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  • Reactors Restart Uranium Mines: Thomas Drolet

    Thomas Drolet has decades of experience in capitalizing on the movement of international energy markets. The chief of Drolet & Associates Energy Services is not sanguine about the long-term potential of fracking, but in this interview with The Mining Report, he tells us why now is a great time to reinvest in the uranium space.

    The Mining Report: It's been a rough couple of years for uranium prices. Realistically, could news of possible restarts of nuclear plants in Japan positively impact the price of uranium, even if it's only psychologically?

    Thomas Drolet: The psychology of Japan restarts has been driving the spot price; perhaps it will start to move the all-important long-term price, too. The long-term price is the signal that the utilities are buying. It is paramount to core value investing.

    Let's talk about Japan. My observation, after having been there several times post-Fukushima Daiichi, is that there is a giant tug-o-war going on. Pulling on one end of the rope is Japanese industry, which is paying a high price for fossil fuels replacement electricity, and the current government, which is definitely for bringing the nuclear plants back on-line. Tugging on the other end of the rope is a profoundly fearful public. Hanging onto the middle of the rope is Japan's new nuclear regulatory agency. It will take time for this stronger regulator to finish a series of mandated safety checks before it can authorize bringing back some of the mothballed reactors.

    Kyushu Electric Power Co. Inc. (9508:TKY) plans to restart two reactors at Sendai in the middle of Q1/15. This is sending a positive signal to the whole uranium production and supply space. However, the inventory of fuel at the Japanese reactors is very high; the utilities had long-term contracts when they were shut down. And those contracts generally could not be terminated. The large, existing inventory of fuel will be gradually eaten up as reactors restart after wending their way through nuclear regulatory approvals, prefecture approvals, local town approvals and, finally, national government approval.

    TMR: Will the Japanese be building new reactors, as well as bringing back the ones that were mothballed?

    TD: The Japanese have announced the intent to start building a couple of new reactors, but I do not see any real progress yet on the early-stage design efforts. What I do see is that the major reactor suppliers from Japan-Mitsubishi Corp. (MSBSHY), Toshiba Corp. (OTCPK:TOSBF)-are actually doing the opposite; they are concentrating overseas. They are doing deals in the United States, in Europe, in Southeast Asia.

    Two years ago in the U.S., there were 104 working reactors. Six of them were stilled for valid local or contractual reasons: i.e., the argument with a supplier of new heat exchangers for San Onofre took two units out. And there was significant displeasure in the Northeast with a couple of reactors, and one in Wisconsin. Anyway, we are down to 98 reactors in the U.S. now.

    In the U.S., four new AP1000 reactors, each one delivering 1,200 megawatts, are being built by Toshiba/Westinghouse Electric Co. Toshiba is the master contractor, supervising Westinghouse and, among others, Chicago Bridge & Iron Co. N.V. (NYSE:CBI). Until these four reactors are operating successfully, roughly on schedule and roughly on budget, the U.S. is not going to be a high-growth area for nuclear power. Waiting on the sidelines, major utilities like Duke Energy Corp. (NYSE:DUK), Exelon Corp. (NYSE:EXC) and Entergy Corp. (NYSE:ETR) are in the very early stages of applying for new reactor builds.

    TMR: Given this environment, how do spot prices relate to long-term contracts in the uranium market?

    TD: Spot is simply uranium put up by suppliers for short-term cash needs. The price is almost certain to be taken up further by a smart utility, or by the enrichers, the firms that enrich the uranium that goes into the fuel fabrication process and eventually burns in the reactors. Current activity in the spot market is a signal that a corner is turning. Uranium fell to ~$30/pound [$30/lb] on the spot market in the early fall. That is below the average cost of worldwide production by a good US$10. The price obviously cannot stay there because people have to make money to stay in business.

    Although an important corner has turned, I am not saying that there is massive upside for all uranium companies as a result of what is happening on the spot side. There will be a slow and steady climb driven by major utilities coming in on buying cycles that meet their internal needs.

    TMR: How is the stock market treating the Athabasca juniors?

