World Wide Stock Market Meltdown Causes Intermarket Margin Call

Transcription

World Wide Stock Market Meltdown Causes Intermarket Margin Call
Maison Energy Monthly
January 20, 2016
World Wide Stock Market
Meltdown Causes Intermarket
Margin Call
Oil Price Final Plunge Nearly Over
We Look For WTI To Breach
US$40/b By April/16
COMMODITY
PRICE TARGETS
What’s Inside:
1.
With Iran Sanctions Removed And Production To
Ramp Up, All The Negatives Are Now In The Energy
Market. The Positives For The Sector Are Being
Ignored And Are Receiving Little Press Coverage.
BUY Favourite Names On Any Further Weakness!
Oil
Target
>US$40/b
By April 2016
2.
Maison Universe High Impact Drilling Watch List
3.
Research Updates:
 Delphi Energy Corp. (DEE)
 Tamarack Valley Energy Ltd. (TVE)
4.
Top Picks:
 Delphi Energy Corp.
 Tamarack Valley Energy Ltd.
5.
Recommended Buy List
6.
Coverage List
Josef I. Schachter, CFA
403.264.4413
[email protected]
1) With Iran Sanctions Removed And Production To Ramp Up, All The
Negatives Are Now In the Energy Market. The Positives For The Sector Are
Being Ignored And Are Receiving Little Press Coverage.
BUY Favoured Names On Any Further Weakness
Our forecast of WTI crude falling to US$30/b has been realized. With Iran last weekend having sanctions
removed excluding the US, the fight for market share in Europe is well underway. Many refineries in
Europe used to take Iranian/Persian crude regularly (especially BP whose historical background included
being founded as Anglo-Persian Oil Company in 1908) and so Iran is providing significant discounts to
regain access. As a result of the new competitive pressure, prices for WTI and Brent have retreated this
week to close today at US$28.36, another new low for the cycle.
There is now a window for crude prices to capitulate to even lower lows as fears of economic slowdown,
risk off trading and margin calls across various asset classes have negatively impacted high yield bond,
stock and commodity markets in the first two weeks of 2016. The Dow Industrials has fallen over 7%, the
TSX by over 8%, and the Shanghai Stock Exchange by a staggering 18% in just the first two weeks. One
measure of this developing fear is that the VIX volatility index has risen in the US from the 18 level at the
end of December 2015 to as high as 30.95 last week (now 25.88).
It appears that one more shake-out will occur in the commodity area as the risk off activity moves to a
climactic end. If stocks lead the way down, margin calls across all asset classes should occur. A flight to
short term government bonds and the US dollar are very likely as investors flee risk assets to find a
hiding place during a period of market uncertainty.
US stocks have broken down on the charts and the start of 2016 is now the worst on record. A 20-25%
overall correction in stocks is not out of the realm of possibilities for Q1/16. If so, the commodity board
will share some of the disorderly liquidation that would occur. A sharp quick plunge to the mid-US$20’s
is now quite possible. Use this weakness to BUY favourite investments as we see this capitulation as a
quick event. The fundamentals of the energy sector are showing signs of recovery but are not are the
radar of current prognosticators. When we went bearish in Q2/14 the rhetoric was decidedly bullish and
calling for prices to move from US$100/b up into the US$120-140/b range. Today with the media
focusing on every negative view the rhetoric is highlighting some extreme calls for US$10/b for WTI.
Our expectation is that stock markets get hit hard over the coming weeks and that intermarket pressure
on most asset classes occurs due to painful margin calls. The stock market decline will force mutual fund
managers to meet redemptions and for hedge funds and commodity funds to meet severe margin calls.
The stock markets unravelling could be exacerbated if derivative markets become illiquid and investment
dealers get concerned about counter party risk. We do not see a repeat of 2008 at this time, but the risk
of a meltdown has increased in probability.
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Baltic Dry Index
Source: StockCharts .com January 15, 2016
Signs of disarray that are of increasing concern are the fall to new lows for the Baltic Dry Index which
highlights the decline in the movement of coal, grain, steel etc. Also, the CRB has now fallen to record
lows at the 160 level, far below the 200 level that occurred in 2009, and the 182 level seen post 9/11.
