The Energy Report: With the collapse of the crude oil price and the timing of a recovery difficult to predict, the energy sector has fallen out of favor with investors. In the current oil and gas investment climate, are there any stocks that are immune to the negative sentiment and can still perform?
Bill Newman: Yes, there are. But investors need to choose companies that are decoupled from oil prices in the short term and have other drivers that can gain investor attention to move the stock price up.
And yes, you’re right. The sector is out of favor right now, so investors should look for companies that don’t have to rely on accessing the debt or equity markets, and are able to fund operations with internally generated cash flow.
“The real upside in Pan Orient Energy Corp.’s story in the near term is exploration drilling in Indonesia.”
Also, we think investors want to see step growth in production. Most oil and gas companies have slashed their budgets and are focused almost entirely on low-risk development projects, so they’re just treading water. You can understand the lack of enthusiasm for the sector. Unfortunately, almost every oil and gas company has traded down with the sector as a whole, even if the individual story has nothing to do with oil prices. We think this presents a double opportunity. The first is that, as the company demonstrates step-growth production, the stock should go up. Second, we expect another lift when the price of oil rebounds and the sector is back in favor again.
TER: What are your favorite stocks right now?
BN: We like Ithaca Energy Inc. (IAE:TSX), which has operations focused in the North Sea. The company has current production of just …read more