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1 2015 The Energy Crisis An Investment Opportunity January 31, 2015 Westin Bayshore Hotel, Vancouver
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2 2014 Oil Glut Coming Window For Canadian LNG Closing February 1, 2014 Westin Bayshore Hotel, Vancouver
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3 Sell: High Debt Leveraged Energy Companies High Cost Oil Companies Oil Sands SAGD Dividend Model Companies
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4 Source: Lightstream Q3, 2014 $1.4B $1.9B
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5 Lightstream Resources Ltd. Source: StockCharts, January 2015
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6 Penn West Petroleum Ltd. Source: StockCharts, January 2015
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Source: Stock Charts, January 30, 2014 Target Q4/16 Bull Market 2001-08 Energy Index Up 5.3X in 7.5 years Bull Market Transition Phase 7 S&P/TSX Energy Index
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8 Source: Stock Charts, January 2015 Final Low Next Few Weeks S&P/TSX Energy Index
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9 History of Oil Price Plunges Over Last 30 Years $WTI/b
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1980-1990 Energy Bear Markets 10 Source: StockCharts, December 2014 Light Crude Oil $/b
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Source: The Economist, March 6 th, 1999 11
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2000 – Present Energy Bear Markets 12 Source: StockCharts, January 2015 Light Crude Oil $US/b
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13 Source: Calgary Sun, 1986
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Close Up Of 2009 Bottom 14 Light Crude Oil $US/b 4 Months Source: StockCharts, January 2015
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US Inventories at Peak January 16, 2015 EIA report showed 398Mb Source: OPEC Monthly Report, January 2015 15
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Reasons for Current Energy Bear Market Source: OPEC Report, January 2015 16 We note the three phases that this energy bear market has gone through: Phase 1: Excess Oil Production 30.8 Mb/d production OPEC Dec/14 30.8 Mb/d production OPEC Dec/14
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Phase 2: Demand Decline Germany, France, Italy and the UK Japan Source: OPEC Report, January 2015 17
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1.Russia Annex Of Crimea Region SE Ukraine Fighting Support of Syria’s Assad 2.Iran/Islamic State Slow Down Shiite/Sunni Sectarian War (Iraq/Syria/Lebanon) Force Iran To Complete Deal On Nuclear Weapons Program 3.Venezuela Force Regime Change – Remove Maduro/Chavez 4.Shut In High Cost North America Production Shale Oil US & Canada – Remove Growth Upside And 500K – 800Kb/d by Q3/15 Heavy Oil – Now Uneconomic – Shut In 500Kb/d Slow Down Or Get Deferment Of Oil Sands Expansions Stripper Wells US – 300,000 Wells Which Average 15b/d – Total Production 1.4Mb/d – See 500Kb/d Shut In. Phase 3: Oil As A Weapon 18
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Why We Expect One More Price Decline Below US$40/b Note: Speculators Net Long 199,388 lots: OPEC Oil Monthly Report January 2015 Material Long Positions Negative Market Positions Source: OPEC Report, June 2008 Source: OPEC Report, April 2009 19
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OPEC Production in Excess of Demand Source: OPEC Report, January 2015 20
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Source: The Week, December 12, 2014 21
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Source: OPEC World Oil Outlook 2014 Oil Demand Outlook 2013 – 2019 The reason to turn bullish! 22 Medium-term oil demand outlook in the Reference Case Mb/d
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US Oil Production Peaking Now 23 Crude Oil Field Production US 4Mb/d 3 Years
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Non-OPEC Crude Oil and Liquids Production Growth Source: Short-Term Energy Outlook, January 2015 24 Millions barrels per day Need to Knock-out this Growth
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25 US Rigs by Target Oil & Gas 1 1 2 2 3 3 4 4 Target Rig Count US Q3/15 1,633 Rigs Jan 23/15
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26 Major Shale Plays Oil & Gas Revenue Index 1 1 2 2
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Source: OPEC Report, January 2015 27 14.4 Mb/d Jan 16/15 13.5 Mb/d forecast end of Q3/15
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World Wide Decline Rate = 25% 28 Source: EIA International Energy Outlook, 2013 Long-Term Crude Oil Supply Growth
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29 Source: Oil and Gas Investor Magazine – April 2002 Hard To Find Large New Oil Pools The Oil Pyramid
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30 Source: Gable cartoons
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31 * Top Picks Large Cap Shopping List Dividend Investor Shopping List
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32 Energy Service Stocks Shopping List Maison Universe Shopping List *Top Picks ** JIS/Family owned shares
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33 * Top Picks Other Interesting Names to Consider
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Reasons For New Energy Bull Cycle 1.Cutback in drilling (30-40%) and high decline rates for shale production (60-80%) could remove 1Mb/d over the next 2-3 quarters. 2.Heavy Oil (Canada/US/Mexico/Venezuela) and Stripper Oil wells (US) are uneconomic at current prices could remove >500Kb/d in coming months. 3.China Strategic Reserve will start adding crude into new facilities currently being built. New facilities can take 50Mb in 2H/15 or 700Kb/d starting summer 2015. 4.Shiite/Sunni/ISIL conflict could impact Middle East producers. Security of supply premium could return. In the past we have seen US$8-12/b premium during outage risk. 5.Global GDP growth of >3%/year would add 7Mb/d to world oil demand by the end of the decade. This would provide 3-4Mb/d of new demand for non-OPEC shale and oil sands and 3-4Mb/d for OPEC members. 34
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35 Source: StockCharts, January 2015 Final Low Next Few Weeks New High 2018-2020 New High 2018-2020 100+ 2016- 2018 Light Crude Oil $/b
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36 Source: StockCharts, January 2015 Final Low Next Few Weeks New High 2018-2020 New High 2018-2020 Target 2016-2018 S&P/TSX Energy Index
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Thank you January 31, 2015 Westin Bayshore Hotel, Vancouver 37
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