This deflationary pressure is now causing a shut-in of high cost production across the board. Glencore
has announced repetitive shut-ins of many metals and most mines are not profitable at sub-$2 for
copper.
CRB Index
Source: StockCharts .com January 15, 2016
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Dow Jones Industrial Average
Source: StockCharts .com January 15, 2016
US stock prices peaked in Q2/15 and have retreated by 13% so far, while the TSX has declined from its
high in Q3/14 by 24% as the commodity board got hit hard. Materials, Precious Metals and Energy led
the way down for the TSX. The recent sharp stock market declines have lifted concern that we may face
a repeat of 2008. A decline below 15,370 for the Dow Industrials and of 10,848 for the TSX would be
very worrisome for the bulls.
TSX Composite Index
Source: StockCharts .com January 15, 2016
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The Fed is central to the current stock market malaise. The increase in interest rates of 25BP was
not their only move. From October 2015 the Fed has removed US$530B from its balance sheet as
it reduced monetary reserves from $4.18T to $3.65T. In addition MZM has been flat lined. These
actions are responsible for the stock markets plunge. Removal of some of the joy juice that created
the asset bubble is now responsible for the recent melt-down. The Fed was and is out of options
and needed to gain some freedom so that they have the tools to aid the system if there were to be
another financial disaster. If the adjusted monetary base and MZM continue to decline in coming
weeks, the downside risk to markets will increase and a plunge and then capitulation phase would
occur. This would create a new low for oil prices and would result in a fabulous buying opportunity
for energy stocks. Until interest rates are allowed to be set by lenders and borrowers and not
manipulated by Central Banks, these dislocations will continue.
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The Positive Fundamentals Developing In The Energy Sector
That Have Moved Us To The Bullish Camp.
There are indicators supporting the view that a new energy bull cycle is close at hand which are not
getting much attention. Crude demand in 2016 is expected to rise by 1.3Mb/d to 94.2Mb/d. This
should provide OPEC with an additional 1.7Mb/d of daily demand which would provide room for the
new production being ramped up by Iran. This forecast may even prove low as the EIA sees demand
in 2016 rising to 95.2Mb/d from 93.7Mb/d in 2015. Their assumption of demand for 2015 is higher
than the 92.9Mb/d of the OPEC view. The biggest individual difference is the forecast of demand in
China where OPEC assumes 2015 demand of 10.8Mb/d versus the EIA assumption of 11.2Mb/d.
Source: OPEC Oil Market Monthly January 18, 2016
Our move to the bullish camp relates to 5 positive factors that collectively add to a more bullish
situation as we move through 2016.
1. Record Auto Sales: China oil demand has been stronger than forecast due to the rapid growth
of its auto sector. In 2015 China’s auto sales were the highest in the world at 24.2M units for
both car and truck sales. US vehicle sales in comparison are estimated at a record 17.5M units a
5.7% rise on the year.
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Even if China slows down to a 6% real GDP growth rate, the move to a consumption society will
only add to the demand for energy. The latest data (2014 info) highlighted that China had over 300
million motor vehicle drivers including 244 million licensed passenger –car drivers. This surely has
gone up such that China now has more drivers than the US. In 2014 the US number was 319M.
Demand in the US for finished
motor gasoline and total product is
much higher than China currently.
According to the EIA, US gasoline
demand in the latest week was
8.5Mb/d
and
total
product
consumed was 18.54Mb/d. As
China moves to a greater consumer
society and more cars and trucks go
on the roads, their numbers should
move up to US levels creating a
significant 5-7Mb/d of demand for
crude.
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2. OPEC Production difficulties: December OPEC production fell by 210Kb/d as Angola, Iraq,
Kuwait, Nigeria, Saudi Arabia and Venezuela had problems producing at the level of the prior
month. High cost production is being shut-in particularly heavy oil that needs transport with
diluent. Venezuela is finding this a major and growing problem.
Source: OPEC Oil Market Monthly January 18, 2016
Venezuela is in a quandary as it needs 30-50%
diluent to make a barrel of Merey or DCO
heavy crude for export. PDVSA, the state run
oil company is now very behind in its payables
and can’t afford to purchase naphtha volumes
to create exportable barrels. It has requested
its foreign buyers including Chevron, Repsol
and ONGC to provide the naphtha or they will
not be able to meet 2016 production plans.
