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  • Baby Steps: Mackie's Bill Newman Finds Oil & Gas Plays That Produce No Matter What

    Volatility in the oil and gas markets continues, with prices plunging yet again in the recent chaos surrounding Greece's default negotiations and other global political and economic uncertainties. But a rebound is inevitable, and Mackie Research's Bill Newman has his eye on companies that have managed to grow, step-by-step, even in hard times. In this interview with The Energy Report, Newman identifies companies with individual stories that will, in the end, defy the trend.

    The Energy Report: With the collapse of the crude oil price and the timing of a recovery difficult to predict, the energy sector has fallen out of favor with investors. In the current oil and gas investment climate, are there any stocks that are immune to the negative sentiment and can still perform?

    Bill Newman: Yes, there are. But investors need to choose companies that are decoupled from oil prices in the short term and have other drivers that can gain investor attention to move the stock price up.

    And yes, you're right. The sector is out of favor right now, so investors should look for companies that don't have to rely on accessing the debt or equity markets, and are able to fund operations with internally generated cash flow.

    Also, we think investors want to see step growth in production. Most oil and gas companies have slashed their budgets and are focused almost entirely on low-risk development projects, so they're just treading water. You can understand the lack of enthusiasm for the sector. Unfortunately, almost every oil and gas company has traded down with the sector as a whole, even if the individual story has nothing to do with oil prices. We think this presents a double opportunity. The first is that, as the company demonstrates step-growth production, the stock should go up. Second, we expect another lift when the price of oil rebounds and the sector is back in favor again.

    TER: What are your favorite stocks right now?

    BN: We like Canacol Energy Ltd. (OTCQX:CNNEF) [CNE:TSX]. Last year, Canacol completed the acquisition of the VIM 5 block, which completely surrounds its producing Esperanza block, and the VIM 19 block, which is adjacent to Pacific Rubiales Energy Corp.'s [PRE:TSX; PREC:BVC] La Creciente field. Canacol now has a 100% interest in all three blocks, which are located in the Lower Magdalena Basin in Colombia. The primary focus in 2015 is on the appraisal and tie-in of the potentially large Clarinete natural gas field, which was discovered on VIM 5 late last year. Natural gas production from the Esperanza and VIM 5 blocks is expected to increase from about 20 million cubic feet per day [20 MMcf/d] to 83 MMcf/d by the end of this year. Canacol has secured long-term, take-or-pay contracts for its natural gas production at prices ranging from US$5 per million British thermal units [US$5/MMBtu] to US$8/MMBtu. The company also has ~1,700 bbl/d of tariff production in Ecuador, and is paid US$38.54 for each incremental barrel of production over a baseline. With tariff production, Canacol is paid a fee for its production, so there are no production costs.

    We expect current production of ~12,000 boe/d to increase to more than 20,000 boe/d by year-end, with approximately 80% of the production locked in at contracted prices. That will provide a predictable cash flow base in 2016, which the company will use to pay down debt and to fund exploration targeting oil on the LLA 23 block in the Llanos basin, and natural gas on its large land base in the Lower Magdalena Basin.

    TER: Can you update us on stories that we've talked about in previous interviews?

    BN: Sure. Let's start with Pan Orient Energy Corp. (OTCPK:POEFF) [POE:TSX.V], which recently sold a 50% interest in the L53 block in Thailand for CA$49M. The company retains a 50% interest in the block. With the sale, we estimate Pan Orient has net positive working capital of approximately CA$92M, which works out to $1.66 per share versus the current market price of about $1.50 per share. The company is trading below cash value right now. Part of the reason for the discount is likely due to that fact that Pan Orient is nearly a pure exploration company, although it does have about 300 bbl/d net of production remaining in Thailand.

