Sunday, April 1, 2018

Alberta’s oil patch owners are desperate and then there is China

Alberta’s oil and gas company owners are desperate. Oil prices, condensate prices are good and many companies don’t suffer the heavy oil discounts. There is the continued bad political yammering by you-know-who and oil patch CEOs have become more aggressive in explaining on shows such as BNN their side of the story. As indicated in the previous post, it seems the tide is turning in favor of the oil patch but still, implementation of a new LNG-plant or a Trans Mountain Pipeline is several years away. So is the gas pipeline congestion around the Alberta’s Deep Basin but resolution of that issue maybe ‘just’ a year or so away.

Still, decent, oil prices, declining oil inventory, a market close to supply-demand equilibrium (if not in shortfall already) combined with a pretty long and fairly cold winter favoring gas prices that look like green sprouts in the HC desert. Stocks like Birchcliff, which have looked quite red in my portfolio have been showing signs of life. Now it looks at the point of a technical break-out with first resistance around $4.25 and with a promise of much higher prices in the intermediate and long term. 

I own a bit of oil and gas companies myself and… I have an oil & gas consulting company. Some may claim that there is probably some bias on my side – I hope not. Bias is not good for an investor; I think though that as an investor you need to be a bit optimistic and know that things always change. From that point of view, I think this is a good time to add to oil and gas assets.
Just to disclose, my total oil and gas makes out around 10 to 15% of my paper security portfolio. I own Saskatchewan light oil producers in the Viking such as Whitecap and Raging River. In and around the Deep Basin of Alberta, my company has executed several regional Montney studies for sale to subscribers at $35,000 to $50,000; ready for plug-in into their computers.  I have purchased shares in producers such as Birchcliff, Peyto and Blackbird. My company, Eucalyptus Consulting, is about to initiate a new regional evaluation in the Mannville Group (Dina, Cummings, Glauconitic, Lower Mannville, etc) in East Central Alberta ($20,000 to $30,000 per subscriber). I may start investing in oil and gas companies in that area as well. I also own some heavy oil as part of the diversified hydrocarbon asset portfolio of Canadian Natural Resources Ltd. Overall, I am still underweight in oil and gas as compared to the TSX.
I am a proud part of the Alberta oil patch, and my portfolios have unavoidable exposure such as through ownership in Calgary and Edmonton real estate. My properties have only limited exposure to directly impacted real estate such as rental properties. I own units in a Sr. Citizen complex; in recreational real estate in Canmore and Puerto Vallarta. The latter was by accident – I bought a time-share in 2005 and through upgrading and a very aggressive development plan by the manager, this timeshare has, according to the sales people, increased dramatically in value over the years.  One day, I may put a ‘plug’ on this blog with a special offer for readers to go on the cheap to one of the most desirable resorts in Puerto.
So there, now you know my interests in the oil patch. I own this stuff, because I happen to live and work in Calgary. I also own shares of oil and gas companies because I am a believer in the oil patch's potential; not because I would promote ownership while jumping ship. I truly see a golden future and for all that hyped-up electric car stuff, sorry the world will need a lot of natural gas generated electricity. And even then, I foresee traditional combustion engines and hybrids dominating our roads for many decades to come. Also, the world’s economy will need hydrocarbons for heating houses and powering industry. Sorry, green dreamers if I don’t agree with you and your logic. So yes, I think there is still a bright future for Alberta’s oil and gas industry and I am still accumulating because right now, oil and gas is so hated nobody cares about its profits while many are staring themselves blind on the FAANG glitter. Besides, anyone owning a S&P500 ETF owns a fairly large proportion of FAANG stocks in that ETF as well.
I do own S&P500 ETFs and as such, I have been lightening up. But the world economy has been improving. Not only the U.S. but also Europe is picking up. Better economies in the West means more demand for manufacturing and exports in Asia and other emerging markets on this planet. Yet, Chinese stock markets offer still some incredible value. China has every year added many more engineers than the U.S. does and many are focused on high tech including block chain.  Financial transactions via cell phones are routine in China and the country is a lot more high-tech than many biased Westerners think.  Also, home ownership is nearly 80%, many with very little mortgage debt and a government that doesn’t condone major drops in real estate wealth. China is one of the worlds largest economies these days and it is starting to compete with the U.S. for first place.  Yet its markets and population are far from free; a lot is government controlled and China has an electronic survey system directed at its population that Hitler and Stalin could only dream of. That part of the world is not problem free. But neither are we, are we?  This, just like for investing in the oil-patch, may also be a good time to diversify a bit into countries such as China and India. Consider it a hedge, like gold, against the decline of Western fiat-currency economies. Don’t move in with your investment dollars blazing, but with nibbles – tiny investments at a time and who knows, in twenty years you may have build-up considerable holdings in a Modern China which by then leads the world economy.  Even if the West maintains its economic dominance in the world, that dominance would be challenged over-and-over again by countries such as India and China and Brazil. Yes, the world will be quite different in a couple of decades; just let’s pray and hope that it will remain peaceful and relatively stable.

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