Peter Linder currently works with business development and marketing relations with Matco Financial, a Calgary financial firm. He has over 40 years of experience in the oil and gas industry, and previously worked as an oil and gas analyst and fund manager. These opinions are his alone, and should not be construed as financial advice.
Peter Linder
Oil price making beeline to $125 plus by end of June – May 25
All the stars have lined up for indefinite rise oil prices with such factors as:
- China’s economy will shortly open up, thereby significantly restoring demand
- US gasoline and diesel inventories at seasonal low in over a decade
- US refineries operating near full capacity but can’t meet rising demand
- world inventories of crude and refined petroleum products approximately 20 per cent below last year’s and the five year average
- Russia’s war with Ukraine will likely last for many more months and the EU should shortly come up with an agreement to curtail imports of crude and products from Russia
- OPEC, particularly Saudi Arabia can’t/won’t increase production to try to alleviate the growing supply shortfall.
- And lastly, the oil industry worldwide has significantly suppressed capex due to investors’ demands and lack of crews, rigs, other equipment, and insufficient pipeline capacities and thereby have severely limited the potential for major new oil supplies.
Consequently, it was nice to see the strong run up in oil and gas stocks today, but at today’s oil and gas prices, and especially in my $125 oil and $10 NYMEX gas price world, these stocks remain ridiculously inexpensive.
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Finally! – May 25
As you know, I have been very bullish on oil and natural gas prices and Canadian oil and gas producers over the past couple of years.
I have been especially aggressive in these calls over the past few months, stating that we will see $125 WTI and $10 NYMEX gas this summer. We are certainly well on our way, particularly for gas, which is currently trading at well over $9.
Also note that over the past month, I have posted here brief reports on Nuvista, Whitecap, and Birchcliff. Nuvista and Birchcliff shares reached 52 week highs this morning and I believe Whitecap is only a few weeks away from the same achievement.
I strongly suggest that you do not take profits on these names or most other producers. Oil and gas prices have only one way to go: straight up!
The best is yet to come, enjoy the ride as I certainly am.
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Within 6-12 months the major transformation of the Canadian oil and gas industry will be well underway – May 16
I got into the industry in 1975 with BP Canada (Corporate Planning) headquartered in Montreal. Since then, I have certainly witnessed many major events that have had major impacts on this industry. This would include the Iranian Revolution of 1979, the NEP of 1980, deregulation in 1986, the popularity of the royalty trusts, and of course several major oil price spikes and collapses.
However, I have never witnessed what is well underway and will pick up steam over the next few quarters: the total and permanent transformation of our industry. This started with producers, in unison deciding not to plow back all their significant cash flows into oil and gas exploration and development despite experiencing great oil and gas prices.
This phenomenon has led to record high free cash flows which will continue to be largely directed at debt repayment, share buybacks and dividend increases.
This phenomenon we all know but it is still very surprising to see the extent to which producers, with great discipline continue with this strategy even with high and rising oil and gas prices.
Here is a perfect example, which I posted earlier today when Birchcliff reported their Q1/22 results and guidance.
Within about seven months, Birchcliff will have permanently zero debt, free cash flow of $560 million, start of a tenfold quarterly dividend hike to at least $0.20 (8.5 per cent dividend yield), and still have the ability to buy back 30 per cent of their outstanding shares next year. This is under current strip prices. Using my price assumptions, all those numbers would be well understated. This is clearly unprecedented.
Now imagine what the financial situation for the producers will be like next year. Most will be able to buy back all their outstanding share within a couple of years or provide dividend yields of 25 per cent plus.
Let me now apologize for being a bit redundant with some of my recent comments but I am very pleased with this major transition and with all the great benefits (well deserved) accruing to Western Canada, to those working in the industry and last but not least to all the investors who rode all the past cycles of great financial gains followed by great losses.
One should never say never, however I truly believe, even with future recessions and viruses, the industry will never return to bad times again. How can it with most producers faced with zero debt, limited capex and much fewer shares outstanding. And world oil supply will always struggle to meet world demand.
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Oil and gas stocks about to truly breakout – May 20
Well, my friends, everything I have posted here regarding the fantastic outlook for oil and gas prices and therefore Canadian oil and gas stocks, in my humble opinion, have been very accurate.
I wish to emphasize that as good as it has been so far, please trust me when I state that this is just the beginning. As I write this, WTI is trading around $115 and NYMEX gas is $8.30 and stock markets all over the world are up nicely.
As China’s economy is starting to open up as the COVID virus there is subsiding, gasoline and diesel prices continue to reach record highs, embargoes on Russian oil and refined products are quickly expanding, summer driving and the vacation season is almost upon us, etc, oil and gas prices have only one way to go: STRAIGHT UP!
I am pleased for those of you who have been following my posts and accordingly have maintained or acquired large positions in oil and gas stocks. For those of you who have not, I stress as strongly as I can that it is definitely not too late.
I envisage another 25 per cent to 50 per cent upside for many Canadian oil and gas producers by the end of this year, and then there is 2023, 2024, 2025, until at least 2030. Then you can take profits!
For well over a year now, the energy sector has provided by far the best returns on virtually every stock exchange. I am 100 per cent confident this situation will continue for a long time to come.
I can’t state it any stronger; we are in unprecedented territory now. In the 75 year history of the Canadian oil and gas industry, it has never been this good, take advantage of it. It doesn’t really matter which ones you buy as “a rising tide raises all ships.”
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Very bullish outlook for natural gas prices worldwide this summer – May 23
I believe there is at least a 50 per cent probability that NYMEX gas price will hit $15 plus this summer and an 80 per cent chance that it will average at least $10 this summer. This would mean record high summer prices, and at the same time as WTI should average over $115.
All factors support this bullish gas outlook, including:
- worldwide natural gas storage levels (including the US) approximately 15 per cent below last year’s the last five years’ averages
- Russian gas supplies to the EU is steadily being reduced
- no signs so far that US gas production is rising, while at the same time, there is a strong push underway to increase LNG exports to Europe
- European nations will scramble, with great concerns to fill storage for next winter during very strong summer demand
- lastly, it still May and we have already experienced record heat waves in Northeast US and Asia as highlighted below, and we likely “ain’t seen nothing yet” in terms of an extremely hot summers in the US, Asia, and Europe.
And of course all these factors bode very well for very strong natural gas prices going into next winter.
Imagine, under the scenario outlined above, how high share prices of Canadian oil and gas producers will be, especially after they release their Q2 results and boost their guidances.
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