    The real upside in the story in the near term is exploration drilling in Indonesia. In August, Pan Orient expects to spud the Akeh-1 exploration well on the Batu Gajah block, and if the well is successful, then the company should immediately follow up by drilling two more Akeh appraisal wells. We believe this is a relatively low-risk play because the Akeh prospect is located a few hundred meters away from the Selong oil and gas discovery, which is located on the adjacent block. Also, in Q2/16, Pan Orient plans to drill the Anggun prospect, which is a very large prospect on the East Jabung block. Pan Orient recently farmed out a 51% interest in the block to a subsidiary of Talisman Energy Inc., which is now Repsol-YPF S.A. [REPYY:OTCPK], in return for a cash payment of US$8M and the funding of the first US$10M toward the drilling of the Anggun-1 exploration well. If the well is successful, we see a lot of upside in the stock.

    TER: Thank you for your time, Bill.

    This interview was conducted by the Staff of The Energy Report and can be read in its entirety here.

    Bill Newman is vice president of international oil and gas with Mackie Research Capital Corp. He has been an energy analyst for 19 years. He holds a bachelor's degree in commerce from the University of Calgary, and has a CFA designation.

    Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

    DISCLOSURE:
    1) Staff compiled this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as employees. They own, or their families own, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Pan Orient Energy Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) Bill Newman: I own, or my family owns, shares of the following companies mentioned in this interview: Pan Orient Energy Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Within the last three years, Mackie Research Capital has managed or comanaged an offering of securities for, and received compensation for investment banking and related services from Canacol Energy Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Energy Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (NYSE:I) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Energy Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
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    Tel.: (707) 981-8204
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    Jul 14 2:01 PM | Link | Comment!
  • Matt Badiali's Methods For Investing In 'Cowboyistan'

    The best way to make money from the shale oil boom in Cowboyistan-the Bakken, Permian Basin and Eagle Ford shales located in North Dakota and Texas-may be the service providers. Master limited partnerships building pipelines to ship oil from newly cracked shale, and companies producing frack sand, will be hot stock prospects as the price of oil inches up. In this interview with The Energy Report, S&A Resource Report editor Matt Badiali shares the names he is researching in both the pipeline and fracking equipment and materials spaces.

    The Energy Report: When we talked last October, you predicted that low oil and gas prices would fuel an economic resurgence in the U.S. and impact everything from politics to job creation. Is the economy living up to its potential?

    Matt Badiali: I think so. Companies moving here and building new factories are citing low energy costs. The average family is saving $1,200-2,500 per year, which is a pretty big savings. But they don't seem to be spending, so it hasn't impacted the overall economy as much as I thought it would. On a bigger scale, low energy prices beat low-cost wages and low-cost materials: In today's economy, low energy costs will bring the economy to you.

    TER: It has had an uneven effect on jobs, however, particularly in oil-producing areas. You recently wrote that Saudi Arabia is playing chicken with oil prices. What impact is the continued flow of oil into the market from the Middle East having on companies in places like the Eagle Ford?

    MB: It's having massive impacts, particularly in the Eagle Ford and the Permian Basin. Harold Hamm, CEO of Continental Resources Inc. [CLR:NYSE], calls the three big shale plays-the Bakken in North Dakota, Permian Basin in West Texas and Eagle Ford in southeast Texas-Cowboyistan.

    This extended period of lower oil prices is causing companies to become more efficient. They're not drilling willy-nilly. In fact, 60% of the rigs, some 1,000 of them, aren't working right now, and as many as 60% of wells that are being drilled are not being completed-about 4,000 of them. The expensive part of shale wells is cracking the rocks, cleaning the well bore and plumbing it. That's called completion. It's actually inexpensive to drill the well right now. When the price goes up, a lot of inventory is primed and just has to be fracked to start flowing.

    However, there is a lot of oil that won't be drilled at all at the current price. The experimental shales are where the going is tough. The Tuscaloosa Marine Shale in Louisiana is dead, and will probably be dead for a while. Some of the peripheral shales in Colorado and Canada aren't going to work with oil at $60/bbl. Russian, Nigerian and Venezuelan oil cost far more than $60/bbl to produce.