    TD: The stock prices are down about 30% from the peak of a year ago. Investors exited uranium mining en masse because Japan did not appear to be coming back. And, not well reported, China's reactor program temporarily slowed down after Fukushima Daiichi as well. Now, new Chinese reactor developments are back with a vengeance. Both the spot and the long-term prices will benefit from China's immediate and near-term nuclear fuel needs.

    In the Middle East, four reactors are being built by South Koreans for the United Arab Emirates. These will need a reliable fuel stream. The Russians just signed up for building two reactors, and maybe four more, in Iran. The Russians have a particularly unique and clever marketing business strategy-compared to majors like AREVAs and Westinghouse. They are doing turnkey operations for their customers. The Russians will design the reactor, build it, and either run it directly or train the client to operate it. They will supply the fuel and, also, take it back for disposal.

    TMR: Will Russia have to go into the global market for uranium?

    TD: Russia will supply the uranium, enrich it and fabricate it within the boundaries of Russia. Also using the Kazakhstani reserves, Russia will supply yellowcake for the reactors that it builds, be they in Pakistan, Iran, Turkey, Indonesia or Bangladesh. Russia is the most aggressive nuclear reactor exporting nation on the face of the earth at the moment.

    TMR: Leaving uranium, what are the driving forces affecting the price of oil and gas today?

    TD: There are several forces driving these prices. Nation states such as Venezuela, Saudi Arabia and Iran are taking over the place of the international integrateds. Nation states with large oil reserves are attending to their own needs and gradually blowing off the integrateds.

    Second, the revolutionary advance of fracking and horizontal drilling has taken away a lot of the uncertainty about future supply. There is indeed a large supply of tight oils and shale gas, with the new technology to extract it. However, the price is not going to stay down forever. There is a new and important phenomenon emerging.

    We will soon start to run out of shallow, easy-to-access, reasonably permeable, low decline rate tight oil and shale gas zones. President Obama has said that fracking and horizontal drilling will provide a transitional fuel source for the next 50 years. I personally doubt that that super supply will last that long, simply because the decline rates are huge and have a long, low tail. Frackers have been able to get their money back in one to two years, but as production drops, I worry about the high, never ending, poke-a-new-hole drilling cost syndrome.

    TMR: How does the strong dollar affect junior miners in Canada?

    TD: The cost of operating a drill rig is paid in Canadian dollars, which is substantially below the U.S. dollar. That means that the capital and operating costs for oil and gas companies is denominated in a currency that is 15% less than the currency tied to the sale of the product!

    TMR: What shale oil and gas firms are poised to do well as the energy environment continues to evolve, as you say?

    TD: The big guys: the Chevrons (NYSE:CVX), the Exxon Mobils (NYSE:XOM), the big integrateds in North America stand to last the longest in this necessary constant high cost drilling environment.

    TMR: Are oil and gas juniors doomed?

    TD: Most of the juniors will survive. Eventually, the good ones will be bought up because that is the way of the world. The little ones get bought up by the big guys.

    TMR: Is now a good time to invest in major electrical utilities?

    TD: Yes. A lot of them have been beaten down, because we are still emerging from a difficult period in the U.S. But as the U.S. economy picks up steam, the big, well-managed utilities-the Dukes, the Exelons, the Entergys, the Pacific Gas and Electrics (NYSE:PCG)-are good places to invest for the long term.

    TMR: Thanks for your insights, Thomas.

    TD: You are welcome, Peter.

    This interview was conducted by Peter Byrne of The Mining Report and can be read in its entirety here.

    Thomas Drolet is the principal of Drolet & Associates Energy Services Inc. He has had a four-decade career in many phases of energy-nuclear, coal, natural gas, geothermal and distributed generation, with expertise in commercial aspects, research and development, engineering, operations and consulting. He earned a bachelor's degree in chemical engineering from Royal Military College of Canada, a master's of science degree in nuclear technology/chemical engineering and a DIC from Imperial College, University of London, England. He spent 26 years with North America's largest nuclear utility, Ontario Hydro, in various nuclear engineering, research and operations functions.

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

    DISCLOSURE:
    1) Peter Byrne conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) Thomas Drolet: 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 (options) 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.
    3) 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.
    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 Mining 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 (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 Mining Report. These logos are trademarks and are the property of the individual companies.

