Swanzy Quarshie is portfolio manager at Sentry Investments. Her focus is on oil and gas stocks.
Bankers Petroleum (BNK-TSX)
Bankers Petroleum is a Calgary-based oil and gas company with a large portfolio of heavy oil assets in Albania. After addressing operational performance issues that created production uncertainty a few years ago, management has taken a measured and disciplined approach to production growth. Simultaneously, the team has worked diligently to reduce costs at all levels to improve profitability. In order to protect a strong balance sheet in the current crude environment, the company has elected to balance capital expenditures with cash flow. This approach has positioned the company to weather the downturn in commodity prices well. Ample flexibility in its capital program and a large inventory of drilling locations will allow Bankers to increase drilling activities when commodity prices warrant. The combination of capital prudence and flexibility makes Bankers one of the best positioned junior oil and gas companies in this uncertain commodity environment.
Raging River Exploration (RRX-TSX)
Raging River is a Calgary-based oil and gas company with a focus in the Dodsland Viking play in Saskatchewan. Through this company as well as predecessor companies, management has demonstrated a strong ability to create value for shareholders over time with good production and cash flow per share growth metrics. With a strong balance sheets and disciplined management team, Raging River is well positioned to strengthen its business even further in the current downturn through potential acquisition opportunities.
Whitecap Resources (WCP-TSX)
Whitecap Resources is oil-weighted producer with assets in Alberta, Saskatchewan and British Columbia. In November, 2012 the company announced a transition from a high growth model to a sustainable, dividend-paying model. Since the transition, management has demonstrated an ability to effectively manage a dividend growth model in different commodity price environments with three dividend increases and no dividend cuts to date. A combination of disciplined management, good hedges and high return projects have placed Whitecap in a small league of companies able to fully fund capital programs and distributions in the current pricing environment. With a management team that has demonstrated an ability to create value for share holders organically as well as through acquisitions, Whitecap Resources is well positioned to outperform in the short and long-term.
We have a positive outlook for energy and energy-related equities for 2015; however, we remain cautious in the short term. Although much of the issues inherent in the oil markets have been priced into the commodity, we see the possibility of a retest of the oil price lows of January driven by growing crude inventory levels globally. For now, we are firmly in the camp that believes the current demand/supply imbalance is driven by excess supply and we expect the market to move closer to equilibrium toward the end of the year with a slowdown in North American drilling activity. At this time, we do not expect demand to have a negative impact on the imbalance. In this environment, we favour companies with strong balance sheets and good cost structures who can take advantage of this downturn to further strengthen their businesses. We prefer oil-weighted producers in the short to mid-term given the structural challenges in the North American gas market. In the longer term, we are optimistic that growing export channels and increasing industrial demand for natural gas will help to strengthen the North American gas market.
Sentry Energy Growth and Income Fund
Returns based on reinvested dividends and adjusted for fees.
* Index: S&P/TSX Capped Energy Index (returns for the fund and index are to February 11, 2015)