Energy prices have been very volatile over the last 2 years and this may remain the case for the rest of 2016. Between OPEC’s desire for more market share, lower U.S. production 9.6 Mb/d April 2015 to 8.9 Mb/d this week, a short Kuwaiti worker oil strike, Iran and Iraq raising production and potentially slower demand growth due to recent weakening economics in many countries worldwide; the price of oil will have large moves throughout 2016. We see crude having downside risk to the low US$30’s over the next few months due to these issues. Additional downside could occur this summer if demand is lower than normal. In that case a test of the Feb lows of US$26 is possible. We recommend investors lower their exposure and take some of the great profits earned over the last 2 months.

We look for oil prices to improve in Q4/16 and we may see a breach into the US$50’s if inventories start to decrease and U.S. production falls below 8.3 Mb/d later this year. If that occurs, supply and demand will be in balance and the large inventory overhang will start to abate.

TOP PICKS:

Birchcliff Energy (BIR.TO)

- Low cost natural gas producer that makes money at these low commodity prices
- Trades at significant discount to NAV and Book Value
- Has very long Reserve Life Index 23.7 for 1P and 38.7 for 2P
- Producers 40,000  boe/d with upside of a double or more.

Gran Tierra Energy (GTE.TO)

- Oil producer in Colombia which should produce 28,000 boe/d in 2016
- Strong balance sheet with $400M U.S. to make further acquisitions during depressed pricing environment.
- Management team has a record of building and then selling companies during buoyant market periods.
- Potential from Mexico’s opening up of its industry to outsiders to reignite growth.

Pengrowth Energy (PGF.TO)

- Company is large producer 60,000 boe/d with mix 62 percent liquids and has a major asset in its LIndbergh SAGD project (16,000 boe/d) and significant room to grow production.
- Trades at significant discount to NAV and Book Value
- Company has been a very successful hedger and is using its profitable program to lower debt levels.
- PGF trades at very low cash flow multiple as it repairs its balance sheet.

Past Picks: Apr. 6, 2015

Delphi Energy (DEE.TO)

Long Run Exploration (LRE.TO)

Tamarack Valley Energy (TVE.TO)

Total Return Average : -24.07%