Has the oilpatch, awash with unimaginative senior players and humdrum royalty trusts, become far too conservative?

The answer is a resounding yes, from longtime Calgary investment analyst Josef Schachter.

How does Schachter drive home the point?

He’s going to bat for one of the most controversial and unpopular characters in the ’patch, Greg Noval.

That’s a gutsy call by the president of Schachter Asset Management, particularly considering how Noval’s reputation has been pounded along with stock in his company, Canadian Superior Energy, in recent months.

Shares of Canadian Superior (SNG-TSX) have tanked about 60 per cent since the company abandoned its marquee well off Nova Scotia, while Noval has drawn the wrath of investors by selling $4.3 million worth of shares in his company in January when the stock was on a tear.

American lawyers have also been making life interesting for Noval and Canadian Superior by launching class-action lawsuits alleging the company violated U.S. securities regulations (Superior also trades on the American Stock Exchange).

But Schachter, the noted stock market contrarian who was touting Nortel Networks before its massive rally from the $1 range, says he’s not concerned about the lawsuits and chooses to focus on the elephant hunter in Noval.

“I think he (Noval) is a dreamer, builder and entrepreneur who pushes the boundaries at all times but I think he wants to create value and he has the team to do it,” says Schachter, who touts Canadian Superior as one of his top three stock picks (see Pro’s 3 Stars, Page 20).

“There’s not many dreamers left in the ’patch. Remember when we had Jack Gallagher and Bill Richards with Dome Petroleum? The markets will back these guys because they want to see them go out and swing for the fences.

“Most Canadian companies are just doing development drilling. They’re not doing enough exploration drilling. So he (Noval) stands out for his gutsiness relative to the patch.”

Schachter believes that Canadian Superior stock, which recently traded in the $1.70 range, a far cry from its March high of $4.88, has been “washed out” to the approximate value of its Western Canada operations and does not take into account the company’s exploration prospects offshore Trinidad and Tobago.

His 12-month target for the stock is $3.

Schachter frowns on oilpatch giants whose spending on exploration, development and acquisitions is approximately on par with their cash flow. He names EnCana as a prime example.

“These big-cap companies should be spending multiples of cash flow like companies did in the 1970s if they want to grow production,” said Schachter.

Schachter points out that some of the movers and shakers in the junior sector such as Vaquero Energy (VAQ-TSX) and True Energy (TUI-TSX) are spending two to three times cash flow in ramping up production.

“That’s what the industry has to start doing,” he says. “The issue now is not return on equity and return on capital. The issue is whether you’re able to replace your reserves and grow your company.”

* DOG OF THE PATCH: Connacher Oil & Gas is a junior that promotes itself well.

Too well, some shareholders might say.

The home page for the Connacher Oil & Gas website features a photo of a highway and screams: THE ROAD TO SUCCESS. Curiously, this road does not show any of those potholes that shareholders have had to endure.

Shares in Connacher (CLL-TSX) have plunged 76 per cent to 42 cents over the company’s production problems with a gas play in southwestern Saskatchewan. Stock in the company, run by former Sceptre Resources CEO Dick Gusella, rocketed to $1.75 in early January as investors speculated on the gas play at Cabri.

Even Canadian Superior hasn’t performed that badly year to date.

Connacher’s chairman, Donald Copeland, has also resigned this year for “personal business” reasons, whatever that may mean.

Anyway, shareholders on Connacher’s ‘road to success’ have been taking it very personally.

* SAGE WORDS: “For an oil company to preach conservation is similar to a hooker espousing chastity. They represent invitations to put both the company and the lady out of business.”

– Peter Foster, author of The Blue-Eyed Sheiks.



HOT STOCK: SR TELECOM
SRX-TSX $4.65
Up 96 cents (+26.2%) on 796,170 shares (for week ending May 28).
If you backed up the truck and loaded up on SR at the 52-week high of $15, congratulations. Now, you’re only down 69 per cent on your investment in the Montreal-based broadband wireless play with the blood-red balance sheet. The recent giddiness over the stock concerned international contracts worth $32.5 million. No, we won’t stop the presses for that!



COLD STOCK: AIR CANADA
AC-TSX $1.09
Down 28 cents (-20.4%) on 10,643,862 shares (for week ending May 28).
Surprise, Surprise!! Turns out the latest flight in those turbulent Air Canada shares was just another sucker rally that fizzled amid anticipated delays in ratification of a labour agreement with Air Canada unions. Seems the unions want information on the deal before they vote on it. No doubt, that two-fingered typist at Air Canada will churn out copies before the end of this millennium.