Alphastox’s Moshevich Defines the One Thing Strong Energy Juniors Share

The Energy Report: Are low prices for fossil fuels winnowing out the weaker juniors and enhancing the potential of stronger firms positioned to survive the downturn?

Etienne Moshevich: Yes, they most definitely are. When times were good, too many companies borrowed money against future cash flows, and now have no chance of paying the money back because of the downturn in the price of oil. Few companies reacted early enough—they are overleveraged and their shareholders are paying the price.

TER: What makes an energy company strong in the current pricing environment?

EM: Balance sheets. I am focusing my attention on companies with positive cash flows and low debt-to-cash flow multiples. These companies can withstand the volatility in the oil price.

TER: What makes you confident that the market for small-cap and micro-cap companies will improve in the near future?

EM: Our demand for oil isn’t going anywhere. While I understand there are many other energy sources out there, nothing can replace the world’s need for oil for the next 15 to 20 years. I see this as a huge opportunity for investors.

That said, I believe investors need to focus their attention on companies with top-notch management teams that have successfully built shareholder value, because in my mind, a lot of money could be made in the next two to three years by investors with time and money on their side. I don’t know when the market will turn, but it ultimately will, and when it does, many of the companies we see today won’t be trading at such low valuations.

TER: Who is drilling successfully in the shale oil patch?

EM: I follow Blackbird Energy Inc. (BBI:TSX.V) very closely. The stock is up more than 50% this month, and I believe this is only the beginning.

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