Energy sector publisher says be willing to pay for the best, mentions an oil name that might triple
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SmallCapPower | May 31, 2016: Mark Thorburn from SmallCapPower recently did an interview with Keith Schaefer, publisher of The Oil and Gas Investments Bulletin, who has a warning for those playing the current lithium stock boom yet talks about an energy play that could go much higher.
SmallCapPower: Welcome back, Keith. For the benefit of new viewers, can you give us an introduction to yourself, as well as your background and experience?
Keith Schaefer: Sure, Mark. Thanks for having me on. I started my publication, The Oil and Gas Investments Bulletin, back in 2009, just because the shale revolution was really ramping up, and all the information coming out of the brokerage firms was really technical. And so I made it my commitment to just simplify and make everything easy to read and easy to understand for the retail investor. So my mission is to really make the energy complex simple for retail investors and show them some great places to profit.
SmallCapPower: Great. So you recently expressed an interest in lithium. What do you think investors should know before investing in a lithium-related stock?
Keith Schaefer: The lithium market right now, Mark, is really all about the juniors. There’s only a couple small junior producers, so Orocobre Limited (TSE:ORL) is one of them, and really the rest are big companies. And so it’s difficult particularly for retail investors to get a pure play on lithium, except through the explorers. So as with all the junior explorers, Mark, it’s all about management, it really is. The teams that can raise the money at good prices to get the best assets, to pay up for the best assets, are going to be the winners. We’re going to see a lot of small juniors come out of the woodwork in the next 12 months, and I think a rising tide will lift all boats.
But really, if you can focus in on the best teams and really, Mark, be willing to pay up for that, I’m going to suggest to investors that you want to own expensive stocks. You don’t want to own cheap stocks. Cheap stocks are cheap for a reason. So where I put my money in the lithium space is with a team who’s done it before and that the Street rewards for getting good assets and raising money at good prices.
SmallCapPower: Wow, that’s great advice. Thank you. Do you think there’s a lithium stock bubble happening right now?
Keith Schaefer: Oh, yes, yes, yes. Absolutely, like I say. And it’s going to continue for the rest of this calendar year. As the electric vehicle market continues to move forward off a very low base, the promotion is going to ramp up, just because you can always say, “Oh, there’s so much more lithium being used than last year,” which was basically almost nothing.
And certainly, Tesla. I think this market lives and dies by Tesla to a certain degree. So right now, that stock has just done fantastic. It’s gone from $30 to $250 in the last two, three years, and they’ve done a great job of really blazing the way for the rest of the industry. I don’t see any big new supply coming on the market for another, probably, I would think, year, year and a half, maybe even a little bit more. So I think that there’s a lot of blue sky in this bubble for the next 12 months. I guess I would just caution investors and say, “By this time next year, you better have your cost out of all your lithium stocks and be riding for free because nothing goes up in a straight line.”
SmallCapPower: Right. So switching gears, what’s your outlook for the oil and gas sector for the remainder of 2016?
Keith Schaefer: I probably haven’t been this bullish on oil and gas prices since 2009. I think there is still potential for both these commodities to kind of hang out right here, where they are, $50 for oil and $2 for gas. But production is finally starting to roll over on both commodities, and demand is still increasing quite dramatically. You’re seeing oil demand in Asia, particularly India, pick up a stunning amount, and in China, as well. We’re up about 300,000 to 400,000 barrels a day demand in the States this year, which is on top of that same amount last year.
And of course, Mark, the world sees about a 3% to 4% decline in oil production each year, and on 90 million barrels a day, that’s 3 to 4 million barrels a day each year that just goes away that we have to replace. And of course, no one’s drilling anymore to replace that, so we’re seeing the market re-balance itself, I think quite a bit more quickly than people suspected it would, even only two, three months ago.
SmallCapPower: Great insight. What effect will OPEC and the Alberta wildfires have on the energy market this year?
Keith Schaefer: Well, OPEC’s had a huge impact, simply because OPEC no longer really exists. The Saudis are doing their own thing. They couldn’t care less about their OPEC partners. Just because OPEC no longer exists, the impact has been much lower oil prices. The Saudis were no longer willing to, basically, subsidize American shale production, so we’ve got now the freest market in oil prices that we’ve had in 50 years, the most market-driven oil price we’ve ever seen.
Then on the wildfires in Canada really aren’t going to have that much of an impact. What we’ve seen here, particularly for heavy oil, is the discount to light oil has come in, it’s gotten smaller. But you’re really only seeing a small impact globally. I guess it’s part of a puzzle low, one piece in the puzzle that has seen the oil price rise from $44 to $50 here quite quickly. Between Nigerian outages, Venezuelan outages, and the wildfires here in Canada, you’re looking at close to 2 million barrels a day coming offline here temporarily, and that’s really made a big difference in the oil price in the last three to four weeks.
SmallCapPower: Great. So you’ve mentioned you’re bullish on oil and gas right now. Are there any particular stocks that you like at this time, and why?
Keith Schaefer: Well, there’s a couple here I think everyone should be having a good look at. One of them is a company called Baytex Energy Corp. (TSE:BTE), and Baytex is traded on both New York and Toronto, symbol BTE. This is a fallen angel that has gone from $60 to $2.50 because of concerns over debt. But the reality is that they don’t have any debt maturities for a number of years, and with 70,000 barrels a day of production, they have a lot of leverage. I think if the oil price…It’s already got a nice move up here that we participated in, between $3 and $6, $6.50, but certainly, if oil prices go a little higher, that is a stock that has incredible leverage to the next $10, $15 in oil price. If oil can get to $60, $65 from here, Baytex is potentially going to triple.
It’s a really neat story that way and I think a little underappreciated by the market because they have done such a great job. They’ve been actually increasing production for the last couple years on a huge basis, and that’s quite profitable production for them. That’s kind of the one I tell people to really make sure they’ve got on their radar screen.
SmallCapPower: Great. So you mentioned your newsletter at the beginning. Can you give us a little plug and let us know how we could learn more from you?
Keith Schaefer: Sure. So what my newsletter, the paid service, does is follows my personal portfolio. So I’m buying and selling energy stocks to feed my family, so subscribers can know that it’s all real money trades that I put on. It’s for me to make money. It’s not a model portfolio. We try and invest in mostly the juniors and intermediates, and we invest all over the energy market, sometimes big refinery companies, sometimes it’s oddball little companies, like ethanol stocks, and sometimes it’s the regular junior producers.
We’ve made money every year, even in the bad years, with us, because we move money around to different sectors as the oil price goes up and down. So yeah, people can have a good look at the website. It’s at www.OGIB.net. They can have a trial of the service. It only costs $600 a year, but sometimes we run small promotions. If people sign up for a quarterly subscription, we give them a 30-day free trial.
SmallCapPower: Very good. Thanks, Keith. Thanks for taking the time for today’s interview.
Keith Schaefer: God bless you, Mark.
SmallCapPower: Thanks.
