The age old question for energy investors rocks back to the top of the stroke every day. Is this the time to get into or out of Energy stocks? Is the industry ready to speed up?
This is the sixth article in a series about a 1700 Kilometre (over 1000 miles) road trip that I did three weeks ago. You can follow these links to the first five articles.
Canadian Transportation Companies Start My Tour
Canadian Forestry Companies Under Review
Canadian Pipeline Companies Under The Microscope
Canadian Pipeline Companies Under The Microscope (Part 2)
The Agricultural Crops Look Fantastic This Year
Crude oil has pulled back after rallying up to $50. Now it is down in the high thirties ($39.50) and the real question we have to ask is: Should we chase the energy exploration companies off these lows? Well, If we are going to resume a bull market this would be the place to chase them when they turn up off these lows. If it is a resumption of the bear market, the only safe way to play them is with the absolute best in the industry until we see how weak they get. Some of the stocks in the Canadian Energy sector have rallied even while crude is falling. Some of the fields are more profitable than other fields. The Montney is associated with some of the best stocks in the industry.
So what is the Montney? The Montney is a producing field area in the Canadian Energy space northwest of Edmonton.
Map Source: Gibsons Energy
Rather than go through all of the stocks of all of the companies up in the Montney, I thought I would work through the stocks with some of the best SCTR rankings. Almost all of them have plays in the Montney. If I listed every company who had lands near the areas we drove through it would be a blog including hundreds of companies.
Seven Generations Energy (VII.TO) stock continues to rise, even as oil pulls back. A substantial portion of their play is Natural Gas, Condensate and NGL's. Here is a link to their Montney play presentation but you can also click on the left side to see their other field in close proximity. There is some negative divergence on the chart with a much lower high on the MACD while the price made a higher high. If prices for oil and Natural Gas can start to accelerate from here this will be irrelevant but if commodity prices continue to drift lower, this may pull back and test $24 support. With an SCTR of 90.6 its pretty strong.
Next is Paramount Oil and Gas (POU.TO). Once again, this stock has held up well compared to the recent commodity pullbacks. Here is a link to their corporate presentation. Nice reduction in operating costs and increasing sales volumes from the Montney. No real divergence on the MACD here.
Birchcliff Energy (BIR.TO) continues to climb relentlessly. Here is a link to their corporate presentation. More information will be forthcoming when they report Q2 August 10th. They are heavy into the Montney as well. Look at the volume showing up continuing to send this chart higher.
Painted Pony (PPY.TO) is 100% Montney. The chart suggests things are going well. Here is a link to their corporate presentation. The SCTR shows Painted Pony performing better than most of the stocks in the Canadian market. There is some divergence on the daily chart for the MACD, so this might pull back a little but investors might want to be stalking this for an entry.
The companies don't have to be in the Montney to succeed. Bonavista Energy (BNP.TO) continues to soar and their plays are in central Alberta which we drove through on the way home. Here is the corporate presentation link. The SCTR shows the stock is really performing well. However, it does not possess the same slope of price appreciation the Montney plays above are showing.
The bottom line is there are lots of oil and gas companies succeeding even with these low commodity prices. Some companies are speeding up and others can't get financing to speed up. The SCTR is one of the best filters to find strong companies within an industry group.
I will have more information on the Commodity Countdown 2016-08-04 edition. Click on the link to register. This week is lining up to be very important for the macro picture. I spoke briefly about it on the last Commodity Countdown 2016-07-28 webinar. The price action in Europe and Japan is not great and this could cause a major 3rd quarter swoon. Probably one of the important conversations for macro analysis. Understanding the macro picture is very important as almost all of the major $VIX spikes have been external forces over the last 5 years.
If you can not join me live, you can check the webinar archives found here. StockCharts Webinar archives. You can also follow me on twitter @Schnellinvestor and LinkedIn. If you would like to receive the rest of this series in your email, please click on the subscribe button below.
Good trading,
Greg Schnell, CMT, MFTA
