Josef Schachter on MoneyTalks
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I want to talk oil and gas now, obviously a huge subject, especially in case and in terms of your performance of your portfolio. I mean, you want to have been involved in these. And that's why I'm pleased to get Schachter Energy Reports. Of course, he's the author, Joseph Schachter. Joseph, thanks for taking time with us. And as usual, especially in this file, there's no shortage of things to talk about. So I'm going to start with just a real broad based question. Like,

I want to talk about the geopolitical impact on oil prices. Do you have a broader perspective on those prices?

Well, first thing, we've had a fabulous run in the sector. We were under $70 at the beginning of the year. We got up to $88, $87, $67 after the battles in Gaza and with Hamas and Israel and the concern that Iran would get involved after the attacks there, shooting down all of their missiles and drones, which the Americans and others were involved in, and British and others were helping.

We're now about 79 and a half, and we've come down because inventories are building. It's normally at this time of the season, you know, after winter, you have a shoulder season and then things pick up again for the summer driving season. So if you have 102 million barrels for the year on average,

You'll have 103, 104 in winter. You'll have maybe 98, 99 in the shoulder season of the spring. Same in the fall. And then winter of 24, 25, we'll get back to 103, 104 and then grow in 2025. And the key thing people have to realize is, um,

The U.S. is showing some growth in demand, about 0.4%, so a couple hundred thousand barrels a day. The one we've got to be keeping an eye on is China and see when they get their economy together, but they're not. Exports have been a problem. Manufacturing has been a problem. Consumer issues have been a problem because of the real estate disaster in the country. Right now, it's probably a $5 war premium still because of what's going on in Israel and Hamas.

So if you look at the pricing, we think we're going to go below 75 during the shoulder season. But once we get into the summer driving season, I think we're going to start seeing that price rise come again. We're very bullish on the sector longer term. I think we'll see $90 WTI during Q4. I think we're going to see in 2025, we'll peak through 100. So people could look at any time there's a pullback in the sector.

and buy because we have stocks that are up 50, 60% from the lows at the beginning of the year. Some of them have pulled back. There's great bargains in the energy service sector. The natural gas stocks are doing well. The surprise natural gas was trading at $1.50 in April, and we're $2.60 today, up a dime. So we're beginning to see that the storage is not building. U.S. LNG exports are picking up. And in the fourth quarter of this year, the coastal gas line is going to get bigger.

get filled with natural gas, and that's going to help the Canadian sector. So the bargains and the Canadian natural gas sector are very, very attractive for people. And we've been focusing on both the energy service because the drilling activity, fracking activity will pick up. Northeast BC will be humming in the fourth quarter and then 25, 26 on.

to fill LNG Canada, maybe LNG Canada 2. Cedars is moving forward with Pemina, a June decision for FID there. So there's a lot of potential on the West Coast. You and I were talking about this 10 years ago, and it's only finally now becoming a reality. But the Canadian natural gas sector has a lot going for it.

We've seen heavy oil do well and drilling in Canada has picked up for heavy oil to fill the TMX pipeline. The surprise, though, is there's an issue with fluids. There's an issue. Are there's enough tugs to move the boats in and out? And the most recent one is they can't bring big ships in. So they're taking smaller ships and then taking them offshore and then loading into large vessels.

crude carriers to take it to Asia or down to California. So there's a little bit of growing pains with this and maybe a little bit of lack of planning to make this thing go. And of course, the government of Canada is going to have to write off quite a bit of TMX, just like we saw TransCanada write off a lot of Coastal before the First Nations and others will want to come in and be the buyers and owners of those projects.

In the meantime, there's several things you've said there. I want to come back just for a sec. Short term, long term, long term. You're still very bullish on it. And I'll reiterate what you said is that you take, you know, these dips as buying opportunities because but bottom line is oil prices. You know, the pressure is upwards. And I'm talking as we go out two years and three years and four years.

Yeah, I think that people need to take into account that commodities have not had a sufficient amount of investment. Look at copper prices. Copper prices were $3.60. They're over $5 a pound now. We're seeing nickel prices move, aluminum prices. We saw some even commodities that we consume. We saw cocoa go up. We saw coffee go up. They're backing off a little bit now, but they have fabulous runs.