This wild card could remove over 500Kb/d
from Venezuelan exports if the foreign entities
try to keep to their legal contracts over the
next 6 months.
This problem for PDVSA would alone provide
room for Iran to raise production by their
stated goal of 500Kb/d in 1H/16. If the price of
PDVSA’s product falls even more than the
US$20/b export price currently, then the falloff of production could be much higher than
500Kb/d.
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Iran produced 2.9Mb/d in December 2015 of which 1.0Mb/d was exported. With the removal of
sanctions, Iran is looking to increase exports by 300Kb/d in Q1/16 and to 500Kb/d by Q2/16.
Their main market focus in on Europe which historically has taken Persian crude. The EIA sees
them increasing both crude and liquids by nearly 1.0Mb/d by the end of 2017.
Source: EIA Short Term Energy Outlook January 19, 2016
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3. US production begins to fall: Last week the US showed production of 9.2Mb/d up 8Kb/d on
the week and down from the peak in April 2015 at 9.6Mb/d. This rise in production follows the ramp
up seen in late 2015 as companies focused on bringing on as much production as possible so that
their PDP’s (proved developed producing) were as high as possible so as to support their year end
reserve picture and debt lending values. Now that we are into the new year, we expect to see
meaningful weekly declines in US production as declines hit and spending is less than needed to
replace production.
Source: EIA Petroleum Balance Sheet January 8, 2016
We expect to see weekly decline rates of 30-40Kb/d in a few weeks which reverses the speedy
increase in production seen from 2012 to 2015. Over a month this would show declines of >100Kb/d
and by the end of 2016 would leave US production around 8.0Mb/d.
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If the decline in production of over 1Mb/d occurs, then by Q3/16 there will be a noticeable decline in
US commercial crude stocks. The EIA is forecasting that crude stocks will peak in Q1/16 at over 510Mb
(up from last week’s data of 483Mb) and then decline by the end of 2016 to 460Mb. In this scenario
we expect to see WTI prices above US$50/b and for winter 2016-2017 to see price highs into the
US$60’s.
The EIA puts out a report on the shale areas of the US and the evidence of declines in production from
these plays will impact overall production levels as we head further into 2016.
Source: EIA Drilling Productivity Report January 11, 2016
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Source: EIA Drilling Productivity Report January 11, 2016
Well productivity from the shale plays remains robust with the best well performance estimated
by the EIA as the Eagle Ford with new well productivity for Feb/16 at 804b/d, followed by the
Niobara at 726b/d and then the Bakken at 724b/d. However, with the sharp decline in rig counts
in each area, overall production is estimated to fall by 116Kb/d in the month of Feb/16. The Eagle
Ford is showing the biggest decline – that of 72Kb/d as the rig count has fallen to 68 rigs in the
week ended January 15th, according to the Baker Hughes weekly rig count. This is down from 185
rigs in the area a year ago. Our forecast of a fall off of US production of 1.2Mb/d in 2016 is based
on this decline profile for the shale areas and an assumption of a material fall off in volumes of
stripper oil and from heavy oil production. Both of these are now uneconomic at US$28/b.
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4. Risk Premium in Middle East: With all the turmoil in the Middle East we have not seen
the traditional risk premium that arises when the area is in flames. Libya in recent weeks has seen
IS attack crude storage facilities and pipelines in ports held by opposition forces. This did not
disrupt production as the port had been shut-in. Last week, IS attacked areas in Egypt and also put
pressure on Baghdad. While Iraqi forces took back Ramadi there is still ongoing violent action in
the area, and IS has now upped the pressure on Baghdad to force the army to move back to
protect Baghdad.
IS is getting less revenue from their oil holdings in Syria and Iraq and have yet to move to attack
facilities of the Iraqi government in the south in the Basra area. If they did disrupt this major
producing area of Iraq we would expect a material risk premium would arise once again. In the
past there have been periods where the risk premium was material. Prior to Saddam Hussein
invading Kuwait, WTI traded at the US$16/b level and rose over 3 months to US$41.35/b. With the
launch of Operation Desert Shield and Operation Desert Storm to push Iraq out of Kuwait, the
price of oil retreated back below US$18/b.
