in the oil market right now. We had prices rising this week past the $100 mark. Of course, right now we've gone back below that once again, but I wondered if you could start by talking us through this volatility we're seeing. Is this typical when we have conflict breakout as it has in Iran over the past couple of weeks? >> Yeah. Uh I think when we were talking last we had a a bullish view on the price of oil going starting in Q2 when we thought you know OPEX production would would show that they can't increase and then in Q3 we thought global inventories would come down. So that was our bullish thesis but we we were looking for prices to maybe average for the year $70 WTI. You know, if you remember in our discussion with maybe $80 in Q4, um, if we were right about the tightening of of supply and demand, well, all of a sudden, the war starts. And, uh, so right now the the, you know, the the key thing is how long does it last? Um, and and what is the reason that they want the war? Uh, is it to destroy their ballistic missiles, which right now can reach Europe, but they were building those that could go all the way to the United States. they had Russian and North Korean help to do that. Um the second of course was um they had you know the drone manufacturing that they were using um you know in in previous wars with Israel and um they were providing them to the Russians to use against Ukraine. There's a reason you know to stop that. And then last was the nuclear issue. they and their discussions with um you know um the the you know presidential adviser Whiteoff who is involved in negotiating with Iran. They said that they had enough fishable materials. I think it was 480 um 460 kg of material at the 60% level and it would only take 10 days or so to take that to 90% and have a nuclear weapons 11 weapons. So that was another issue. So um now um and they also at 60% could do dirty bombs, you know, suitcase bombs and you know and and so that was an issue. So right now the president is saying um our target in the war is to destroy their missiles to destroy their missile and drone manufacturing capability and to destroy their navy. So let's start with the last one. They've destroyed 50 plus ships. So the and this is coming from the um you know the um chairman of of of the joint chiefs um you know general at general Kaine who said they've destroyed their navy so there's no way they can block the straits of Hormuz which was the big concern um of mining or blocking the straits they cannot do that so if the US goes to convoying um the shipping out of the the area it'll take some time to do that they've got to get the destroyers and you know frigots in the area they need Britain to help. They need they need France to help. And interestingly, China might even help because China wants the oil and and the product. So, if you have a big enough navy, that could stop it. Um, and so that was the the one side. Um, on the other side, the leadership, they wanted a regime that was not, you know, supporting terrorism. And of course, the new fellow who's in charge, Kmeni's son, his wife was killed, his parents were killed, his, you know, one of his children was killed. So he's not going to be friendly and he's even going to probably be tougher and more hawkish and more adversarial than his father was. So I think that the regime issues are still out there and um and while the Americans are saying that they're attacking and they've destroyed over 5,000 targets already, um there still are these ballistic launchers. So originally when this started, they had 450 of them. Um, and then hit over 2,000 ballistic missiles according to the US government. Then, uh, with the attacks that they've had between the Israelis and and the United States with good intelligence, in the first week they knocked off 150. So, you're down to 300. This week, they knocked and you know, over the last few days, they talked about knocking off uh, you know, another, you know, 150, but there still are missiles out there. And if you look at the, you know, the news at night, uh, you hear about attacks that have not only gone into Israel, but there was another, you know, attack that went towards Turkey, which was shot down by NATO. Um, and all of the Arab countries in the area are still getting drone attacks. There was even a drone attack against refinery, a drone attack against a desalinization plant. So until the Americans have taken away all of the ability of of uh of Iran to attack its neighbors, I don't think the war is over. And um and then the pressure will still be on uh uh look, I think this new fellow Kamani, the son has a bullet, you know, has a bullseye on his back. And uh you know, I think the you know, if the Americans get a chance or the Israelis get a chance, um you know, he's very he's part of the IRGC. He's supported by the IRGC. got elected because of the IRGC. These hardliners want to control it. It's like, you know, they're drug lords. They control the the economy. They control the money of the flow of oil. They've used it to, you know, to increase their military. And so, until they're degraded sufficiently, and