So I think the basic raw material inflation is there. You saw today a report from the IEA saying that there's a shortage of critical minerals and that it was a major report saying we need to spend money on investing. If we want to have more solar, more renewable, more wind power, more EVs,

a lot of money is going to have to be spent. And those countries are going to want a higher quality of life. They're going to want to have nice housing. They're going to want to have electronic appliances. They want to have their own cars. They want to have electricity 24 hours a day if they want it. So that is going to require a lot of money to be spent

and all of these raw materials you know i'm not a mining person but the argument of shortages and copper and aluminum nickel are very clear uh just like i think when you realize we're not spending enough money replacing the decline rate um in in oil and natural gas and a major cycle is ahead of us as we try to get china and india to to get

to not build as many coal-fired plants as they're doing for electricity and convert to natural gas, you know, as it becomes available. And, of course, the big thing, everybody, is data centers. You know, the demand for electricity is

And also we put replacing and repairing and strengthening the grid is going to require a lot of copper and of course it's going to consume a lot of electricity. And I think if we want to see EVs as the governments want in, you know, 2030, 2035, the systems are not there in place and a massive capital investment in raw materials. And then the building out is going to be important. And that's why, um,

you know, the natural, you know, natural gas to me is the two is the more favorite commodity for me because I think you get to five, six dollar, you know, eco, you know, by the end of the decade, that's going to, you know, even if costs go up, which they will for drilling and fracking and pipelines and tariffs on lines will go up, the margin will be significant as we saw

you know, during, you know, 2022, we saw some very high prices then and, you know, big cash flows for the industry. And I think people should look back to that and say, okay, we get back to, you know, five, $6 gas. What's that going to mean to companies? And I think there'll be shocked how profitable the industry will be.

Let's talk about Canada versus the U.S. in terms of companies. Of course, you're looking at everything, but I would think that the TMX pipeline, for example, would be good news because finally our oil producers are getting a higher price. They don't have that big Canada Select discount anymore anymore.

And again, I'm not working in this the way you are, but it would seem to me that would be a positive. I think the number I saw were sending about 890,000 barrels a day down. You know, they get on average $9 more. Well, that's got to translate to the bottom line for some of our Canadian producers. Yeah, there's two things about this is the...

The TMX is moving more oil. It can handle 890,000. I don't think they're getting there every day because they're still concerned by the producers about what the tariffs are going to be. And there's some dialogue going on there.

And so I don't think we're getting the full use. And then the takeaway from the BC coast is an issue, as we talked about just a few minutes ago. But the key thing is we've gone from a $15, $16 differentials to $11, $12 differentials. All of that goes to the bottom line. But the big win for the industry is the Canadian dollar.

Instead of a par parity dollar, which we had a decade or so ago, we're now sitting at 73 cents. So you multiply 1.37 times that 79 and a half dollars, and that is Bitcoin for the industry. And that's why the cash flows for the oily focused companies continue.

have been very, very strong, even though they're down from a year ago, but they're still quite strong. The natural gas companies, if they hedge properly, are having decent numbers. Those that didn't are showing weaker comparisons. But the key thing is by Q4, and if you look at the forward curve into next year, companies are hedging a $310 and $320 ACO per MCF. And if your input costs are $1.10, $1.20, that's a pretty good margin in anybody's business.

You know, and again, this is by nature, it's oversimplification. But, you know, so if somebody was coming in, they say, I want to get involved in this sector as an investor. You know, I want to make... So you would... Am I right in assuming that you would recommend looking at the Canadian companies before you'd look internationally or, you know, US in particular because of that kind of a discount? You know, the 40% discount, you know, with that $0.73 for our operators. Yeah. And the Canadian companies are cheaper than the Americans because, you know...

they've not been attractive. The political side here, people are concerned about a little bit, but security of supply, the reserve basins and the quality of our base in the Montney, the Duvernay, you know, the oil sands. We have a fabulous asset here that if we had the right political attitude of approach to the industry, we could be a fabulous generator of wealth for the country, for the federal government, for the provincial governments and for the

people working in the industry and the economies of where the, you know, like Alberta is all, even though oil sands are in Fort Mac and Montney is in Northwest Alberta, it's going to generate a tremendous amount of wealth because the G&G, the geology, geophysics, the finance, the heart of that is Calgary. The manufacturing ability to grow the oil sands and stuff is in Edmonton. The government's based in Edmonton. Red Deer is a big win. Grand Prairie is a big win.

So we could see tremendous wealth effect in Alberta. And then again, northeast BC is going to be a juggernaut because that's where the companies are grabbing land and drilling, dealing with the First Nation issues, getting those resolved, getting them on side and getting them to have industries and have the staff trained so that they can work with the industry so they have a wealth effect.

for the First Nations communities. And we're seeing that happen. And more and more companies are working with them. And remember, there was the blueberry issue for one of the First Nations in Northeast BC. That's resolved land issues. Drilling licenses are being approved.

and more and more activity is going there. And the industry is now putting in pipelines so that the natural gas can go to the West Coast, but the liquids, the natural gas liquids can be moved to the Fort Saskatchewan area where they're then mixed with the heavy crude so that you can move it through the pipelines.