Iranian backed Houthi forces have sent missiles into southern Saudi Arabia but have capability to
launch more accurate scud missiles into the heart of the eastern Saudi oil fields. Any such attack
that closes fields for more than a few days would create a significant price adjustment. If this war
escalates this would be a fair concern.
Source: EIA International Energy Data September 10, 2014
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The decapitation by the Saudis of Shiite cleric Nimr al-Nimr, has alienated the Shiite members of
the Saudi population. The Shiites live mostly in the eastern areas of the country and many work in
the prolific oil fields in the area. It is not a far out possibility that angry individuals or groups could
move to attack the oil fields in the area to hurt the Saudi regime. The Sheikh has been a peaceful
protestor whose guilt was formulated on his charge of “Despotism is illegitimate”. He proclaimed
that “from the moment you are born, you are surrounded by fear, intimidation, persecution and
abuse.” The ongoing resentment and murder of this esteemed cleric can only lead to some
confrontation. Any substantial attack on the oil facilities (potential of Kuwait, Qatar and UAE) of
any Sunni lead country by Shiite extremists would cause an immediate and large risk premium for
crude. In such a scenario the price of oil could quickly exceed US$50/b. If there were a substantive
attack on Saudi installations, then US$100/b could be conceivable again.
5. Investor pessimism at extreme again: This indicator of bullish percentages on the
energy sector has once again gone to an extreme low normally seen at the end of energy bear
markets. When the indicator is at any robust level over 80% energy stocks are near their peaks
and when at low single digits they are at bargain levels. The most recent level at 5% is near the
lows of 2008-2009 and 2011 and we should see a near record low in coming days with the new
lower lows in oil prices.
SELL
Zone
BUY
Zone
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WTI Crude Oil
Q1/16 Target
US$24-26/b
The price of oil today fell to a new low of US$28.36/b for WTI and with stock markets floundering,
another round of risk off trading would drive the price of oil down in concert. We now believe that a
window for US$24-26/b may arise over the next few weeks. We see this as being a fabulous buying
opportunity. The equivalent level for the S&P/TSX Energy Index would be the 125-130 level (today
135.40).
S&P/TSX Energy Index
Q1/16 target 125-130
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Below are recommendations for investors to consider purchasing during the final plunge in stocks
which is now underway. Our price recommendations are in some cases below recent levels. These
companies are worth owning for the next energy cycle which would be a multi-year opportunity.
Sharpen your pencils and prepare your buy lists and purchase levels. The upcoming window of
climactic activity over the next few weeks will be fairly short so one will need to act quickly during
the capitulation to build positions.
In Canada, our dividend model companies and the energy transportation companies on our list may
also have to lower or further lower their payouts as the price of oil deteriorates into the low
US$20’s. This window of dividend cut decisions by the Boards may drag out into year end and Q1/16
report windows. The starred stocks are ones that have reached our target and are great BUYS at
current prices.
Source: SAMI , January 19, 2016
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3.Research Update: Delphi Energy
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Delphi Energy Corp.
Suite 300, 500-4th Ave, SW Calgary, AB T2P 2V6
Phone: 403 265-6171 Fax: 403 265-6207 Website: www.delphienergy.ca
Company History & Management Info:

Delphi Energy was created in June 2003 following the merger of DT Energy and Rise Energy. Delphi currently has 24
full-time employees after selling off their Hythe and Wapiti assets and having reduced staff utilized in managing the sold
assets. A charge for the restructuring will occur in Q4/15. Management have built and successfully sold previous
entities.
Management: Pres & CEO–David Reid Sr VP Finance & CFO–Brian Kohlhammer
Sr VP Engineering - Rod Hume
VP Operations - Hugo Batteke
VP Land – Michael Galvin
Core Areas:

The company has one large dominant core area in the Deep Basin of the Peace River Arch in NW Alberta. The current
focus is at Bigstone East where DEE has its highest total return from a liquids rich Montney play. DEE is utilizing “slick
water fracs” which increase liquids production and produce a better production decline curve versus previous “oil based
fracs” used in the first 3 wells. They have other minor operations with the largest at Tower Creek (sour gas).
