Resource World Magazine

A U G U S T / S E P T E M B E R 2 0 1 7 www.resourceworld.com 29 At the Market by Rodney Blake U pon reading the recent weekly market statistics, I couldn't help but notice that a very large proportion of the new TSX 52-week trad- ing lows were being set by Canadian petroleum companies. And these were not just the usual hit and miss junior exploration companies but many were well established leaders of Alberta's oil patch including such giants as Canadian Natural Resources [CNQ-TSX], Cenovus Energy [CVE-TSX], Husky Energy [HSE- TSX] Imperial Oil [IMO-TSX], Oil Sands Sector Fund [OSF.UN-TSX], Paramount Resources [POU-TSX] and Vermillion Energy [VET-TSX], just to name a few. And while crude oil was trading at a three- month low of about US $45/barrel, many of these well-established Canadian petro- leum companies are trading at not just 52-week lows but at multi-year lows. At the same time, some major inter- national companies are selling their Canadian oil patch assets and leaving the country. Royal Dutch Shell [RDS-NYSE], ConocoPhillips [COP-NYSE] and Apache Corp. [APA-NYSE] are in this group. It's as if the international petroleum commu- nity – for reasons economic or political – is putting very little value on the future of Canadian oil. Giant international oil and gas companies tend to be slow moving and get behind the curve so it is not too surprising they are leaving after a multi- year bear market. It looks to me like we are, at or at least near, the bottom of the oil market. Now, what is of even more interest here is that the buyers of those assets were not new players to the oil patch, but the same struggling Canadian petroleum companies mentioned above. Canadian Natural took out Royal Dutch Shell. Cenovus bought out ConocoPhillips and Paramount purchased the remaining Canadian assets of Apache. These companies took the chance of fur- ther bruising of their already beaten down balance sheets to purchase these extremely undervalued assets. Could it be that the boards of these domestic companies knew something that the international's missed, or did they just purchase these assets to avoid them not being just dumped on an already oversold market. I feel that just as the gold companies became lean and mean a few years ago after the price of gold fell to near US $1,000/oz, the petroleum industry is going through the same process today – trying to adjust to a world of US $45 oil. And adjust they will, driving down costs to make their industry profitable even at today's lower prices. When this happens, these large domestic acquisitions to consolidate their industry will be looked upon in a more favourable light that should be reflected in their share price. And if, as I suspect, the price of oil actually recovers, the current price of these stocks will look like scream- ing buys. There's a theory in my industry that suggests one should buy a stock when the company's insiders are buying. The rea- soning being that the insiders have some insight of the future and know when their company's share price is undervalued. I suggest this same thesis can work on a sec- tor as well as a stock. Canadian petroleum companies are buying up assets in their own industry at deep discounted prices. These companies are the insiders of their sector and they know when the assets are undervalued. Retail investors would be well served to look into doing the same and buy the shares of the companies that are buying their own assets. These com- panies and shareholders should be the beneficiaries of an improving petroleum market going forward. At the very least it is a low risk buy. Let the informed leaders of the oil and gas industry be your guide. Or as Hal Holbrook's Deep Throat suggested to Robert Redford's Bob Woodward many years ago in the outstanding movie All the President's Men: "Follow the Money." n Rodney Blake is an Investment Advisors with Canaccord Genuity Wealth Management, a division of Canaccord Genuity Corp, Member- Canadian Investor Protection Fund. The information contained in this article is drawn from sources believed to be reliable, but the accuracy and completeness of the informa- tion is not guaranteed, nor in providing it does Rodney Blake, Canaccord Genuity Corp, or its subsidiaries, or affiliated companies, assume any liability. This information is cur- rent as of the date appearing in this article, we do not assume any obligation to update the information or advise on further develop- ments relating to these securities. This article should not be considered personal investment advice or a solicitation to buy or sell securities. Canaccord Genuity and holdings of its respec- tive directors, officers and employees and their associations, from time to time may buy or sell any securities mentioned herein. The views expressed are those of the author and not nec- essarily those of Canaccord Genuity Corp. He can be reached at 604-643-7567 or rod.blake@ canaccord.com Follow the Money

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