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    Dec 02 2:14 PM | Link | Comment!
  • Smart Oil Is Cheap Oil: Rudolf Hokanson

    Even a global economic growth slowdown will not seriously impact the future of the shale oil patch, Rudolf "Rudy" Hokanson tells The Energy Report. The Barrington Research analyst's job is to think long and hard about the target prices he assigns to the best and brightest junior firms playing in the Bakken and other shales. He likes smart managers-the ones who know how to reduce costs at the wellhead while improving the flow of oil, gas, and liquids-and provides the names of companies with such managers at the helm.

    The Energy Report: Is the energy sector undervalued?

    Rudolf Hokanson: Energy is very undervalued. The market is not sure how to interpret what is going on in the world, and it runs scared of its own shadow. The market has a tendency to overreact to "The News," and then to discount current pricing trends by focusing on near-term commodity valuations.

    TER: What world news is implicated in the market's overreaction?

    RH: There have been significant interruptions to energy production in Africa, and to energy delivery capabilities in Eastern Europe. Libya is increasing production. The Saudis are selling into Asia, while positioning themselves to be competitive into the U.S. market. Supply issues are driving the markets, as U.S. production grows and Organization of the Petroleum Exporting Countries [OPEC] production finds new markets.

    TER: Is there an oversupply of oil and gas in the U.S market?

    RH: We are not oversupplied here. Our refiners are happy to take U.S. crude; it is light, sweet, inexpensive and easy to refine. We can keep our refiners busy servicing the domestic market. Our production influences the international markets. Of course, demand could fall, rather than just slow, if global growth rates decline or slow too much. The Brent and WTI differential should even out over time, and there is always a need for energy for growth.

    TER: What role are new technological advances playing in developing energy resources?

    RH: The oil patch does not like to adopt new technology just for the sake of new technology. High tech is costly, and nobody wants to be the guinea pig for testing new techniques. But we do keep making common sense technical improvements in hydraulic fracturing and methods of completions. One of America's most important resources is human intelligence. For example, smart petroleum engineers have recognized that a smaller-size sand will penetrate fracked sediments more thoroughly, allowing more oil to flow in the patch.

    TER: How do oil patch service firms handle new technologies?

    RH: It is not necessary to have a brand-new widget to bring into the patch. Drillers are always looking to reduce costs by improving efficiency. For example, some of the more technologically advanced service firms are using seismic-linked computer programs to visualize the geometry of fracks. But the key to success in the oil well servicing sector is reducing costs, not spending precious capital on unproven technologies.

    TER: What service firms do you like from an investment point of view?

    RH: One of my favorite small-cap service companies is ENSERVCO Corp. (OTC:ENSV). Its forte is heating up oil to improve flow. The company works with hot oil trucks, frack water heating units and acidizing. These technologies are not particularly new or complex, but ENSERVCO is very good at what it does, and it performs to customers' timetables. I have listed ENSERVCO as a Speculative Buy, because a lot of small service companies have to fight hard to make their way in a competitive arena. But ENSERVCO's trucks are servicing a lot of basins, and the company is building itself a good reputation, well by well. I have put a $4/share price target on it.

    I am experiencing contrarian inclinations at the moment. I do believe that the seismic industry is critical to the energy program. To that end, I like ION Geophysical Corp. (NYSE:IO) and Dawson GeoPhysical Co. (NASDAQ:DWSN). Their stocks have been beaten up a bit of late, because many operators that need seismic are watching their budgets and going without. But, really, seismic technology is key to understanding where to drill, how to drill, and when to drill. It is an increasingly essential tool.

    TER: Do you have target prices on those two seismic companies?

    RH: For 2015E, I have a $5/share target price for ION, and a $25/share target price for Dawson.

    TER: Who do you like in the exploration and production [E&P] space?

    RH: I recommend four high-quality companies in the E&P space. Each has a slightly different niche.

    On Whiting Petroleum Corp. (NYSE:WLL), I have a $122/share price target by 2015E. That target assumes that Whiting will acquire Kodiak Oil & Gas Corp. (NYSE:KOG). Its shareholders will vote on that acquisition in early December. Whiting's managers are extremely sharp guys. They are focused on the Bakken, as is Kodiak. Acquiring Kodiak will strengthen Whiting's overall position going forward. The company also has an important focus on the Redtail Niobrara Field. Focus is everything.