Key Impact Plays / Black Gold Wealth Creation:

At Bigstone, in NW Alberta, they have a Montney core area (87% of production Q3/15) that has 139 gross sections
East Bigstone (100+ 2-mile HZ wells in inventory), West Bigstone (100 locations) and South Bigstone 33 sections. The
company believes they have a 10 year drilling inventory ahead of them with potential to raise production to 30,000
boe/d, in a more normal elevated commodity price environment, potentially into the end of this decade. So far DEE has
drilled 24 wells at Bigstone and has moved from 20 stage fracs, to 30 stage fracs and has completed 2 wells with a 40
stage fracs. The most recent wells are utilizing 37 stage fracs. Costs have come down sharply and new wells are being
drilled and completed for $6.5M each versus from $10.2M each in early 2015. DEE is experimenting with tighter frac
spacing, changing ball sizes for the fracs, changing the sand concentration and using different fluids and gels for faster
clean-up of the wells. A 100% owned water disposal facility installed in 2015 will lower costs by over $2M per year for a
cost of $3M. Each completion going forward will save $300K/well. The focus in 2016, during this period of weak energy
prices, is on East Bigstone. DEE is now one of the largest land holders in the area with majors such as EnCana, Exxon
and Chevron as the other large land holders and operators. Their most recent well, the 14-24, came on stream in late
December with an IP30 of 1,840 boe/d with NGL’s of 118 b/Mmcf. Two wells will be drilled this winter and then the
program will wait into the summer to determine how active they will be in 2H/16. Depending on the commodity price
regime, DEE has plans to drill up to 7 wells in 2016 and achieve 10Kboe/d at exit 2016. In future years they will need to
work with a mid-stream operator to add a sweetening plant on their western assets in the area at a cost of $100M to
meet their end of decade volume objectives. The move to the Alliance system is now aiding netbacks even though
transportation costs are higher. DEE was able in 2015 to add wonderfully attractive NYMEX hedges to support this move
for 2016 production. Hedges on 73% of natural gas production are hedged at US$3.50/mcf versus the current NYMEX
price of US$2.30/mcf. Hedging should provide half of cash flow in 2016.
Recent Operational & Financial Results:




To improve their balance sheet, remove abandonment liabilities and lower operating and administrative costs, DEE sold
their Wapiti/Hythe assets for gross proceeds of $62M. Proceeds were used to pay down debt and give the company a
strong balance sheet to weather the current difficult energy market. G&A savings in 2016 are estimated at $2.0-$2.5M.
In Q3/15, DEE reported production of 7,888boe/d, down from Q3/14 due to the asset sales and a slower drilling
program during the energy price collapse. Cash flow per share came in at 6 cents per share in line with our forecast.
DEE’s last financing was completed in Nov/12 when they sold 17.2M common shares in a bought deal at $1.45 per
share and 4.6M flow-through common shares at $1.75/share for gross proceeds of $33M.
Our 12-month stock target of $1.80 reflects a 5x (below the Proven RLI of 9.8x) our estimated Q4/16
annualized CFPS of $0.36. DEE would be a very compelling purchase on weakness >$0.70/share.
Balance of Evidence
Growth Drivers


Limits to Growth
DEE has a concentrated land base with facilities in
one of the most attractive basins in Alberta (Montney
land holdings). Over time, this may make DEE an
attractive takeover candidate. With majors in the
area and lots of growth ahead, it would not surprise
us if ECA, XOM, or Repsol (buyer of TLM) who
operate in the area, make an overture in the next upcycle.
DEE owns the Cretaceous rights to 87.5 gross
sections in the Bigstone area. This dry gas play is
being targeted to the Wilrich zone by competitors.
DEE is focused on its higher return Montney play and
may look to JV this zone/play in a higher price
environment.




A low stock price and significant discount to NAV may
limit access or desirability of equity capital.
Delphi needs to add takeaway capacity for
100Mmcf/d of natural gas in coming years if they are
to reach their growth objectives. A deal with a midstream operator would make an attractive solution.