this is where the optimism I have comes in, there's two militaries in the country. There's the IRGC, which is what everybody knows, and they're the ones oppressing their people, and there's a group called the ATEH. This is the old conventional military of the government uh you know in power and they really have not been heard from. And so if if the Americans have worked diplomatically to get to the leaders of Yates and said when we have degraded the IRGC sufficiently then you can come out and finish them and it'll be the Iranian people you you supporting the Iranian people that make the regime change because the other choice is government and the United States sending in troops. Nobody wants that. And regime change when it's forced doesn't work. It has to be from the people. So I'm watching the attack. I'm watching any news flow coming from there. And if something like that did happen in the next week or two, you could look at an end to the war by the end of March. On the other hand, this thing could drag out for weeks. Even though President Trump wants it to end uh because he's got political issues with the midterm elections and of course the high cost of energy. The gas price has gone up. Um, we've had in in the write up we just did to our clients, we said that we thought the price of oil would get up to 100 if it dragged through the end of March, but we said if it takes into April or May, we could grow above the 2008 high of $147 a barrel for WTI and we could reach 150. So it's a question the price of oil matters how long the war lasts and how long it takes for uh traffic from the straits of remuse where pe ships can go from the Persian Gulf load up in Saudi Arabia load up in you know guitar if it's going to be natural gas LNG natural gas uh and until we know those things uh even though the the Trump administration yesterday was trying to uh quiet everybody's down and you know it's not going to be a long war we're going to send troops in. Um but the the nuclear um you know as I mentioned the the comment from I watched on CNBC today the 460 kg at 60%. The Americans need to get that the or the UN you know the UN has to be the receiver of it or the United States or someone to get that out of the country because it's not needed at that level for nuclear power in in power plants. This this is this is weapons grade or near weapons grade. Um, so to me, uh, there's still time here. Um, is it two to three weeks or is it two to three months? That will tell you where the price of oil is going to go. >> Really helpful to unpack how you're looking at this situation. Clearly, there's so much uncertainty. And we'll talk a little bit more about your price scenarios, but before we go there, I do want to touch a little bit more on you're mentioning the commentary from Trump over the last day or so saying that this is pretty much over. Can you can you talk a little bit about why he's saying that? Is this just an attempt to calm the market even though it looks like it will continue going on for at least some time further? >> Yeah, because you're getting different messages from Pete Hex, the Secretary of War, and you're getting um you know, even from people in the White House, different messaging from what President Trump is doing. And also, President Trump gives a different messaging from day to day depending upon what news flow is going and what he needs to say uh to calm the nerves out there and calm pricing. Um so, you know, we were at $1, you know, $119, uh and uh and uh at the high, you know, intraday Sunday night. Um and now we're looking at the price around $84. So, it's really come back a lot. Um and should it stay in that 75? Oh, it just went down again. 8034. It's down to 1441 right now just on CNBC in front of me on the TV. So it just keeps on coming down as the calming effect is affecting the markets right now. Um the big thing for me is I you know the if you look at the map of Iran it's a very big country and on the western side of the country is where all the attacks are occurring and that's like half the country and even you know right now there's still bombs you know or missiles being you know being sent from those areas in Iraq sorry Iran to the the the Gulf the Gulf countries also towards Israel you know just turn on CNN and you're seeing that every night. Um but um the eastern part of the country is not being attacked at all and drone manufacturing facilities can be made anywhere. So while they're attacking the drone facilities on the west side, they're not doing anything on the east side. Who knows how many ballistic missile sites are in the east side. So until the Americans can really cover the whole country and and ensure that there is no weaponry there that can be used, you know, if the Americans if they say we won and then they withdraw the two aircraft carriers, all of a sudden, you know, if if uh if Iran decides, okay, now that they're out of the area, uh and it'll take time for them to come back, we may now say, okay, let's upgrade the last little bit we need on the on the on the on the material. and then all of a sudden threatened everybody by