    Saudi Arabia continues to produce lots of oil in order to put marginal producers out of business. Saudi Arabia has a sovereign wealth fund worth more than half a trillion dollars; it can continue producing at $60/bbl oil for a long time.

    TER: How long can the U.S. frackers keep this up?

    MB: It depends on the company. If you're making a profit, you can keep it up indefinitely. If you're not making a profit, you're in trouble.

    We're seeing mergers and divestitures, particularly when it comes to companies that took on massive debt. Take Magnum Hunter Resources Corp. [MHR:NYSE.MKT], for example. The $316 million market cap company has over $950 million in debt. It isn't making any money right now. It recently announced the sale of a major asset-the Eureka Hunter Pipeline in the Marcellus and Utica shales.

    I think there will be more of that, both in the shale and the Canadian tar sands. Companies are being forced to get leaner. The current lack of investment in development will have a global impact down the road. All Saudi Arabia did was maintain market share and refuse to cut production. Maintaining oil production was important to the Kingdom, particularly in the battle with Russia for Chinese market share. However, there will be fewer new sources of oil down the road. . .which could lead to higher prices.

    TER: From both a short-term and long-term investment approach, what oil and gas explorers and producers are doing well and can survive?

    MB: Right now, I am waiting. I'm not buying producers today. I need to see which companies are doing well at lower oil prices. We just completed the first quarter, where hedging probably didn't play a role in the bottom lines of producers. I am waiting to see the results.

    I do like companies that supply fracking equipment and material. I think there is an opportunity now to buy assets that are going to be useful forever at very low prices. For instance, I like the frack sand producers. Engineers have discovered that more sand per well is more economical. I was just at the Energy Information Administration [EIA] conference and heard that, in the Permian Basin alone, from 2012 to 2014, the average initial production rate rose from 400 barrels a day [400 bpd] to 800 bpd. In two years, engineers doubled the volume of oil produced, mostly through changing the way they were fracking rocks, and a big part of that change was the volume of sand added. Now, instead of 500,000 pounds, companies are using 2 million pounds of sand per well, and producing a lot more oil. They are, in a sense, trading the sand cost for better oil production. That is an easy trade to make.

    Companies like Hi-Crush Partners L.P. (NYSE:HCLP) and U.S. Silica Holdings Inc. (NYSE:SLCA) are the beneficiaries of this new demand. We bought these stocks in May, and they have been down a bit, but I'm happy to buy these companies at these prices because fracking is here to stay. It is the technology that's going to drive U.S. oil production in the future. Good, clean, Wisconsin sand is going to continue to be valuable even though share prices are a fraction of what they were six months ago.

    TER: Both of these companies jumped up last summer and then went right back down again. Was that an anomaly?

    MB: The move was from May to August, and it was the result of the news coming out about how much sand was being used. There were dedicated rail trains, 30 cars a day, carrying nothing but sand. The demand for sand was enormous.

    TER: What will make that price jump back up again? What is the catalyst?

    MB: Remember the 4,000 wells being drilled today aren't being fracked? They will be. When they are, the sand demand is going to skyrocket. Once oil hits $70-80/bbl, there is going to be a massive demand for fracking equipment and sand. For people looking for oblique investments in the oil industry, sand companies offer the best opportunity right now.

    TER: You recently wrote about the challenges of moving all the new production that fracking is making possible. Are we any closer to a solution for getting oil from Canada to U.S. refineries or to consumers in Asia?

    MB: Yes. The problems we've had moving Canadian oil have been solved or are in the process of being solved. The last leg of a main artery that brings Canadian crude straight to Houston is almost complete. Run by pipeline companies Enterprise Products Partners L.P. (NYSE:EPD) and Enbridge Inc. (NYSE:ENB), the new route runs from Alberta, Canada, to Houston, Texas.

    TER: Are there still opportunities to invest in infrastructure solutions-master limited partnerships [MLPs], in particular?