Yeah. Let's talk about specific stocks for a second. Now, you know, you're at the World Outlook Conference, of course, and the portfolio you put forward there has done extremely well, you know, you know, with some real stars in it. But again, people always want to know what have you done for me lately? You know, and I might say, by the way, one of the measures I would use to the success here, not just of Schachter Energy Report, but I mean, I'm talking the industry, is that how your company is growing.

you know, that there's so many positions to look at. There's so much detail to review, et cetera. And I just, you know, I find that, you know, a great bellwether of, you know, that this is hot. Alberta's hot.

Schachter Energy reports hot, you know, more people working in that business. And let's talk a little bit about, you know, again, I don't want you to give away the barn here, but give me a couple of examples that sort of fit the narrative that you're sharing with us today. Yeah, we've been focusing on the natural gas side. So Paramount, Birchcliff,

You know, there's a large number of names, you know, Pinecliff. There's been a large number of names that we like that are covered. And we have a section now in our reports we call Top Picks Now, which we just started this year because all stocks rotate. Some are bargains at other times. Some get ahead of themselves.

And like right now, we don't really have any recommendations in pipeline and infrastructure because the stocks have done extremely well. Just for example, TransCanada or TRP, the stock low was $43.70 in the last 52 weeks. The high was $55.99. It's $53.06 today. So it's had a good move plus the nice dividend yield that you're getting there.

But the drillers are cheap. You can buy Ensign Drilling, Total Energy. Total has been at your conference. We've even flagged Dan Halleck, the CEO there. Then you could go to the frackers, STEP and Trican. Those stocks are very cheap, very strong balance sheets. And again,

As we go and drill more wells in northeast BC and in Montigny-Douvernais, you're going to need bigger fracks, more sand, more powerful equipment. And of course, everybody's moving to the DGV4 so that you're not using diesel fuel, you're using natural gas fired, which of course is better for the environment. So there's a lot of bargains right across the board. And everybody

uh every issue we have now when we do two a month we pick out top picks within each of pipeline infrastructure domestic natural gas domestic oil international emp and energy service and last issue that we did we had four of the five uh top pick where stocks had backed off and uh you know some of the ones that we started with you know like we recommended paramount you know three two months ago in march

And it was $26. It's 32 today. So that plus a nice dividend, you know, they're paying 15 cents a month. You know, that's a pretty good attractive total return. And, you know, you've seen the same thing happen in many other stocks out there. So I think that people should be, you know, deciding, do they want to own

buy an ETF? Do they want to own a mutual fund? If they're more hands-on, which a lot of the people who are involved in MoneyTalks and come to the World Outlook, they want to talk to management. We have our conference, Catch the Energy, in October. And Victor this morning informed me that he'll be coming out again, which we're very pleased. He'll be hosting the MoneyTalks room. And so there's a lot of companies out there

that we think that people should be looking at. And we do that right up. Right now, we're spending a lot of time on the Q1 results that are coming out. And we've seen some disappointments, but we've seen a lot of companies that have done very, very well. For example, Step had a record revenues and record quarterly profits in Q1 for the company. That's what you want to do. And then own those companies because we are still cheap based on historically. There's three valuation metrics.

PDP, proved developed producing, which is what the bank lends again, proven, which includes non-producing, and then probable. And right now companies are trading at the PDP or some are trading below PDP. And at the top of the market, they trade at 2P. So the difference in that gap

It's like three and four times. So there's triples and quadruples even at today's price point. But if you have the price of oil go to 120 or 130, natural gas to four or five dollars, that increases those reserve values, plus if they increase production. So we're looking at the opportunity in the sector between now and the end of the decade for five and ten baggers, which...

I know you've seen me say I've been cautious at times and rule on the sector. I'm in the camp now that anytime there's a weakness, you buy because we're looking at five baggers plus in many, many names that we cover. And we cover 36 companies. We started in 2017 with 20 companies, and now the team has built it up to 36. And we have three or four names on the watch list. So we'll probably be adding names during the summer after I finish this, the quarter one cycle review of the companies.

Well, I also want to mention one other thing is that, of course, as you're expanding, you're putting a lot more people involved, all of that kind of stuff. But here's a beauty for the Money Talks audience, because as I say, you give specific recommendations, you know, every time. But for the Money Talks audience, I'll just make them aware because it reinforces one of my things about the cost of things going up. And you're finding that out as you hire more people, do more things, expand. So the cost of the Schachter Energy Report is also going up.