saying don't ever attack us again because we have nuclear weapons just like North Korea everybody you know they have nuclear weapons they so you know are they going to be attacked by South Korea or Japan or you know are the Americans going to attack them I think that nobody expects that that would ever happen so again the minute you say you're a nuclear power game changes and so I think Iran is looking at the fact that if they can delay this get the Americans to to leave the area at some point finish up getting this nuclear material, then I think that's going to be um you know a threat that that that that's going to be a problem and a bigger problem than it is today. >> So you had mentioned you see two different price scenarios depending on how long this ends up lasting. So I wonder if you can share any more details on how you see those playing out. Are you are you leaning more toward one direction than another at this point or really just too soon to tell? I think it's too soon to tell. Um, you know, the Americans have done with Israel a a good job of knocking out the weaponry in the in the western part of Iran. The problem is nothing's happened on the east. So, if they decide they need to do that, that drags the war down months another month or two down the road. Um, I would watch, you know, the nightly news. Um, is there more um attacks by Iran on their Arab neighbors? Are they attacking um energy facilities? Are they attacking daliniz plants? Because most of the water that comes into those countries uh comes from dalinated water. They don't have water sources of their own. The biggest amount of dalination plants in in the are in the Middle East. And some countries get 70 or 80% of their water from desalinization. And so if those plants are attacked by Iran, that's not good. So, uh I I would be watching the news every night. uh you know is it going to be one or two weeks like President Trump is kind of hinting at and and that's why the price of oil has retreated or is this going to drag on and if it's in April and there's still attacks going on on the on their neighbors then I think the higher price area that I've talked about you know is a risk. Um so it's too early to tell. I don't think anyone knows. I don't think the Iranians know. I don't think the President Trump knows. Uh I think it's just an issue of watch from day to day. Um, and I think that um, if things calm down, then that's going to be the the 120, you know, might be the high and you we're 119, so, you know, that's that's that. If on the other hand, it drags out and we're talking about this a month from now or two months from now and we're still watching the news every night and seeing attacks, then I think it's going to be the higher case. So, uh, what we what we may want from from the point of view of casualties and and and and the and the problems in the Middle East and and and the poor people that are caught up in this, be it the Iranian population, you know, which would prefer a different leadership, or is it the citizens of the UAE or Bahrain or or even Saudi Arabia um and Israel, you know, that's going to be a problem and there's deaths right across the, you know, the area. And the shocking thing to me was Iran firing missiles at Turkey and Cyprus. You know, do you really want to bring the NATO countries into this? And Turkeykey's got a pretty strong military and they're right on your border. So, there's too many dynamics happening and one bad mistake, one bad mistake by one of the these people either against a refinery, against a port, uh you know, against a tanker, um you know, you know, dalinization plants. you you hit too many of those, all of a sudden all of a sudden this escalates. >> Yeah, there's just so much going on right now. A lot of uncertainty. So, thank you for thank you for sharing your thoughts there. I wonder what you make of these group of seven conversations about potentially releasing oil reserves. It sounds like the US is not very interested in that, but these these conversations are happening. So, do you think that's something that would actually end up happening? Well, the countries that are most caught up with lack of inventory in terms of commercial stocks are Europe and Asia. And so, right now, um, China has said that they don't want their, uh, refineries shipping diesel or jet fuel out of the country. Uh, you have other countries in in Asia doing the same thing. Uh, Japan is is looking at putting on price caps, you know, for to make sure and they'll use their reserves. uh many of these countries like Japan have no indigen you know their own sources of energy so they've got to import everything um in the case of China they might consume 17 18 million barrels a day but they produce only four so you know 4.2 to 4.3. So a lot of that is imported. So the first thing that's going on is the United States to to cool the worries in Asia is they've said to the uh to India, we will remove uh Russian sanctions for 30 days and you can buy their oil. Now the Russian oil prior to the end of February um if the price of oil for Brent was 65, they were selling their oil at 40 to $42 US a barrel. Now with the sanctions being removed for India um and and there's no oil coming from Iran, there's no oil coming from Venezuela. So two of the three uh countries that had sanctions on them were selling to India and to China are no longer able to do that. So the price of oil even though we're looking at, you know, $80 today, you know, is it 85 or 80? you know, every minute I'm looking there, um, the price that that Russia's getting is US $70. They're 10 bucks less than the last price. So, if we're 85, they're getting 75. If it's if it's 100, they're getting they're getting 90. So, you compare that to the 40 that they were getting just in the last few days of February, and it's a dynamic change to their cash flows. And that's why the United States President Trump had a conversation with uh with President Putin yesterday because they would love to start pushing um them being Russia to deescalate in Ukraine and possibly move them to a a peace deal. Um and with pressure from Europe because of all the problems they're having uh they you know and Ukraine now um you know it realizes that you know that they're in they're in a pos positive side from the point of view that they can provide drones to help the Arab countries against the Iranian attacks. But on the other side, you've got Europe that's facing a financial pressure from higher energy prices, be it oil and natural gas, that they're saying, "Look, you want more checks for to run your country and you want more money from us. We're putting pressure on you um to um move to a peace deal, even though it may not be what you want, uh it's it's what what probably you can get." That's a very interesting nuance to the situation as well. I want to talk with you also about what's happening to the oil stocks during this price volatility that we're seeing. I looked at some of the big names and it seems like there there are some fluctuations when oil was going past 100, but not not massive swings. So, what were you seeing among the oil companies and is that is that typical when we have this type of big moves in the market in the price? Yeah, you got to break it out between the um oil and gas and between gas that's domestic and gas that's international. So, let's start with oil. Many of the oil stocks from the lows in April of last year when we were, you know, we talked about, you know, a buy signal then and we were saying, you know, it's a table pounding buying opportunity. The stocks did well and some of them have doubled or tripled from those lows. So, unbelievable performance there. natural gas stocks. Some of them have moved if they had a liquids portion. Some of them that only are dry gas or don't have a lot of liquids have not done anything. So the ones that have really done well on the oil stocks, we've been telling our clients if you had a four or 5% waiting in your portfolio and now it's 10 or 12% because the stock is more than doubled. Do you really want to have a overweing? you know, it's not like you're owning Royal Bank or, you know, well, remember in the old days, Northern Nortell, you know, do you really want to have an overweighted position like that? And so, we're saying maybe pair it down, harvest some of the gains, you know, get your cost out, um, bring it down to a, you know, four to 5% position. And if we are right about the bullish scenario into the end of the decade, you'll make you'll make money on that again. But it's but again from a portfolio prudence point of view bring it down to a a proper position. If you are a long-term investor then um you may decide look I don't mind disproportionate positions so you may stay with it. Um you know and you know look at Nvidia you know people who have big Nvidia positions did they pair them down or not or did they say because that you know they love the name or Apple you know pick the pick pick what you want in the tech sector. Um, I think the the pairing down makes sense. I've done that myself and u in the STR report that's coming out on Thursday, they'll see that I've done that for our holdings. Um, where I've said some of the oily names have had such a big run that pairing them down more than a double from from the April low. Uh so, you know, again, the prudence issue in my case um and um and so I think that that is something for people to consider. Natural gas stocks, many of them have not moved, not at all. Um and so there's bargains there and one of the stocks we have a uh every issue we we look at the whole uh in area of 32 companies we cover and we say are there any stocks that are in bargain territory in in the months of January and February there was an oil name um you know Strath Kona which we thought was a bargain at the time 26 $27 and it's 343 36 today 3631 so you're getting a nice dividend plus we thought there was good capital gain potential that's worked in the issue that's coming out. We we have a natural gas stock. So, I won't say it because I don't want clients to see it first. Uh but we have a natural gas stock that uh pays a small dividend, but the reality is uh they're very levered to higher natural gas prices and they're now