    MB: Yes. MLPs have also gotten pretty beaten up of late. There are companies that I like in the space. We bought TC Pipelines L.P. (NYSE:TCP), the MLP that TransCanada Corp. [TRP:TSX] owns, specifically for that reason. It pays a nice dividend. We've held it for eight months now. Our return is basically flat. Share prices eased lower, but we've been collecting dividends.

    I think Plains All American Pipeline L.P. (NYSE:PAA) is a great deal right now. This is another oil and gas infrastructure pipeline MLP. It's come down about 30% since its peak in September. For investors looking for a dividend from a pipeline company, I like this a lot. It pays about 6% today. One of the reasons Plains All American is down is one of its pipes in California burst, resulting in a pretty big oil spill. That's the kind of news that's going to go away fairly quickly, but it propelled the shares down, and the shares might be an opportunity for investors today.

    Some of the MLPs have gone up in price. We looked at Scorpio Tankers Inc. (NYSE:STNG) as one of the potentials. It's up about 40% over the last eight months. This is an attractive company.

    TER: You're going to be speaking at the Sprott/Stansberry Vancouver Natural Resource Symposium at the end of July. What is one thing that natural resource investors need to understand about where we are in the energy investing cycle, and how to preserve or even grow their wealth?

    MB: Bear markets in commodities are opportunities. You have to think against the grain in the natural resource sector. You have to put in the hard work to investigate the sector on the way down and then buy stocks when things start to perk up again.

    In the oil and gas space, we're in the investigations mode. We're looking at companies that we'd like to buy and are high-grading our list. We're looking for companies with low debt and fair to decent operating margins at low oil prices. Those are the ones we're going to buy. But we're not going to buy them until we see an uptrend. Oil has had a small uptrend. It has bounced off its bottom. We are getting a lot closer today to buying these companies than we were even a month ago.

    TER: Thanks for speaking with us, Matt.

    This interview was conducted by JT Long of The Energy Report and can be read in its entirety here.

    Matt Badiali is the editor of the S&A Resource Report, a monthly investment advisory that focuses on natural resources, including silver, uranium, copper, natural gas, oil, water and gold. He is a regular contributor to Growth Stock Wire, a free premarket briefing on the day's most profitable trading opportunities. Badiali has experience as a hydrologist, geologist and consultant to the oil industry. He holds a master's degree in geology from Florida Atlantic University.

    Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

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    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) Matt Badiali: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.

    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Energy Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (NYSE:I) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Energy Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8204
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Jul 07 3:07 PM | Link | Comment!
  • Marin Katusa: Tricks Anybody Can Use To Out-Invest The Top Fund Managers

    You don't have to be a geologist or a workaholic fund manager to spot deals in the natural resources space-although it helps if you know a good one. Focus on the people behind the company, find out if they have skin in the game, and wait until you can get in at a lower price than their price. Then be patient. In this interview with The Energy Report, Marin Katusa, founder of Katusa Research, shares some of the names in the uranium and oil and gas space that could add up to future profit for any investor.

    The Energy Report: Are we getting creative at finding new uranium sources?

    MK: I recently spoke at the World Nuclear Fuel Market conference in Paris and I have visited most, if not all, of the major uranium projects in the world, including in Eastern Europe, and for my money, the low-hanging, easy fruit is in the Athabasca Basin in Canada and the U.S. The U.S. imports 94% of what it consumes. One in every 10 homes in America is being powered by Russian nuclear fuel. Everyone is focused on investing in the things that China needs. But with 99 operating reactors, 20% of U.S. baseload power is nuclear; that makes uranium a strategic metal and, by definition, valuable. Plus, it is a lower risk to invest in a North American uranium project where you know the rule of law, you know your government take, you know your taxes, you know your process and you are not going to have to compete with a major Chinese conglomerate that doesn't care about the North American Securities Exchange rules. I'm not saying that they're doing anything illegal. I'm just saying it's different. If you look at my portfolio track record of which stocks are doing really well, it's exactly those ones. That's what I'm sticking with because it's working.

