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The pause that refreshes

Sprott's Eric Nuttall thinks the easy money's been made for this year, and he's raising cash in preparation for the next opportunity. Should you do the same? Also, notes on Tourmaline Oil, PanTerra Resource and Whitecap Resources

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Aug 26, 2014

by Max Fawcett

It’s a stock picker’s market for the balance of 2014, according to Sprott Asset Management’s Eric Nuttall. And if you don’t believe him, just ask shareholders of Tim Hortons, who have seen the value of their shares soar 30 per cent over the last two days. In the oil and gas sector, though, he says most of the easy money has been made for this year. That’s why his portfolio is weighted heavily – one-third, in fact – to cash. “The value of stock picking today is much, much higher than it was at the beginning of the year,” he said on BNN’s Market Call yesterday. “A rising tide floats all boats. But now, we’re not in that same frothy environment.”

Nuttall highlighted perennial stock picker favourite Tourmaline Oil (TSE:TOU) as a name he likes, which he thinks is on the verge of announcing a major success in its lower Montney drilling program. “This is a zone where they’ve been getting 100 barrels per million [cubic feet] in condensate along with their production stream, so it’s wildly economic…[It has] huge inside ownership, very good quality acreage, enormous optionality, and you’ve got coming catalysts both in the lower Montney and several other plays.” Nuttall thinks it could hit $60 by the end of 2014 and $75 in a year.

He also tapped a speculative name in PanTerra Resource (TSXV:PRC), a company that was created out of some assets it bought from Talisman Energy. “It’s the former technical team of Manitok, and before that they were at Talisman,” Nuttall said. “They’re one of the few remaining teams that has experience in thrust fold belt plays – it’s a very technically complex play, but when it works it can work really, really well.” It added some land acquired from EnerPlus to its ex-Talisman property, and together they comprise a 125,000 acre “starter kit” that’s cashed up and waiting on drilling permits that should come before the end of 2014. “In the next three-ish months they’ll start drilling, which they’re very good at, and we’ll see what their success rate is.” Only three analysts cover the stock, but their median forecast suggests the share price could triple in a year. “We’ll see,” Nuttall said.

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Meanwhile, Whitecap Resources – Nuttall has frequently picked it in the past – just continues to roll. It recently announced yet another acquisition, this time a purchase of 2,500 boe/d of 90 per cent oil weighted production (along with some undeveloped resources and related infrastructure) in Nisku for $266.7 million. It funded the acquisition in part through a disposal of noncore assets to a private company for $57 million and a $125 million bought deal financing at $16.55 that included $1.6 million in insider purchases. All told, the deal will increase Whitecap’s production by one percent in 2014 and nine per cent in 2015 (to 32,110 boe/d and 41,270 boe/d, respectively), while it will add one per cent to its cash flow per share in 2014 and seven per cent in 2015 (again, $2.15 and $2.70 respectively). AltaCorp’s Jeremy McCrea tacked a dollar onto his price target, moving it from $18.50 to $19.50, noting that “With management’s track record in growing CFPS 16 per cent into 2014 and an expected 25 per cent for 2015 (not to mention ability to construct creative M&A transactions, as we saw again yesterday), well economics that show payback between 10 and 17 months, a low leverage profile at 1.10times for 2015, the company has a number of key performance attributes. While the company’s EV/DACF valuation continues to grow, its decreasing production decline rate and continued operating success remain attractive as compared to other yield peers.”

 

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