“World oil demand is forecast to grow by 0.9 mb/d in 2009, averaging 87.80 mb/d …�
OPEC Monthly Oil Market Report for August 2008



“Non-OECD oil demand growth of 1.2 mb/d will account for all of the world oil demand growth next year.�
OPEC Monthly Oil Market Report for August 2008



While crude futures are down 21% from the record they set at $147.27 on July 11, 2008, their current level of $116.53 is 67% higher from a year ago. Even if crude future average $115 for 2009 (as evidenced by the average NYMEX crude futures quote for 2009 – see screenshot below), large cap energy companies will make oodles of cash at these price levels. So how do you think they might reinvest their hoards of cash: Buybacks – sure, but aren’t these programs already in effect? M&A is probably the next option – right? Snapping up smaller companies that are growing production or imminent producers and have great exploration potential seems like a smart choice to me …!



Deferring to their superior stock picking ability, I shall reprint the comments of one of my favourite asset managers, Trapeze Asset Management on some of their stock picks in the energy sector. These comments were made on or around July 25, 2008 and can be found in their entirety at Trapeze Asset Management

Orca Exploration (ORC.A-V: TSX)

“It has the same controlling shareholder as did Pan-Ocean Energy, which got sold at a significant premium and we’re hoping for a repeat performance with Orca. There is talk that the Chinese are actively looking in Tanzania for opportunities to lock up resource production.�


Connacher Oil and Gas (CLL: TSX)

“... could get taken out as its production of heavy oil over the next few years is set to grow materially. The newspapers report that Indian entities have been looking for heavy oil investments in Alberta recently. Connacher trades at less than one half of the discounted net present value of its 2P reserves and less than one�third of its 3P reserves. A very attractive takeover candidate.�

Canoro Resources (CNS: TSX-V)

“… is trading at one�half of its recently reported net asset value of $1.70 and could be attractive to a buyer with the cash to develop its prospective Indian assets.�

Corridor Resources (CDH: TSX)

“… has received confidentiality agreements from at least 3 large, publicly traded U.S.
energy companies who are looking at its huge Frederick Brook shale opportunity, a
potential 22 TCF in place. And it’s in New Brunswick, close to the best markets, New
England and New York. A joint venture is a distinct possibility. In the meantime, Corridor is accelerating its development with funds from its recent issue (done at a price 50% higher than its current price only 30 days ago), has hedged 50% of its winter gas production at $15 per mmcf, and is trading at less than 7x forecast exit '08 annualized cash flow. All that and trading at one�third of our fair market value. A win win.�

Pacific Energy (PFE: TSX)

“…should continue to generate cash to pay down debt from recently announced non�core asset sales and by regaining funds locked up in a surety bond. And, production should rise by another 50% over the next few months. The business has never been better (that’s why we don’t lose sleep at night) yet the stock price has never been worse (causing sleepless nights for clients). Reality will return because the fair market value is closer to $5 per share compared to the $1.10 share price. So the share price could rise significantly over the months ahead, fully justified by the underlying values.�

Canadian Superior Energy (SNG: TSX)

“… appears to have another gas discovery at its Bounty well offshore Trinidad with test results expected in a couple of weeks. Good test results could add 50% to the share price and heighten the anticipation of the third well to be drilled, yet the share price languishes.�

Disclosure: I don’t own any of the above stocks but I am taking a very hard look at some of them.