drilling again uh for liquids rich wells, which they weren't doing because of the tough times that the industry went through. So, we like the sector natural gas. It's our still our favorite area. We like light oil natur you know and and natural gas liquids uh and uh we think that uh the pipeline issue for Canada is becoming more and more important. I think uh you know you've heard people coming out more and more saying uh either you know we need to go west with another you know natural gas line uh we need to you know we need to have more LNG you know the six bill BCF a day if all the plants get approved FID and built uh and now we're hearing about potentially a pipeline going south um you know is South Bow going to be rejervenating the you know the old XL part of the line and bring it down to the Gulf Coast or the Midwest. So, um, I think people are now realizing, um, you know, we've talked about this before, but let me bring it in context because I think it's very important for people to know. The biggest producer of oil in the world is the United States, 24 million barrels. They consume under 22 million. So, they are a net exporter. They bring our oil down, but they export their light cruds from the Perium Basin that they can't man they can't up, you know, use in their in their in their refineries at the Gulf Coast. can then you go to Saudi Arabia at 10.5 then you go to Russia at 9.3 then you go to Canada at 6.1 and then you go to China at 4.2 too. So if countries around the world do not want to be dealing with Russia and if they do not want to be dealing with Saudi Arabia because of human rights issues and other things that they're concerned about or the Straits VMU's issues, you know, potential disruption, uh then Canada sits in a very position behind the United States and so countries around the world are going to be calling, you know, Prime Minister Carney and say, "Look, you know, find a way to get oil to us. Find a way to get us natural gas. find us a way to get us pod ash, find us a way to get us sulfur, all you know, get us forest products, all the things that Canada has that's in our wealth, um, you know, in terms of our exports. Interesting. The the biggest export is energy. So, oil and natural gas is our biggest export, you know, surplus. The second is gold. Precious metals are a big factor now, uh, at at 5,000 an ounce. Uh, silver at, you know, wherever we are, 100, wherever, 90, who knows? every that again that moves like crazy. Um so I think that people um should be looking at the natural resource sector be it uranium, be it copper, be it you know anything that you know that that we do that we produce and that we are a lowcost producer of if we can find the markets and if the government of Canada now realizes the only way to pay for our social services, the only way to handle our debt, the only way to you know to provide to provide for the you know the growth of the our you know of the population be immigration or natural ederal growth is we need to have a bigger pie. We need more money coming in to both the you know the federal government provincial governments the you know and the people working in the industry the companies the the and investors need to have an adequate return that means we will sit here with maybe a five or 10 year period of enormous growth in our resource sector all across the board so while I'm here sitting about energy um it you know somebody could be here talking about uranium or or talking about forest products or talking about you the, you know, the rare earths. Uh the the big thing is all of those are are all positives for the economy longer term. But again, it requires everybody at the table agreeing from from the federal government, provincial governments to First Nations. And if we can get everybody at the table, I think um Canada has a fabulous opportunity in the in the next decade. >> I think it's really good to highlight the opportunity in Canada. Are you seeing those groups starting to come together a little bit more cohesively than they might have in the past? >> Well, the federal government is is saying some of the right things, but the key thing is the approval process and how quickly it takes. Um, in the United States, they're talking about approving um, you know, new uh, LNG facilities in 6 months. um and you know between the state and federal doing that uh they're now approving more land to be opened u you know for uh drilling uh on on the Gulf Coast in Alaska you know the north slope of Alaska we are doing those kinds of things you know on the west coast no drilling occurring um east coast we haven't seen any in years um you know there's an issue of pipelines through Quebec u you know so there's so many things still to be resolved and the east route to uh is a low probability for either oil or gas or or or you know they keep on talking about uh you know that they would be able to send hydrogen. Well, I don't buy that either. Um so the key is going to be going west and so does the west mean BC or does the west mean um uh through Alaska? The other wild card and I think you and I have talked about is Churchill