But this is what my point was. You can avoid that by if you subscribe to the report, $799 a year before the end of May,

Well, you're home free because you're locked into that price in subsequent years also, as opposed to paying $200 more, you know, going on. Also, you could do it by quarterly too. And we do have a discount and I'll let you know all that. But the quarterly discount is $50 off that. And I'll put the code out for everyone because you'll need to enter it to get that. But $75 off the annual fee. But I think, Joseph, again, you're just making my case about inflation, by the way.

And people have to take action to not be nailed by everything. But this is a great example. You're saying, look, seven years, seven years, we have not increased our prices. We're going to get killed. We're expanding. So prices go up. So your price of the subscription goes up. But

That's what I like. Take action. Avoid that. Do it by the end of the month. And we'll put all those details out for people. But I smiled when I saw that because, as I say, yeah, that's my inflation story. Protect yourself. Yeah, and we're seeing salaries are going up and the benefits go up. And if you add more personnel and we want to cover more companies because our clients, our subscribers ask us to cover more companies. During our webinars, we have a quarterly webinar. We had one on May 9th. And people keep on throwing ideas and say,

And if you hear about this and it's worthwhile to spend the time with the research, developing a model, going to see management and the benefit of it, of our team is we're based in Calgary. The companies are based in Calgary, having access to management, especially now when most companies

annual general meetings or video meetings, you don't get that face time. So the coming to the world outlook and the eight or nine companies that you guys invite to come, you know, surge was there, total was there a lot of great companies that we like or

are at your conference. And then at our conference, we have a bigger universe and we also have clean tech, you know, that we, that we're doing. So, you know, this FaceTime is really an extra value, which is not something that it's available all the time. And I think you started it with your conference and that FaceTime is a very, very valuable tool.

access point that if you are involved in a company and you see that they're going to be at the conference, you definitely, as an owner of those shares, want to be able to talk to management.

Just very quickly, if somebody is again getting involved, I've always encouraged people, know what your time frame is. Are you a short-termer like Victor or Dare is? Long-termer like I am. But what would you – so I know it's a broad question and we have to know individual circumstances. But generally speaking, if somebody said, okay, I'm going to buy in the next dip and I'm going to look at those recommendations you've got in the energy report and take

take some action. What would be a realistic timeframe though? I mean, would you say, look, be prepared to, there's ups and downs in this business, be prepared to own them for like two years or three years? Well, the energy cycles don't happen very often. We had one in 74 and 81, 99 to 2008, which I talked about at World Outlook when I've been on the stage. This cycle started in 2020. If you remember March, April, negative oil prices started

because the British hedge funds shorting it out, shorting the contract, the nearby contract. I think this cycle goes to the end of the decade. So there's going to be ups and downs. And you can look at the price of oil between 99 and 08. It moved and there were 30, 40% swings. You look at any of the stocks that were around in those days, CNQ or Suncor, you're going to see that same kind of swings that occurred there. So we're saying when you see those swings getting too overvalued, you'll

stop buying more, hold off, maybe let the dividends accumulate, get some cash reserves. If you're a trader, maybe take some profits. But when those bargain windows come, you want to get to it. And we think the next bargain window could happen in the next couple of months. And when it does, we will be saying again, here's another low cost entry window, take advantage of that. And I think that anytime you have those bargain pullbacks,

You want to get to the position. So decide what you want to own. Are you a conservative investor and you want to own pipeline infrastructure, the big cap energy names with dividends? Or do you want to be somewhat more entrepreneurial? Do you want to own a middle-sized firm which has a chance to be taken over by the bigger boys? Or do you want to be in the service sector or international firms?

But there's a lot of opportunities depending upon your risk profile, your risk tolerance, and your portfolio objectives. And that's why we've been asked by our clients to add more coverages of different names. And that's what the team is doing to provide, you know, going from 20 names at the start in April of 2017, we're now at 36. And I think sometime by the end of this year, we could be at 40, which I think is our maximum research capacity with the team we have.

And that's including an expanded team. So if we want to go up from there, we'd have to add more people. Well, and people can get more information at SchachterEnergyReport.ca, but I'm going to spell Schachter for people. S-C-H-A-C-H-T-E-R. S-C-H-A-C-H-T-E-R. SchachterEnergyReport.ca. And of course, we'll put that up all on our social media, our email list, all of that kind of stuff too. But in the meantime, Joseph, thanks for finding time for us. Oh, my pleasure as always, Mike.