DEE took an impairment in 2015 of $17M following
an impairment of $53M in 2014 due to lower
commodity pricing supporting the assets. After the
sale of Wapiti/Hythe, there should only be minimal
write-downs going forward. The Montney assets
should not see any write-downs.
The new royalty regime, and government approval
delays have impacted growth timelines of the
company.
Maison Placements Canada Inc.
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Research Update: Tamarack Valley Energy Ltd.
Maison Placements Canada Inc.
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Tamarack Valley Energy Ltd.
Suite 3100, Bow Valley Sq. #4, 250 6th Ave. SW Calgary, AB T2P 3H7
Phone 403 263-4440 Fax 403 263-5551 Website: www.TamarackValley.ca
Company History & Management Info:
The company was founded in Mar/02 as a “capital pool company” and turned into Tamarack in June /10 when the company
restructured and a new management team was appointed. The team is headed up by Brian Schmidt, formerly President of
Apache Canada. At Dec/15, TVE had 20 full time employees and used 4 part-time consultants for specialized activities.
Management: President and CEO – Brian Schmidt VP Prod/Ops – Kevin Screen
VP Finance/CFO – Ron Hozjan
VP Exploration – Scott Reimond
VP Engineering – David Christensen
VP Land – Ken Cruikshank
Core Areas:
Tamarack is a Calgary-based Oil and Gas Exploration Company focused on resource plays where they can bring their strong
technical skills to bear and have repeatability, large reserves and long production life potential. They currently are involved in
three areas: Wilson Creek (Cardium oil) is their largest area and where the majority of activity will take place during the current
weak energy commodity price environment. The other areas need a higher commodity price environment for activity; at
Redwater (shallow Viking oil) and Saskatchewan (heavy oil). At Dec/14, they had interest in 321 natural gas wells and 236
producing oil wells. Their focus is to materially increase the percentage of oil and liquids production and they have had
meaningful success, going from 29% in 2011 to 53% in Q3/15. TVE is an active hedger and is hedged at almost 50% of
production at over C$76/boe for 1H/16. They continue to add hedges when appropriate for 2H/16 at over C$70/boe. TVE has a
5 year drilling inventory at C$50/boe. Overall corporate decline rate is 35% with the newest wells having the highest decline
rates. TVE holds over 200 sections with 2 gas plants and 4 oil batteries and over 400km of pipelines in the dominant Wilson
Creek core area.
Key Impact Plays / Black Gold Wealth Creation:
Cardium Oil Resource Projects – TVE has been building since 2013 its core Wilson Creek Cardium oil (in west central
Alberta). Drilling inventory is >170 locations. Cost per new well is estimated at $2.6M (down from $3.4M in 2H/14) with a 30
day IP expectation of 450-650boe/d. The best wells are in a sweet spot with high perms >9% and have net pay of 9-12 metres.
The next well in the program is expected to be a 1.5 mile 34 stage frac. The goal in 2016 is to lower costs even further using
cemented sleeve liners and using Canadian coarse sand versus more expensive imported US sand for the fracs.
Heavy Oil Lloydminster Project – TVE is building up its heavy oil potential at Lloyd. In Q3/15 heavy oil production rose to
660b/d. One well may be drilled in 2016 due to land expiry requirements.
Recent Operational & Financial Results:



TVE Q3/15 production rose to 8,717boe/d, up 51% from the prior year and 25% above Q2/15. The Q2/15 acquisitions
in their core Wilson Creek area drove this volume growth. They could have had even higher production but were held
back by the TCPL pipeline shut-downs. At various times in 2016 they see shut-ins of 300-400 boe/d as possible. Cash
flow came in at $0.15/share in Q3/15 as the price of the commodities rapidly declined in the quarter. Netbacks were
$16.78/boe down materially from the netback of $42.91 in Q3/14 and $27.17/boe in Q2/15.
TVE’s last financing was in June/15 when it raised $74M via a share sale of 17.3M shares at $3.78/share and 2.2M CDE
Flow-Through shares at a price of $4.15/share.
Our 12-month target of $4.25 is based on the proved RLI of 5.3 years times our Q4.16 annualized cash
flow of $0.80/share. The stock would be a tremendous purchase <$2.25/share.