or or the or the Great Lakes. Um, and uh, so there's there's there's going to be some decisions having to be made between all the players. Uh, I think First Nations are are seeing the benefits economically and ownership wise. I think they want to own Nobody wants to own TMX with the debt that it has. So the government of Canada is going to have to write off a massive amount of debt. And then they can say, okay, to the private sector and to the First Nations, here's what we've done with the write downs. Here's what the value is. Here's the economic return to you. And if it's in the teens and the first nations see it as something they would like to hold longer term um then they would be number one buying in it and then they would also be part of the expansion of the TMX uh which is one of the options here. Uh so there's lots of good things that can happen intellectually in terms of the commentary and you know support from the industry. Uh but until everybody at the table says yes and they have a timeline that's reasonable. The problem is everything takes longer and everything costs more. Just think of coastal gas line. Talk about the TMX expansion. The the budgets were blown way way higher than they were expected to be. And if there's no reasonable number and that they can meet that budget in terms of the cost and do it within the time frame, you know, you know that becomes the issue for investors. You know, if you tell me it's going to be a two million billion dollar project and I'm going to get a 15% return on my equity and all of a sudden it's a $5 billion project and there's three billion more of debt and there's no return on my equity, you know, because all of it's gone to interest payments, you're not going to say, "Oops, I'm not I'm not going to be an investor." >> I think it makes total sense how you're explaining it. I want to go back just a little bit briefly to the oil stock. So, I think we have a good idea of how you're treating oil and natural gas stocks right now as we're going through this volatile situation. But I think this whole oil price spike might have attracted new interest to the sector or maybe people who are invested but they want to now have more exposure cuz they see that these things can happen. So, what would be good entry points in the future that you'd be looking for? I know we just talked about how there's so much uncertainty, but how would you look at that? Well, to chase things now after some of the big runs we've had, I don't recommend doing that. Uh I think there's going to be a pullback. The pullback will be the war is the war is over and then you know we might see $75. Uh just taking into account what happened um in um you know in 2022. The price of crude was $85.81 in February. I've got the prices in front of me. they went to 126.42 uh in the second first second week of March. By the middle of March, you know, two weeks later, it was down to $90. So, the prices can move around quite a bit. And then by the end of the year, they were down below 80. So to me, you know, we need to have a, you know, the war issue uh resolved and then I think we'll see a pullback and that might be a great opportunity because because of the fact that the um the straits have been, you know, shut for so long. uh there's going to be a big pull down on the inventories globally and that was what we were talking before about our bullish view at you know in February was we're going to see Q2 OPEC not being able to grow their production and and in Q3 global inventories coming down now we're going to see global inventories coming down in Q in Q1 and so that's going to that is the thing that's brought everything forward in terms of the price moves now the industry does not need $120 um you is sustained. You know, that's too high. Uh if we see and the and and the cost, you know, at the pump would be too high and the cost of inflation, uh you're hearing more and more about stagflation because stagnant growth and and rising inflation and $120 oil does that. So, um to alone, you know, and and the PPI and the CPI and and the PCE, you know, all those numbers would go up. Um, so I think if we can get into a nice place like $70 to $80, if you remember, I was using $70 for my average in February. I'm thinking now of moving that to 80. Um, because I think we'll be in a 70 $80 environment post war. Is that in April? Is it May or whenever? And I think we it'll be in that kind of range and that will be enough to attract uh foreign investment um into North America. Canada will be one that gets it. Uh we we've talked before about takeovers and we saw you know Kidno taken out by you by a private equity. We've saw oventive come in and buy big asset pool from Paramont and then they bought out new Vista. Uh we had step on the service sector taken over. I think consolidation will continue because our basins are younger and less developed. So in other words our reserve life index in the Montney and Duivere is much longer than the perium and the eagle fur. So the Americans would even come back into Canada. Well, Mventive is coming back again. Our old panadian and Canada, move to