Resource World Magazine

72 www.resourceworld.com A U G U S T / S E P T E M B E R 2 0 1 7 Oil Patch Report by Bruce Lantz boards, companies and organizations as well as producing the Schachter Energy Report for indi- vidual investors from his own firm, Schachter Energy Research Services Inc. In April he began producing the Energy Report, delivered monthly to more than 700 private clients and focused on energy companies and the service sector that supports them. He has less than bright news for those expect- ing a near-term recovery in the energy sector, an industry used to high commodity prices. Rather, Schachter suggests a low point is looming, which will bring both disappointment and opportu- nity, depending on your position. He said the next six months will resemble January-February of 2015 and 2016, with large companies affected both on the service side and in exploration and production (E&P). "In the next six months the price of oil will likely go to US $40 [per barrel] or even the low $30s, and that will mean OPEC (Organization of Petroleum Exporting Countries) will make additional cuts," he said, noting that available data does not support OPEC's rhetoric that oil will fetch US $60/bbl by 2018. "But when it gets below US $42, companies will have to take significant impairment charges or violate their covenants, which mean their creditors will force asset sales."That could be the final bottom." Even investment giants like Goldman Sachs are beginning to see things that way. They recently revised their forecast to indicate that crude prices could drop below US $40/bbl unless there's a sustained drawdown in US inventories and rig counts or a strong move from OPEC. But meanwhile, Schachter acknowledges, companies aren't standing still. Rig counts are up 123% over last year in the US, up 124% in Canada. Companies are making decisions based on US $43 oil and they're prepared to make investments now, he said, as they capi- talize on cost reductions and technological breakthroughs. "The economies are very attrac- tive right now," he said. The landscape is changing as conventional light and heavy oil production is being replaced by liquids rich and thermal plays, with the for- mer covering more than 50% of revenues now and the latter offering multi-year growth pros- pects that should see production of 5 million barrels a day by 2020 and 5.5 million by 2030, he suggested. "We may not see another oil sands project," he said. "Companies want to go thermal." Overall energy investments worldwide fell by 12% to just over US $1.7 trillion in 2016, with electricity investment outpacing oil and gas spending for the first time, the International Energy Agency (IEA) said in its recent World Energy Investment 2017 report. But oil and gas still accounted for two-fifths of the global energy supply investment, despite a 38% drop in capital spending between 2014 and 2016, the report said. Following a 44% plunge in the period from 2014 to 2016, upstream oil and gas investment should rebound modestly this year, according to the IEA. Investment in US shale is set to rise by 53% and spending in the big producing regions of the Middle East and Russia is expected to push upstream investment to increase by 3% this year. Exacerbating the industry downturn of recent years has been the American government's deci- sion to move as quickly and possible toward energy self-sufficiency. And, "they're close, way better than they were," Schachter said, with demand in the 19-20 mmbbl range and internal supply now reaching almost 15 mmbbl. Canada has been able to overtake Middle Eastern supply and has gained market share, now sup- plying 41.5% of US imports. "Effectively, North America is self-sufficient," he said. That spills over into natural gas, which is now hovering at under US $2.40/MMbtu. Schachter is forecasting that the US will be at 4/tcf by Schachter sees Q4 Oil & Gas investment bargains Josef Schachter I n these turbulent times in the oil and gas indus- try, business leaders and investors are challenged to find the right path and make correct decisions. As they try to find the way forward, it can seem that every fore- cast differs from the others. There's little in the way of consensus. Enter Josef Schachter. When this experienced investment advisor talks, those in the know listen. And when he says there's a dark cloud on the oil and gas sec- tor horizon, as he does now, you can bank on it. Now based in Calgary, Alberta, Schachter has been in the investment manage- ment advice business for about 40 years, for the past 15 providing oil and gas research coverage to Maison Placements Canada for their institutional clients. He now consults, advises, and deliv- ers presentations to various

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