    TER: What are the North American uranium mining companies that fit that description?

    MK: I've mentioned Uranium Energy Corp. (NYSEMKT:UEC) before to you. It has built and permitted a 2 million pound facility in the U.S., so there is no financing risk. Instead of digging, blasting and moving and crushing rock, it is using the equivalent of a water processing facility. What I really like is that rather than depleting its uranium reserves in a bad market, the company is pulling back production for now. The company also has great supporters. One of the largest investors in China, the Warren Buffett of China, Li Ka-shing, has become a major shareholder. George Soros has become a major shareholder. BlackRock has become a major shareholder because it believes in this concept of build it, but don't deplete it. I like to invest in franchise players like Amir Adnani, the president and CEO. This company has been a triple for the Casey subscribers and myself. It's one of my largest holdings. I believe that it's going to go a lot higher moving forward. It's also one of the most liquid uranium companies in the world.

    America has relied on Canada, Australia and the former Soviet Union for its uranium supply, but those resources are turning toward other markets. Cameco Corp. (NYSE:CCJ), which mines in Saskatchewan, Wyoming and Kazakhstan, has signed a long-term offtake agreement with India. Australian companies, which are major suppliers of uranium to the U.S., have signed long-term agreements with the Chinese. U.S. utility operators are going to need to replace the Russian imports. Ironically, so many market pundits say the U.S. will just consume more Russian uranium. The U.S. changed the law so that a maximum of 25% of the domestic demand can come from Russia. Hence, in 2014, the U.S. increased its imports from Kazakhstan by over 80%.

    I'd hardly call Kazakhstan supply stable and safe. If you are a uranium speculator, this is all music to your ears. It could take a few years to play out, but it will play out.

    TER: Is there enough uranium in North America to supply our needs, but it just isn't built out yet?

    MK: Yes, there is enough resource in the ground, but it has to be developed and that takes a long time-at a minimum, 10 years to develop, permit and build an operating uranium mine in the U.S. Eventually the big money will recognize this when the geopolitical tensions rise and the colder war heats up even more. Then they will have to pay a price to the people who were smart enough to get in early.

    TER: Has human ingenuity been too effective when it comes to the oil and gas space? Has fracking resulted in too much supply?

    MK: After a year of sub-$100 barrel [$100/bbl] oil prices, North American rigs are drilling faster and more efficiently. Companies evolve or die. But even in a global economy with slower growth, there is still increasing demand for essential commodities, and where there is demand, people will figure out how to deliver product.

    A big opportunity exists in the oil and gas sector in South America. The Cantarell Field went from 3 million barrels a day to less than 500,000 barrels a day because it didn't reinvest in the oil fields and prevent the big production declines. This negligence was also true in the past in many other countries and other commodities.

    Eventually, there will be a turning point where the reserves are depleted. Again, human ingenuity will solve those problems, but there will have to be an increase in price. That is the opportunity I am positioning our funds to take advantage of. You have to be in the right commodities, with the right people, and you also have to have patience. The resource sector is cyclical. But if you understand that and you invest with the right people, you will do well.

    TER: Can you give us some examples?

    MK: Mexico has world-class potential, but it hasn't seen any modern technology. Fewer than 30 horizontal wells have been drilled there. PEMEX, the national oil company, has seen a huge decrease in production because instead of investing profits in the company, they are used to subsidize social programs. That is why the country opened up its oil patch to North American drillers. Right now, Mexico is importing condensates from the U.S. The game has changed. Ten years ago, everyone thought the U.S. would be importing liquefied natural gas [LNG]. Now, it's planning on becoming a major exporter of LNG. So you have to adapt, evolve. And it is happening faster than we ever could have imagined.