the States, and now, you know, they and now there they will have more production in Canada than they will in the States. And we're seeing uh other companies like Beth sell their US assets and and come back to grow their Canadian assets. So I think foreigners will come back. There's an interesting history. When things are good and and the sector is, you know, and there's a shortage of oil and there's concerns about risk premium, foreign investors come into Canada and they buy up and they overpay. And, you know, that's usually a good sign that we're maybe near the top of the cycle. And so, I think that that's something um that we're going to see again where the foreigners come back. If you go back in the last few years, all the assets that have been sold, the big assets were foreign assets that were bought by CNQ and bought by others. And I think we're going to see that that reverses and uh and we see more foreigners come in just you know taking into account uh you know just you know past cycles you know you know Mike Rose's um you know Berkeley got taken out I believe by anandarko big US firm um and then his duven company was taken out by Shell. So you know the foreigners will come back and you know you look at the Canadian companies with long life reserves um you know be it birchcliffe be it advantage be it you know you know pedo there's so many names um that uh we cover 32 names uh we cover three different groups we cover conservative growth and and and entrepreneurial in the growth area we're trying to get sorry in the conservative area we're trying to get total returns of about 20%. So if you can get four to 6% dividend yield and if you can buy the stocks at the right time i.e. the next correction when the when they're cheaper um you could get 15 20% capital gain and a 20% total return. That's for the the conservative. In the growth you're looking for companies that have 5 to 8% growth in production and as well as having some dividend and or an NCIB and that's where there's a nice group of companies. And then the last are the entrepreneurial ones those that have an exploration focus. And if they are successful with the drill bit, then you can see significant upside. And you take that 9920 to 08 um you know period when we had the last major energy super cycle there were 10 baggers and 20 baggers. That's where they come from on the entrepreneurial side. So for people who have a portfolio like in my case I have most of my assets or over half of them in in conservative because I want the dividend income and I'm comfortable there. But I do have growth and I have entrepreneurial because I do want to have the ability where a company really does a good job with the drill bit that we have the ability to get those outsized returns like we were able to get in that 99 to08 cycle. >> So opportunities across the spectrum in terms of company size and we've got entry points coming up in the future if people want to look at that. >> Yeah, I think that there will be a correction. Will it be because the war is over um and early or will it be, you know, because it's later? But at some point, there will be a pullback in the price of oil. Right now, we're saying if you're if you're overinvested and you have a position that's outsized, maybe take some profits on it. U traders may want to be a little more aggressive. But the key thing is is you want to have exposure to this sector because multiples today are let's say three times depressed cash flow. Cash flow is going up though. But you know going on our prior estimates in February you know trading at you know two and three times cash flow at the top of the cycle they they traded 18 eight to 10 times much higher cash flow because the price has gone up and then the volumes went up because they increased their production. The other one is is NAV. Um some of them you know used to trade uh you know in February at at PDP proved producing assets. Some are now trading at 1 P, but historically at the top they trade at 2P, which is proven plus probable. And so we could see multiple expansions in in in them because the the price of oil goes up, their volumes go up, uh the NAV value goes up, and so all of that creates over time many many u baggers uh on the upside. So uh we've had a hell of a run here. We've had a fabulous run. uh I don't think you should be chasing for investors when we get this correction then they should be building their positions and there's different areas to buy. You want to buy natural gas producers that are going to benefit from LNG. You want to buy uh companies that are light oil that will benefit because condensate is needed for for the heavy oil movement. You want to be buying the you know the heavy oil related names that are in the clear water or or up in the oil sands SAGD. And then you want to buy the service sector because as the price of oil goes up the industry is going to spend more money on drilling and fracking uh and you know pipelining and all the rest of it. And so you want to have exposure to there. So what I recommend people is you know if you're conservative you can find names that fit all four baskets