    I recommend Continental Resources Inc. (NYSE:CLR), which is a large, independent E&P company. It is focused not only in the Bakken, but also in the SCOOP [South-Central Oklahoma Oil Province]. I have an $85/share price target on Continental. Its managers really understand the energy market. Continental just sold its oil hedges, after the managers decided that oil is not going to drop any further. Some people have reacted negatively to that bold move. It is a gamble, but I trust the experience and instincts of the Continental managers. My own view is that oil is not going to stay below $80/barrel [$80/bbl] for long.

    TER: What kind of experience does the Continental management team have?

    RH: Harold Hamm started the company back in the 1960s as a small service company in a pickup truck. He gets very good results out of his wells, and he attracts good people. His managers are very smart people.

    Continental was among the first to start shipping its Bakken crude by rail to refiners that were closing on the East Coast. Those refiners could not process heavy overseas crude without investing many millions of dollars into new equipment. Now they are busy and profitable, using their older plants.

    TER: Who else do you like in the oil patch?

    RH: SM Energy Co. (NYSE:SM) has some Bakken properties, but its greatest exposure is to the Eagle Ford. It has a nice mix of oil and gas and liquids. The oil percentage is growing. It has a relatively short reserve-to-production life compared to the other companies I follow. Some of its Eagle Ford properties are viewed as three-year wells. Management is working on extending those profiles with different methods of completions. The company's stock is going to react when prices fall, but when prices go up, SM Energy stock will rise faster because of the impact on its present value from its production capabilities. SM Energy has very smart, well-disciplined managers. The CEO is retiring in January, and the new, designated CEO came up through the company ranks. The firm is ramping up growth to 20% next year. I have listed a $102/share price target on SM Energy.

    Newfield Exploration Co. (NYSE:NFX) is very focused on its domestic oil and liquids holdings. It is selling off property in China and Malaysia. It is in the Bakken, and it has a play not far from Continental's SCOOP called the STACK. Everybody gets into naming their plays, and if they can name it first, everybody else has to use it. I have a $47/share price target on Newfield.

    None of the stocks I have mentioned are appreciated by the market at the moment. But the companies' balance sheets are in good shape. The capital programs are disciplined. Growth is not projected at the expense of the companies' health and balance sheets. Less well-capitalized companies will be stressed in a volatile commodity market, and their lenders may put pressure on them. Those poorly capitalized companies could then become acquisition candidates for companies like those that I am recommending.

    TER: Thanks for talking with us today, Rudy.

    RH: You're welcome.

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

    Rudolf "Rudy" Hokanson joined Barrington Research in 2011 as managing director, research and senior investment analyst within the Equity Research group. His research focus is within the industrial and energy sectors, specializing in niches that primarily include exploration & production, oil equipment & services and other energy-related technologies. He was with UBS from 2005 to 2010 as a buyside analyst, covering energy companies. He served as an energy buyside analyst with US Bank from 2002 to 2005. He has also served as a sellside analyst with CIBC World Markets Corp., Deutsche Bank Securities, R.W. Baird, The Milwaukee Co. and Kemper Securities, providing research for both the energy and publishing/print & media industries, from 1981 to 2001. Other experience includes private consulting. Hokanson has over 30 years of experience within the investment industry, and is a former winner of The Wall Street Journal's "Best on the Street" analyst survey. Additional accolades also include two 2013 Starmine Analyst Awards: "No. 5 Overall Earnings Estimator" and "No. 1 Earnings Estimator in Oil, Gas & Consumable Fuels." Hokanson holds both an master's degree in business administration and a master of divinity from Yale University, and dual bachelor's degrees in philosophy and religion from DePauw University. He has also completed other business management certificate programs at Oxford University and the University of St. Thomas. He also holds the Chartered Financial Analyst [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 recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Peter Byrne conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his 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: ENSERVCO Corp. Streetwise Reports does not accept stock in exchange for its services.
    3) Rudolf Hokanson: 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 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 Mining 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 (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 Mining Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Nov 25 2:31 PM | Link | Comment!
  • Marin Katusa: Winter Is Coming—How Investors Can Win In The 'Colder War'

    Are you ready for the next Cold War? Casey Research energy strategist Marin Katusa cautions that Russia and China have forged an alliance with the goal of world supremacy through control of the energy market and Vladimir Putin is winning. Katusa recently penned the book "The Colder War," and in this interview with The Energy Report, he discusses why investors need to pick companies wisely to profit in this turbulent energy landscape.

