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Investing in energy stocks these days is a bit like betting on TV's Survivor, and yes, apparently some people do that.

It's a matter of trying to determine which player is best suited to toughing it out through hard times, rather than expecting the majority to prosper, offering steady stock gains and rising dividends.

The market's gauged the prospects for the next while, seen a longer spell of oil-price doldrums ahead and moved on. The S&P/TSX energy group is down 40 per cent since June, having dropped another 2.4 per cent on Tuesday as crude fell again.

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So why buy oil stocks at all?

Yes, the sector is a big part of the national economy, so it's difficult to invest in Canada without having some exposure. But the past month and a half has been marked by an industry-wide stampede to slash spending on projects and payouts to shareholders. The portion of the economy's looking downright shaky.

The too-easy answer is that this is a buying opportunity. The complicated one is that it's a buying opportunity – if you buy the right one at the right time and can hang on for an unspecified period, realizing that there's no guarantee that the right one won't become the wrong one before the downturn is over.

Adding to pessimism that has enveloped the sector, some investors bought into various companies in recent weeks, in the hopes that values could not get much lower, and they have.

"You don't get a calendar item advising you of the bottom. It's only known after the fact," says Les Stelmach, Calgary-based portfolio manager with Franklin Bissett Investment Management.

In a year or two, given the amount by which the industry is pulling back on capital spending, oil production growth will fall around the world, even in Canada, where forecasts for national output are about to get scaled back.

It's a good bet, then, that there will be recovery in oil prices, albeit not quickly, back to the $100-a-barrel (U.S.) mark, Mr. Stelmach says.

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"But you'll see companies a lot more profitable at $80 oil than they were going into this downturn because they've already started to make the hard decisions about compensation and staffing. The oil service companies are doing the same thing in revising their costs downward," he says. "Companies that do come out of this will be leaner and meaner."

To predict an $80-a-barrel annual average in the next two years would make any analyst a wild-eyed optimist today. A recent call by FirstEnergy Capital, for instance, pegs U.S. benchmark West Texas intermediate at $54.50 in 2015 and $67.25 in $2016.

Take some heart – the cutbacks are starting to become meaningfully large, Mr. Stelmach reckons. Suncor Energy Inc. has reduced its 2015 budget by $1-billion, Canadian Natural Resources Ltd. pulled $2.4-billion from its initial plan and MEG Energy Corp. chopped spending by $895-million.

Some of the smaller players have given up on trying to guess where commodity prices may be through the year and set a budget for just the first part.

"It's forcing these companies to think more rationally about the economics of drilling that next well. It's bizarre to me why a company would want to deliver more barrels into this market," he says.

Indeed, many are still projecting little reduction in 2015 output targets, despite taking in a lot less money for each barrel, basically producing out reserves at bargain-basement prices. Meanwhile, longer-term projects are getting pushed back.

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None of this points to an easy call for an investor. Mr. Stelmach suggests companies relying on selling assets to repair their balancing sheets will struggle find buyers until the market improves.

One strategy, if one has the courage, is to make gradual purchases without trying to time the bottom, seeking the ones that are prudently protecting their finances.

"They all look like geniuses at $100 oil, or most of them do. But you really test the commitment of the management team to stay lean, cut costs and make prudent capital allocation decisions in a really tough environment," he says.

"So you can narrow down which companies you want to hold for the long term after going through an experience like this."

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