there. If you're growth or entrepreneurial you can find names in each basket. And so you know you know for example we own Trirican. You know we want the company that's the major fracker in Canada. we own that. Um, so I think people should find the names that that they like. Um, you know, from my point of view of what we do in our research, uh, we cover 32 names right now. Um, I've got a part fellow working with me, Nathan Richie, who's joined us on the research side, um, February 1st. So, uh, we we we brought him on board, which is wonderful. And so, people can, uh, uh, go to our website and there's research from our, you know, from historic research there that they can get an idea of what we do. And then uh you know we do really two two things u we have a weekly thing called ion energy which is the macro review which is what you know the major things we've talked about and a lot of people really don't spend time on the macro review and I think that's added value that we do then we cover the 32 companies in our reports and so that's the value that we bring to the table and it's been a success uh we started this in 2017 um and it's grown beautifully and uh we have you know five uh people on the team providing the product to the to the clients and uh um I'm a happy camper. >> Well, we will have all of your links in the video description for people to check them out. And we're coming to the end here, but before I let you go, it feels like every time we're talking, there is some kind of crisis situation going on. I think last time it was Venezuela, now it's Iran. And I wonder, you know, as we move from crisis to crisis, are there other elements in the oil market that people might be overlooking that you think you would want to highlight right now for investors? >> Well, the the politics is going to affect the price. any problem that there is with uh with Russia or any price, you know, if there's Taiwan go, you know, China goes after Taiwan, that's going to be an issue that's going to spike prices up. Uh because it's another, you know, issue of war and the American military may be getting involved. Uh but the the other side of it is the supply. The areas where you can get secure supplies are important. So um right now ne if you're if you want to invest in European natural gas um you've got the Netherlands and Germany as big producing areas the the Norwegian North Sea. So Vermillion is is a company that people could look at for that. Uh there's also companies, you know, if you want South America, you know, there's Colombia, there's Brazil, you know, so there's that. We have a company that's operating offshore at Thailand that's growing its production by the drill bit. Um and so, you know, they're doing well. There's a company called Marin which is offshore Africa right now in uh Nigeria in Namibia with upside there from successful drilling that will get approved and and and we'll bring those productions on. So I think you want to look around the world to the places where you can find more oil where they can bring it on at a reasonable price and then you want security supply. All of those bullish things I just said are in Canada. So, I'll finish with saying um you know we have a cheap Canadian dollar. We're not, you know, to travel overseas is is expensive at 136, but if the price of oil stays in the 7585, we could have parody to the US dollar again. And, you know, people don't remember, just pull out the, you know, you know, the the Canadian dollar charts from, you know, 2020 when there was a positive energy cycle and the Canadian dollar was over was traded over the United States currency. So I think people should be looking at Canada uh you know why pay you know 136 to buy an American secure energy stock when our stocks could could go up just on the currency over time plus of course the the opportunity if the companies do well. So I'm I'm bottom line I'm bullish on Canada and I think the Canadian energy sector is one you should be invested in be it the big boys of Suncor CNQ if that's where you want to be great. If you want to go, you know, lower down to the companies like the termines and the Paramonts and names like that and Birch Cliffs, those are the size companies that we focus on and then smaller than that. So, we we we're filling the gap in that medium and smaller cap space, providing information that uh to to clients to make their decision of what fits their portfolio. they should sit down with their investment advisor, decide what's appropriate for them, um, and then make the decisions and build be ready to build their portfolio when we send out the next buy signal, which hopefully will be in April. >> Okay. Well, perfect place to wrap up, especially for me as a Canadian. So, thank you so much for coming on to talk about what's going on in the oil and gas markets. This is really helpful and hope to do it again soon. >> I hope so, too. Take good care. Have Thank you very much. >> Of course. And once again, I'm Charlotte Mloud with investingnews.com and this is Joseph Shaker. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts, so leave us a comment below.