    The Energy Report: Your book, "The Colder War," is based on the idea that world domination will come through control of the energy economy, and that Russia is winning the fight. How is Russia using the petrodollar to achieve energy supremacy?

    Marin Katusa: Under the leadership of President Vladimir Putin, Russia has reestablished itself as the alternative to the American superpower. Putin has aligned himself with nations like China to work in concert against U.S. interests globally. Furthermore, a new bank formed by the BRICS countries-Brazil, Russia, India, China and South Africa-will attempt to assert itself as an alternative to the International Monetary Fund.

    The Colder War will be a long battle, just like the first Cold War, but in the Colder War, judgment day of the petrodollar will be the critical battle. One must understand global politics and the Colder War to be a successful investor in the energy sector.

    TER: What is China's role in this struggle?

    MK: By the end of 2014, China will become the largest net importer of oil in the world. It signed a natural gas deal worth more than $400 billion, but importantly, the business was transacted in rubles and yuan, as opposed to U.S. dollars. I can assure you that China won't be trading in U.S. dollars moving forward. And it has been making numerous energy deals with nations that oppose the U.S., including Iran. South Africa, Brazil and other likeminded nations are following Russia and China. But it is under Putin's leadership that emerging markets are uniting to fight the interests of the U.S. globally.

    TER: What is Africa's role?

    MK: Western companies are shying away from the political instability in northern Africa. At $75/barrel [$75/bbl] for oil, and with current metal prices, it's difficult to develop energy and metal resources in Africa. Northern Africa has great potential, but it's lacking the infrastructure that Europe, Asia and North America have. The Chinese and Russians have significantly more investments in Africa than Western firms. The Chinese plan in 50-year cycles, whereas North American companies need to plan in quarterly cycles for their shareholders. It's a very different mindset. Africa will play a key role in a few decades, but currently isn't a key player globally.

    TER: What about Latin America?

    MK: Latin America has great potential for resources, both energy and metal. But at current oil prices, there is much cheaper oil to be had in the Middle East and Russia. Mexico in 2015, when the nation opens up Bid Round 1 to foreign companies, will be very exciting for both shale oil and heavy oil onshore, and for the bigger companies offshore in the Gulf of Mexico. Many savvy energy companies and investors are already eyeing the potential. Energy investors should look at what successful resource titans like Ian Telfer are doing to gain exposure to the big potential of shale oil in Mexico.

    TER: Discuss the relationship between China and Russia. How are these countries approaching world domination this time around? Is this actually a partnership?

    MK: Russia and China don't look at it as world domination-they look at it as advancing their national interests, which they are working together to achieve. That's no different than what America's been doing. The difference between the Colder War and the Cold War is that China and the emerging markets did not play such a significant role the first time around-and the fact that judgment day of the petrodollar will determine who wins the Colder War.

    In the Colder War, both China and the emerging markets have aligned themselves with Russia, not the U.S. This is evident not just from an energy standpoint, but from a geopolitical standpoint as well. Putin is the face of the opposition to the U.S. globally; the world took notice in 2013, when he stood up to the U.S. on the Syria issue.

    Time and time again, China has voted with Russia in the United Nations: Syria, Ukraine, Islamic State in Iraq and Syria [ISIS]. The sanctions that the West has placed on Russia are irrelevant to China and the OPEC nations. In fact, the sanctions are actually bringing China and Russia closer together, and it's going to come back to haunt Europe.

    TER: How will this partnership impact Europe?

    MK: The reality is that Western Europe is very dependent on Russian energy sources. Germany, the largest consumer of energy in Europe, makes up about 25% of Gazprom's (OTCPK:OGZPY) revenue. Gazprom is one of the world's largest gas producers and Russia's largest gas company.

