Don’t tell Gwyn Morgan, but there’s a fascinating trend taking shape in the oilpatch where investors are dialing long distance for home runs.
Just as EnCana is selling its North Sea Buzzard field to Nexen for $2.1 billion as it shifts its focus on its North American properties and away from more exotic locales, many investors are shifting their focus to companies with high-impact foreign exploration projects.
With apologies to EnCana CEO Morgan, Weyburn, Sask., doesn’t exactly have oilpatch investors cartwheeling these days and, based on the maturity of the North American basin and its depleted assets, some analysts have begun voicing concerns about the longterm outlook for companies such as EnCana.
So where’s the action these days?
It’s in places such as Tanzania, Tunisia, Algeria, Egypt, Turkey, Cuba, Venezuela and Kazakhstan.
With companies finding it increasingly challenging to find new pool discoveries in Western Canada and with most quality stocks with their assets in the West looking pricey and vulnerable to a correction, investors have been spinning a globe to unearth companies with a pure global reach and cashing in big time on exploration hits.
Overall, many oil and gas stocks are looking pooped out from this extended bull run.
Some senior producers still look attractive but they’ve all fared well this year on the back of escalating oil prices, most of the prized junior plays piloted by star CEOs have already scored spectacular gains of 100 per cent or more over the past year or two, and the wildly popular income trusts appear to be on a collision course for a painful correction.
All that has investors searching for sexier plays with geographical diversity, many of which have already begun to steal the spotlight.
Considering how investors have been piling into stocks with an international flavour, this may only be the tip of the iceberg as more and more companies expand their exploration horizons beyond North America to South America, Africa and Asia.
A scan of the performances of the top 10 oil and gas production and exploration companies on the TSX year to date shows seven globetrotters with returns of 100 per cent or more based are drilling in faraway locales.
The leader of the pack has been Pan-Ocean Energy (POC.A), whose shares have tripled year to date on a discovery in Tanzania.
Other big winners have been Centurion Energy International (CUX) with properties in Egypt and Tunisia, Pebercan (PBC), which is in Cuba, First Calgary Petroleum (FCP) in Algeria, Toreador Resources (TRX) in Turkey, PetroFalcon (PFC) in Venezuela and Nelson Resources (NLG) in Kazakhstan.
Year-to-date returns of these companies range from 100 to 200 per cent.
The trick, of course, in speculating on high-impact international plays is in coping with the risk associated with the market’s inevitable knee-jerk reaction when a company misses on a much-ballyhooed exploration well.
A prime example of how a stock can get slammed on a single miss is Antrim Energy (TSX:AEN).
Until recently, Antrim shares were up more than 100 per cent this year, largely on exploration prospects in Australia.
However, when the firm announced it was plugging and abandoning a joint-venture well in Australia, the stock was creamed, plunging as low as $0.91 just a few trading days after it ran to $2.39 while the well was being drilled.
Antrim stock was last seen trading in the $1 range.
Considering Antrim’s diverse portfolio of international properties, including producing wells in Argentina and various high-impact exploration targets, and the market’s voracious appetite for companies with a pure global reach, Antrim shares may be a bargain, thanks to its strikeout with the Australian well.
However, if you don’t have the stomach for such volatility, you may want to stay in your comfort zone. Hey, maybe Gwyn Morgan can give you a tour of Weyburn.
* IN DON WE TRUST: Don Gray’s brashness in talking up Peyto Energy Trust in comparison to other income trusts won’t win him any popularity contests with his peers in the oilpatch, but we don’t hear too many unitholders complaining.
Seventeen months ago, soon after Peyto converted to an income trust, CEO Gray told the Edge, when asked about how his trust compared to others: “I know by looking at these trusts right now that they are a pretty dismal business and when Peyto starts being compared to them, they’re going to look pretty pitiful.”
While most of the trusts have performed well, Gray was right about one thing. Many others do pale alongside Peyto (TSX:PEY.UN), particularly in terms of its unit price, which is up 150 per cent since June of last year and 175 per cent since the trust’s inception.
The company also pays a monthly distribution to unitholders of 191/2 cents per unit.
By comparison, for example, Pengrowth Energy Trust (TSX:PGF.A), one of the seasoned players in the royalty trust market, has returned about 15 per cent on its unit value during the same 17-month span. Pengrowth’s monthly distribution is 23 cents.
Gray also goes out of his way to put his cards on the table when it comes to insider trading. While you usually have to dig deep to unearth such disclosure, Peyto has an insider trading link on its home page that details its insider activity.
According to the company’s disclosure, Gray still owns a whopping 1,999,555 units of Peyto after selling 100,000 units at $33.85 in September. The units recently traded at $40.
That’s putting your money where your mouth is.
* SAGE WORDS: “Opportunity is missed by most people because it is dressed in overalls and looks like work.”
- English poet Abraham Cowley
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
