Oil & Gas Industry Outlook & What That Means for Real Estate Development in the Okanagan Area. February 24, 2017 Capri Hotel, Kelowna BC

Transcription

1 Oil & Gas Industry Outlook & What That Means for Real Estate Development in the Okanagan Area February 24, 2017 Capri Hotel, Kelowna BC 1

2 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. Josef I. Schachter Effective April 2017 Josef will begin producing the Schachter Energy Report for individual and corporate subscribers. For more information please go to 2

3 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 More recently, he has been acknowledge as the first analyst in Canada to predict the Oil Price Plunge of 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

4 WTI Crude Oil 2016 WOFC Forecast Transition Period Bull Market Transition Period Source: StockCharts.com, January 15, 2016 Target Range Q2/16 US$40-45/b Actual US$52/b Target Range Q3/16 US$40-48/b Actual US$52/b Target Range Winter US$48-64 US$55/b so far Q1/16 actual US$26.05/b 4

5 S&P/TSX Energy Index 2016 WOFC Forecast Bull Market Transition Period Source: StockCharts.com, January 15, 2016 Target High Q4/ reached Dec/16 Reached Low 5

6 Crosscurrents Effecting Oil Prices POSITIVE World-wide Central Bank QE High depletion of reserves (shorter proven RLI s) Expensive new infrastructure required to bring on new production Infrastructure delays due to environmental concerns and resolving Indigenous peoples concerns Social unrest in many OPEC countries (Nigeria) Middle East hot spots OPEC January cut of 890Kb/d is the first of 3 to 4 cuts which may total 3-4Mb/d NEGATIVE High and rising crude oil inventories in US China and India economic growth slowing Europe/Japan demand negative vs. prior years OPEC glut continues even during current winter months New supplies from Iran, Iraq and Libya in 2017 could be greater than 1.0Mb/d If Nigeria resolves its difficulties in the Niger delta it could raise production by a further 600Kb/d Worldwide storage levels nearing full capacity 6

7 32.5Mb/d cap 7

8 Problem: Inventory Build Continues During Peak Winter Demand Season What happens when we enter the shoulder season and demand falls by Mb/d? Production in January 2017 by OPEC was 32.1Mb/d creating a glut/build of 1.0Mb/d 8

9 OPEC Crude Oil Production Source: OPEC Oil Monthly February 13,

10 OECD Inventories Currently 10 Days Too High 10

11 Source: Calgary Sun,

12 Weekly Inventory Balance Sheet February 1, 2017 Source: EIA US Petroleum Balance Sheet February 10,

13 US Crude Stocks Source: EIA US Petroleum Balance Sheet February 10,

14 Total 3Mb/d Total 5Mb/d Total 3Mb/d 14

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17 Russia and OPEC Raise Production Just Before Cuts Russia production expected to rise in Q4/17 and significantly in

18 Speculative Long Positions US$107.68/b US$55.24/b Total of 1B contracts with Brent spec holdings US$110.55/b US$42.41/b US$26.05/b $US77.28/b 18

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20 Why We Need More Take-away Capacity 20

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22 Energy East Long Shot (Not Likely) 22

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24 Approved Jan. 12, 17 Unless protest and environmental groups force further delays 24

25 Infrastructure Impact on Okanagan Area 25

26 Kelowna Demographics Source: Wikipedia, February

27 Crosscurrents Effecting Natural Gas Prices POSITIVE Strong electrical, consumer and industrial demand Rig count focused on oil, not gas Hedge book profits gone High cost dry gas not being focused on Large LNG potential in next decade (we missed window) Growing demand for natural gas from thermal crude oil production NEGATIVE New production Utica/Haynesville/Marcellus taking market share in Eastern Canada - negatively impacting Western Canadian demand LNG exports by US Gulf Coast gaining market share and negatively impacting BC LNG potential Infrastructure increases in in the US will add 5-7 Bcf/d US coal receives Trump bump WE ARE BULLISH FOR NATURAL GAS WINTER

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29 New Liquefaction Capacity Likely to be Required to Meet Growing S/D Gap Opportunity for Canada in /Bcf/d possible relative to current market of 14-15/Bcf/d 29

30 New Market Opportunities for Western Canadian Gas 30

31 Moving Forward 31

32 Oil & Natural Gas Creates Jobs Across Canada 32

33 Missed Opportunity Missed Opportunity 33

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35 Cheniere Competitive Advantage: Low Cost 35

36 What a LNG Compression Facility Looks Like Here is what US$5 Billion looks like!! 36

37 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

38 S&P Energy Bullish Percentage Index Sell Zone Target Q2/ Buy Zone 38

39 WTI Crude Oil US$/b Now Range bound US$49-55/b BUY Zone <US$34/b late Q2/17 39

40 Energy Bull and Bear Cycles WTI US $ PRICE PER BARREL BULL MARKET TRANSITION PHASE BULL MARKET TRANSITION PHASE Proven RLI s 6-7 Years Proven RLI s Proven RLI s Years Years Proven RLI s 7-9 Years EIA data WTI February 2017 EXPECTED START OF NEW BULLMARKET

41 BUY Recommendations Presented Last Year at WOFC on January 30, 2016 Source: SAMI, January 27,

42 Performance of Recommended BUYS Reviewed Feb/4/17 at WOFC 42

43 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. 43

44 Monthly Schachter Energy Report 12 monthly newsletters focused on: The Macro outlook for the energy sector Coverage of small, medium and intermediate Oil & Gas companies, and Energy Service companies, including our Recommended Buy List $499 Cdn annual subscription Black Gold Service Includes 12 issues of the monthly Schachter Energy Report PLUS: 12 interim updates on the energy markets and covered company activities Buy/Sell Action Alerts Quarterly Webinar with sector updates, favourite picks and Q&A $799 Cdn annual subscription 44