    One BASF SE (OTCQX:BASFY) petrochemical plant in Germany consumes more electricity in one year than the whole country of Norway. That's an example of how much energy Germany consumes compared to other European nations. Germany needs Russian sources of energy. Germany's green energy program is not cheap; it's resulted in three consecutive years of 25% price increases. It requires government subsidies. However, Germany has great geological potential, and it will benefit from applying proven modern technology to past-producing oil and natural gas fields.

    Vermilion Energy Corp. (NYSE:VET) is another example of a company I like a lot. We made great profits on Vermilion when we sold it at the end of Q2/14 because we didn't like the way the energy markets were looking. I'd like to buy back into a company like Vermilion.

    TER: That sounds like a long-term play. Is it going to take a long time to crack the shales in German the way we have in the U.S.?

    MK: Three factors are needed to make a shale play work, whether it's in North America, South America or Europe. First, you've got to have the right rocks. Not all shale formations are the same. Second, you need to have existing infrastructure. That's what a lot of investors overlook in the shale game. You can have a great shale formation, but if it's in the middle of nowhere, how are you going to get the oil out, and then how do you get that oil to where it's refined? Third, you need the right price.

    Exxon's highest oil netbacks are actually in Germany. The infrastructure in Germany is amazing, something most in the energy sector are oblivious to. The first successful horizontal oil well in the history of Germany was drilled at the end of 2013.

    This is the very early stages of what I call the European Energy Renaissance. It's going to take many, many years to fully develop, just as it has in North America. Remember, even in North America, changes over the last seven years have been significant. I expect similar progress in certain areas in Europe, as well.

    TER: If it's going to take a long time for Europe to develop its own energy, should we be looking at investing in Gazprom in the mean time?

    MK: That depends on your risk tolerance. Do I, or do funds that I manage, own any Russian oil companies? No. That said, from a fundamental analysis perspective, using Warren Buffett's rules, if you believe the numbers in Gazprom's financials, it's very cheap.

    However, as I stated in my newsletter, it's a very un-American investment. You invest in Russian oil companies if you want to expose yourself to those types of risks. There are many easier ways to profit at $75/bbl oil and in the Colder War than exposing yourself to Russian oil and natural gas companies, and that is the basis of my book. I first lay out the important history, then discuss the present situation of the energy matrix, and then, most importantly, discuss the foundation of how to profit from the Colder War.

    TER: Will American oil independence due to fracking shelter the U.S. from this Russian threat?

    MK: Russia is the world's No. 1 oil producer. Saudi Arabia is No. 2. Now, take a look at the U.S. numbers. Is the U.S. shale immune to the Colder War? Definitely not.

    Not all shale formations are created equal. Certain areas in the Eagle Ford, Bakken and Marcellus are very economic at sub-$75/bbl oil. Those are the areas investors should look at if they want to invest in the U.S. shale sector. Some low-cost producers in those formations can be profitable at $65/bbl oil, and at $2.50 per 1,000 cubic feet natural gas, but there are other formations that will suffer with oil at $75/bbl.

    Remember, the Colder War is very complex, and it's not just about Russia. It's about how all countries are interconnected in the Colder War. And Putin is the face of the counterforce to American supremacy.

    America reaching oil independence is a very hypothetical, fantasy-based question. The U.S. still imports more than 6 million barrels of oil a day [6 MMbbl/d]. The reality is that the U.S. is not oil independent; it relies on imports. Just look at Saudi Arabia's price cutting measures right now-it is causing chaos in the North American oil patches.

    TER: So, we can't be isolationist.

    MK: Definitely not.

    TER: You talked about liking some of the shales more than others. What about some of the companies that could do well in the U.S.?

    MK: We've tracked every single producer in North America for years now, and for months we have stated that a correction in the oil patch is coming. So be very careful.

    In July, we published "The Difference between U.S. Producers and the Canadian Producers." We go into great detail about which investments to consider if you're into dividends, and which companies will benefit more at $75/bbl oil versus $100/bbl oil. It's very company-specific. Just because a company says it's a shale oil producer does not mean that it's the same as another producer in the heart of the Marcellus, Eagle Ford or Bakken.

    TER: Will Canadian or U.S. companies perform better at $75/bbl oil?