Balance of Evidence
Growth Drivers





Limits to Growth
TVE has been very successful driving down operating and
capital costs. They are working with suppliers to lower
costs even further in 2016. Operating costs should come
down even further in 2H/16 to $12/boe from C$14.05/boe
as work on this area during this low price environment.
The focus to liquids has been successfully implemented
and is now the focus of the company.
TVE will hold off non-essential drilling activity until the
price of crude exceeds US$40-45/b. The only drilling
planned for the first half will be 3 wells at the eastern
Alder Flats area of the core Wilson Creek which are
commitment farm-in wells. They are working on more
farm-ins in the area to continue to grow their dominant
land position.
When commodity prices improve, TVE has a quick and
cheap way to increase volumes at Alder Flats. For $4M
they can add a compressor that would raise production
from 6Mcf/d to 10Mc/d and with 50% liquids add up to
1,500 boe/d fairly quickly.
 The new royalty regime, TCPL downtime, and government
approval delays have impacted growth timelines of the
company. They are watching for news in the royalty review
regarding stimulation (re-fracing), water flood benefits, and
a deep oil credit similar to that now in place for deep gas
wells.
 TVE took a $29.1M impairment charge for their non-Cardium
assets in Q3/15. The largest component was for their Viking
oil play at Redwater. It is possible that they may take
another impairment charge in Q4/15 as the price deck has
declined even further during the last quarter of 2015. No
impairment is expected for the core Cardium assets.
 Access to capital has been tough for small cap companies
for growth. TVE so far has not been impacted by access to
capital.
Maison Placements Canada Inc.
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2. Maison Universe High Impact Drilling Watch List
Canada:
Play Area
SAMI Covered
Companies
Target
Location
Ownership
Working
Interest
Leverage
Potential to
Upside
Success
Est. Chance of
Success
Timing
Montney
Multi-Frac,
Extended-reach
Horizontal
Program
Delphi Energy
(DEE)
Montney /Liquids
Bigstone, AB
~80%
>$0.20/share
50%
Ongoing 6-7 wells
in 2016
Cardium Oil
Tamarack Valley
Energy (TVE)
Cardium
Wilson Creek
80% or more
>$0.50/share
50%
Ongoing 15+ wells
in 2016
Canada:
Europe, India, and the Middle East:
Location
Ownership
Working Interest
Leverage
Potential to
Upside
Success
Est. Chance
of Success
Timing
>200Mb
Albania
25%
$0.30+/share
33%
Shpirag-3 spud Q3/16
1 year drill time
SDX Energy Inc.
(SDX)
>80Mb gross
Cameroon
35%
>$0.50/share
20%
Spud well April/16
30 day drill time.
Sterling Resources
(SLG)
>100Bcf
Southern UK
North Sea
30%
$0.20+/share
50%
AO9/A10 should start drill
program in 3Q/16
Play Area
SAMI Covered
Companies
Target
Block 2-3
Petromanas
Energy Inc. (PMI)
Bakassi W
Breagh
Maison Placements Canada Inc.
21
4. Top Picks: Strong BUY Recommendation Research Reports
Included In Maison Monthly
5. Recommended Buy List
Source: Schachter Asset Management Inc., January 15, 2016
22
Maison Placements Canada Inc.
6. Research Coverage List
Source: Schachter Asset Management Inc., January 15, 2016
Maison Placements Canada Inc.
23
Analyst Disclosure
Rating:
Company Name
5 – Strong Buy 4 – Buy 3 – Hold 2 – Sell 1 –Strong Sell
Trading Symbol
*Exchange
Disclosure Code
Rating
Delphi Energy Corp.
DEE
T
5
Hemisphere Energy Corp.
HME
V
4
Long Run Exploration Ltd.
LRE
T
3
Niko Resources Ltd.
NKO
T
3
Petromanas Energy Inc.
PMI
V
SDX Energy Inc.
SDX
V
Serinus Energy Inc.
SEN
T
Sterling Resources Ltd.
SLG
V
Tamarack Valley Energy Ltd.
TVE
T
5
Touchstone Exploration Inc.
