I recently appeared on BNN, reaffirming my view that oil will return to $75 per barrel. The reason is quite simple: It’s the price needed for additional non-OPEC supply to come onto the market. At current prices, there is no economic incentive for additional output.
Virtually nobody is earning a return on their capital at current prices – not the super-majors, not the junior companies, and probably not even state-owned producers.
I’ve been investing in the energy sector for 20 years, and I have never seen oil stocks trading so cheaply.
Much of the pessimism surrounding the price of oil is based on strong flows from U.S. shale producers, but I think speculators are missing the mark.
The data we’re seeing in terms of individual well results is from companies that have access to the best equipment, the best people managing the rigs, and they’re drilling their best locations.
The current market represents a historic buying opportunity.
We’re buying companies with a two to three year time horizon where we think we can make a lot of money for unitholders.
I’m a big fan of Trilogy Energy Corp.† (5.81% weight in Trimark Energy Class, as at July 31, 2015), which I believe has been oversold.
The company is run by the Riddell family, who are as close to royalty as you’ll find in the Canadian oil patch. Members of the family have filed disclosures to regulators indicating they have bought another 300,000 shares of the company.
I believe the market will be shocked when the company’s holdings in the Duvernay formation prove to be economical at todays’ commodity price.
Our investment in this company is another example of the Trimark discipline in action: a quality company, oversold by the market, run by an incredibly strong management team.
I’m not expecting a 50% rate of return – I think it will return multiples on our investment as this company surprises the market.
We’re not investing for the next two-three weeks; we see a very compelling investment opportunity when we look out two to three years.
† The company mentioned was selected for illustrative purposes only and is not intended to convey specific investment advice.