    MK: It depends on what you're looking for, but Canadian companies have much more fiscal discipline. They pay a much better yield than American companies. In general, American companies have higher debt, and they're more tilted for growth than paying out their shareholders. If you're looking for dividends, specific Canadian producers are better. But remember, it's all company-specific, so investors should do their homework, or make sure whoever they are listening to knows the math on all the producers.

    TER: You have talked about uranium as a political tool. How is that tool being used, and by whom?

    MK: Unfortunately for the Americans, President Barack Obama has cannibalized the domestic uranium sector with the U.S. Department of Energy's sales of uranium. In addition, as a result of Fukushima, we are currently in an underfeeding market. Investors need to make very specific choices when picking companies in the uranium space. Until the underfeeding changes to overfeeding, the price of uranium will not change. The key is to be exposed to a company positioned to benefit from the maximum upside when the price of uranium changes. If a company has hedged production, the price pop is irrelevant. The sad part is that in-situ recovery rates are very similar to how gas well rates decline. You've got to be very careful about companies you're investing in.

    I've been researching this market for more than a decade, and we have very few uranium recommendations in our newsletter, but we've had incredible success with the companies we do recommend. Our most recent recommendation made more than 25%. We bought and sold it in less than three weeks. The recommendation before that-six months earlier-made more than 50% in less than 50 days. This is a market where most resources investors are down, on average, more than 20% year-to-date.

    You don't want to be exposed to companies that do not have infrastructure, that have high debt or that are hedged in the near term. Our subscribers have done very well with Uranium Energy Corp. (NYSEMKT:UEC) because it's a low-cost, in-situ recovery producer in the U.S. It's fully permitted, with capacity of up to 2 million pounds uranium at its Hobson plant. Best of all, the company is completely unhedged. It will have the maximum upside of any U.S. producer when the price of uranium turns, which it will. Uranium Energy also has one of the best management teams in the uranium sector. When you look at the net asset value of the company, and then compare it to the market price, the company is incredibly cheap.

    Uranium Energy hosted a site visit, where more than 40 Casey subscribers and large-fund managers toured the producing Hobson processing facility, truly a world-class operation. It is impressive what the company has created.

    TER: What should investors do to protect themselves during the Colder War?

    MK: I would start with reading the book, "The Colder War." I'm the only person in the world talking about this, and I have been for years. The Western media is mostly ignorant to the reality of what's going on. It is all fact-based. I can guarantee that the book will change the outlook of most energy investors. Former congressman Dr. Ron Paul, Bill Bonner, Doug Casey, Grant Williams and Ian Telfer all enjoyed the book, and more importantly, the data and analysis absolutely shocked them. They believe it's a must read. If guys like Ron Paul take notice, investors should pay attention to that.

    TER: What advice do you have for investors are afraid of the resource market right now?

    MK: Educate yourself. Everyone talks about buying low and selling high, but it's easy to buy when it's high because it feels good. Fortune favors the bold. You make money by being a contrarian in the resource sector, and when things look awful. Take the uranium market right now. It's the most unloved sector in the world, but we've been making consistent, strong profits. It is a perfect example. If you know how to pick right and sit tight, you're going to do very well. Oil is coming to the point where it's becoming unloved, which is exactly when you want to expose yourself to a sector.

    TER: Thanks for sharing your knowledge with us today, Marin.

    MK: My pleasure.

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

    With a background in mathematics, Marin Katusa left teaching post-secondary mathematics to pursue portfolio management within the resource sector. His hedge fund's five-year track record has beat the peer TSX-V index by over 600%. He is regularly interviewed on national and local television channels in North America, such as the Business News Network (BNN) and many other radio and newspaper outlets for his opinions and insights regarding the resource sector. Katusa is a director of Canada's third largest copper producer, Copper Mountain Mining Corp. (CUM.TO). Katusa is the chief investment strategist for the energy division of Casey Research. A regular part of his due diligence process for Casey Research includes property tours, which has resulted in him visiting hundreds of mining and energy producing and exploration projects all around the world. You can learn more about his book, "The Colder War" here.

    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 Streetwise Interviews page.

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an employee. She owns, 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) Marin Katusa: I own, or my family owns, shares of the following companies mentioned in this interview: Uranium 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: 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.

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