TXP
T
3
3
1
4
4
1
4
N.R. = Not Rated, U.R = Under Review
Disclosure Key: 1 = The Analyst, Associate or member of their household owns the securities of the subject issuer. 2 = Maison Placements Canada Inc.
and/or affiliated companies beneficially own more than 1% of any class of common equity of the issuers. 3 = <Employee name> who is an officer or
director of Maison Placements Canada Inc. or it's affiliated companies serves as a director or advisory Board Member of the issuer. 4 = Maison Placements
Canada Inc. has managed co-managed or participated in an offering of securities by the issuer in the past 12 months. 5 = Maison Placements Canada Inc.
has received compensation for investment banking and related services from the issuer in the past 12 months. 6 = The analyst has paid a visit to review the
material operations of the issuer within the past 12 months. 7 = The analyst has received payment or reimbursement from the issuer regarding a visit
made within the past 12 months. T-Toronto; V-TSX Venture; NQ-NASDAQ; NY-New York Stock Exchange
Disclosures
Rating Structure: Number Rating: Our number rating system is a range from 1 to 5. (1=Strong Sell; 2=Sell; 3=Hold; 4=Buy; 5=Strong Buy) With 5 considered among the
best performers among its peers and “1” is the worst performing stock lagging its peer group. A “3” would be market perform in line with the TSX market. UR is
“under review” and is given to companies dealing with either a new issue or is waiting to clear. NR =we do not have an opinion.
Analyst’s Certification: As to each company covered in this report, each analyst certifies that the views expressed accurately reflect the analyst’s personal views about
the subject securities or issuers. Each analyst has not, and will not receive, directly or indirectly compensation in exchange for expressing specific recommendations in
this report.
Analyst’s Compensation: The compensation of the analyst who prepared this research report is based upon in part; the overall revenues and profitability of Maison
Placements Canada Inc. Analysts are compensated on a salary and bonus system. Some factors affecting compensation include the productivity and quality of
research, support to institutional, investment bankers, net revenues to the equity and investment banking revenue as well as compensation levels for analysts at
competing brokerage dealers.
Analyst Stock Holdings: Equity research analysts and members of their households are permitted to invest in securities covered by them. No Maison analyst, or
employee is permitted to effect a trade in the security of an issuer whereby there is an outstanding recommendation for a period of thirty calendar days before and
five calendar days after the issuance of the research report.
Schachter Asset Management Inc. (SAMI) is an independent consultant which Maison Placements Canada Inc. (Maison) has engaged to provide oil & gas research for
their clients. The SAMI research report is to be published under the Maison banner head and will be disseminated to Maison’s clients with the firm’s other research
reports.
Dissemination of Research: Maison disseminates its hard copy research material to their clients using the postage service and couriers. Samples of our research
material are available on our web site. Electronic formats are available upon request.
General Disclosures: This report is approved by Maison Placements Canada Inc. (“Maison”) a Canadian investment dealer and a participating organization of the
Toronto Stock Exchange and TSX Venture Exchange. Maison is a member of and is regulated by, the Investment Industry Regulatory Organization of Canada (IIROC).
Maison is also a member of the Canadian Investor Protection Fund (CIPF).
The information contained in this report has been compiled by Maison from sources believed to be reliable, but no representation or warranty, express or implied, is
made by Maison, its affiliates or any other person as to its accuracy, completeness or correctness. All estimates, opinions and other information contained in this
report constitute Maison’s judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility
or liability.
Maison and its affiliates may have an investment banking or other relationship with the company that is the subject of this report and may trade in any of the
securities mentioned herein either for their own account or the accounts of their customers. Accordingly, Maison or their affiliates may at any time have a long or
short position in any such securities, related securities or in options, futures, or other derivative instruments based thereon.
This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction
where such offer or solicitation would be prohibited. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. This report is
not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not
legally permitted to carry on the business of a securities broker or dealer in that jurisdiction.
This material is prepared for general circulation to clients and does not have regard to the investment objective, financial situation or particular needs of any particular
person. Investors should obtain advice on their own individual circumstances before making an investment decision. To the fullest extent permitted by law, neither
Maison, its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the information contained in this
report.
For more information, please visit our website: www.maisonplacements.com or to see our disclosure page.
24

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