Oil & Gas Industry Outlook & What That Means for Real - - PowerPoint PPT Presentation

1

February 24, 2017 Capri Hotel, Kelowna BC

Oil & Gas Industry Outlook & What That Means for Real Estate Development in the Okanagan Area

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

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 2007. More recently, he has been acknowledge as the first analyst in Canada to predict the Oil Price Plunge of 2014. 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.

4

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 2016-2017 US$48-64 US$55/b so far

Q1/16 actual US$26.05/b

WTI Crude Oil – 2016 WOFC Forecast

Source: StockCharts.com, January 15, 2016

Transition Period Transition Period Bull Market

5

S&P/TSX Energy Index – 2016 WOFC Forecast

Source: StockCharts.com, January 15, 2016

Reached 125.84 Low

Target High Q4/16 220 – reached 230.93 Dec/16

Bull Market Transition Period

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

7

32.5Mb/d cap

8

Problem: Inventory Build Continues During Peak Winter Demand Season

Production in January 2017 by OPEC was 32.1Mb/d creating a glut/build of 1.0Mb/d

What happens when we enter the shoulder season and demand falls by 1.0-1.3Mb/d?

9

OPEC Crude Oil Production

Source: OPEC Oil Monthly February 13, 2017

10

OECD Inventories Currently 10 Days Too High

11 Source: Calgary Sun, 1986

12

Weekly Inventory Balance Sheet February 1, 2017

Source: EIA US Petroleum Balance Sheet February 10, 2017

13

US Crude Stocks

Source: EIA US Petroleum Balance Sheet February 10, 2017

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

15

1997-1998

16

2000-2001

17

Russia and OPEC Raise Production Just Before Cuts Russia production expected to rise in Q4/17 and significantly in 2018

18

Speculative Long Positions

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

19

20

Why We Need More Take-away Capacity

21

22

Energy East – Long Shot (Not Likely)

23

24

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

25

Infrastructure Impact on Okanagan Area

26

Kelowna Demographics

Source: Wikipedia, February 2017

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 2010- 2020 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 2017-

2018 in the US will add 5-7 Bcf/d

• US coal receives Trump bump

WE ARE BULLISH FOR NATURAL GAS WINTER 2017 - 2018

28

29

New Liquefaction Capacity Likely to be Required to Meet Growing S/D Gap

Opportunity for Canada in 2025 – 2030 5-8/Bcf/d possible relative to current market of 14-15/Bcf/d

30

New Market Opportunities for Western Canadian Gas

31

Moving Forward

32

Oil & Natural Gas Creates Jobs Across Canada

33

Missed Opportunity 2012 -2013

Missed Opportunity

34

35

Cheniere Competitive Advantage: Low Cost

36

What a LNG Compression Facility Looks Like

Here is what US$5 Billion looks like!!

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!!

38 Sell Zone Buy Zone

1 2 3 4 5 6 7 8 Target Q2/3 - 2017

S&P Energy Bullish Percentage Index

39

WTI Crude Oil US$/b

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

20 40 60 80 100 120 140 160

WTI US $ PRICE PER BARREL

EXPECTED START OF NEW BULLMARKET

BULL MARKET BULL MARKET TRANSITION PHASE TRANSITION PHASE

Proven RLI’s 14-16 Years Proven RLI’s 7-9 Years Proven RLI’s 6-7 Years Proven RLI’s 10-12 Years

Energy Bull and Bear Cycles 1973 - 2017

EIA data WTI February 2017

Source: SAMI, January 27, 2016 41

BUY Recommendations Presented Last Year at WOFC

• n January 30, 2016

42

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

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.

www.schachterenergyreport.ca

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 www.schachterenergyreport.ca