    TER: You have made the point that not all shale formations are the same. What are the two or three data points I should be looking at when I'm looking at a shale oil opportunity?

    MK: It's like saying all gold deposits are the same. That's absurd. I recently wrote a piece called "Why David Einhorn is Wrong on the Big Oil Short" to debunk some of the myths about fracking. The problem is that the production of shale oil is so new that a lot of people just don't understand it yet.

    Investors should start examining possible shale investing by determining the type of production. The Bakken has a different type of production than the Eagle Ford or the Montney in Canada. Take the time to understand the formations, the depths, the infrastructure, the government take, the state tax, the provincial tax and all the wellhead prices. The price you get in Canada is different than the price you get in the Bakken, and it's different than the price you're going to get in the Eagle Ford because of variances in demand and the cost of transportation.

    Once you get to the company level, then you do the financial analysis. If you're looking for a low-risk company and you want to have exposure to the U.S. shale sector, something like Pioneer Natural Resources Co. (PXD) or EOG Resources Inc. (NYSE:EOG) is probably where you want to start.

    TER: How about some names that are up and coming?

    MK: The first question you have to ask yourself is "What is your risk tolerance?" I have a very high risk tolerance. I use $55/bbl oil as my base case for oil prices. If a company can't make money at that price, I avoid it.

    There's one exploration company that I think you can be patient with. I think it's going to go down lower even though I love the management team. I currently don't own any, but I'm watching it very carefully. I've been to the project. It's a Lundin company that doesn't produce any oil, but has huge potential, even if it is ultra-high risk potential. Africa Oil Corp. (OTCPK:AOIFF) [AOI:TSX.V] is in Kenya and it is a true contrarian play. That is one worth watching. It's not shale oil, but it has world-class, elephant-size deposit potential.

    I also believe that you don't need to own too many companies. My three funds only own nine positions. If you own more than 20 resource stocks, you might have to reassess the style of investor you are, because I do this professionally full time and I'm a bit of a workaholic and I have a hard time keeping up with 9 or 10 companies. Be patient. Pick right. Sit tight. Never buy your whole allocation at once. You really just need to focus on a few companies. You don't have to be an amazing financial analyst to do really well in stocks. Find the gurus, go to the conferences, talk to them. People like Ross Beaty and Lukas Lundin have created billions of dollars of net worth for investors, and they are so invested in their deals that they're going to bend over backward to make it happen.

    This is why I have partnered with Cambridge House, to bring the absolute best resource investment conference to San Francisco and Vancouver with the Cambridge-Katusa Resource Conferences.

    How can a retail investor be successful? Don't try to figure out the geology if you're not a geologist or an engineer. Look at the management team. Focus on the people. A teacher, contractor, lawyer or plumber can be just as good at analyzing people as a fund manager is. Focus on the people running the deal; find out what price they paid to buy the stock. Then be patient and wait for your chance.

    TER: With the TSX being down 80%, will there be more of these types of deals investors should be looking for?

    MK: Yes, definitely. I see a lot of juniors consolidating. I also expect consolidation in the oil patch and the Canadian copper producers. When the majors start consolidating the best of the juniors and their margins increase, then the market will look for higher-risk, higher-reward, and that will spill over to the juniors. I still think we have a couple of years of consolidation, during which time you can build up your positions.

    TER: Thank you for sharing your tips.

    This interview was conducted by Karen Roche of The Energy Report can be read in its entirety here.

    Marin Katusa is the author of the New York Times bestseller, "The Colder War." Over the last decade, he has become one of the most successful portfolio managers in the resource sector, such as his 2009 Fund Partnership [KC50 Fund LLC], which has outperformed the comparable index, the TSX.V by over 500% post fees. Katusa has been involved in raising over $1 billion in financing for resource companies. He has visited over 400 resource projects in over 100 countries. Katusa publishes his thoughts and research at www.katusaresearch.com.

    Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

    DISCLOSURE:
    1) Karen Roche conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an owner. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
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