Buy when there’s blood in the streets? O&G edition

So many investors pride themselves on being a contrarian. I’m not really interested in labels, but I do like to increase my net worth.

Oil and gas has been out of favor for years now. Back in 2015 $WTIC was over $100, it bottomed in early 2016 around $30 and today it sits around $55. There are numerous reasons, many of them I’m not very versed in.

Activity in my backyard here in Alberta has been particularly hit hard. You can see the number of active rigs in Alberta below.

Western Canadian Select has been under pressure with the broader market and the difference between West Texas Intermediate and Western Canadian Select was growing until the mandatory production curtailments. The curtailments are in response to the inability for our oil to reach international markets given pipeline capacity constraints. You can get some more information here on the curtailments.

With so much negativity around oil and gas companies in today’s market I have decided to take another look. I’ve been down this road before.  I’m taking a top down approach, with some specific criteria in mind to lower my risk. I believe that we need at least stability in the oil and gas market in order for these trades to be profitable. We may not need significantly higher oil/gas prices, but I will need sentiment to change. I don’t expect all my picks to be winners, but I do expect this to be a reasonable way to deploy capital and generate above average returns.

As usual, I chose the oil and gas services/support companies. I like the indirect play on oil and gas activity and these small names seem to be delayed in sentiment which allows me to do research and build a position before shares move higher. I’ll do a quick post on each of the companies I have taken a position in. It may take several weeks or months to scale into each position. Stay Tuned.

Let me know if you have any companies you’d like me to take a look at related to O&G.

 

Thanks,

Dean

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