Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Why Opportunistic Investor Chen Lin Is Hoping for $20/Barrel Oil

Commodities / Oil Companies Oct 21, 2015 - 12:06 PM GMT

By: The_Energy_Report

Commodities

A quick drop to $20/barrel oil could be the best thing for energy companies with enough cash in the bank to take advantage of the sharp bounce predicted in the wake of such a dramatic fall. In this interview with The Energy Report, newsletter writer Chen Lin names two companies that could not only survive the oil price downturn, but also are perfectly positioned in the global market to start generating barrels of cash for investors.


The Energy Report: In an interview with The Energy Report in 2013, you predicted the oil price decline that has burdened junior oil investors this year. What are you seeing now?

Chen Lin: I'm seeing capitulation. I see a lot of energy companies, especially those high-cost, highly leveraged companies, going out of business. I expect that to continue. However, I also see a bright future for energy companies that can survive the downturn, as we move out of this phase of the cycle.

TER: What are the indicators you're watching? Are you looking at rig counts, storage levels, news headlines from China?

CL: I'm watching everything. Rig counts are at a bottom. Storage is high. Our friends at Goldman Sachs are predicting $20 per barrel ($20/bbl) oil. Remember, less than 10 years ago, they were predicting $200/bbl oil. That is quite a difference. A dip that low could wash out all the weaker hands. Actually, I would love to see that happen. If oil really goes to the $20s, that would be a great bargain-hunting opportunity.

I'm also watching China very closely. China could be in deep trouble. That keeps me up at night. Investing is hard work. There is a lot to watch, and I have to constantly be talking to people and asking questions. However, there is a very well-defined energy cycle. Last year, I saw the oil peak coming down. When oil was $100/bbl, I told my subscribers that it was the top and we got out of a lot of energy positions. This year, I see great opportunity ahead. I hope Goldman Sachs is right. If oil really goes to $20/bbl, that will be the bargain of a lifetime.

TER: Once it goes down to $20/bbl, how quickly could it go up, and how high could it go?

CL: We all need to drive our cars, and consumption in the U.S. has been going gangbusters in the past year. Oil production in the U.S.—and at a lot of high-cost production projects globally—is going down fast. I can give you one example—a company in Colombia I know well. Management told me it's really not economical to drill oil wells there any more. Those wells have a sharp decline, similar to the performance of fracked shale wells. The company is not getting its capital investment back from drilling, so it has stopped drilling. The existing wells are declining by 50%, 70% a year. That is an opportunity because it means dwindling supply.

The sharper the drop, the sharper the rebound and the better the opportunity. The worst case would be if the price of oil continues to sink slowly. That actually makes it hard for investors to try to pick the bottom.

TER: Based on this pending opportunity, how are you adjusting your portfolio for the rest of the year?

CL: Right now, it's a risk-off, conservative mode in the energy industry. The bottom line is return on capital. Drilling costs have come down significantly, so companies that maintain cash flow can be very profitable. I'm looking for a few good companies that can do well in this downturn, and then be consolidators.

It's the same in the gold business. In the beginning it was discretionary selling. For the first couple of years, people were just selling like crazy. Now, some gold companies are doing very well, double or tripling share prices despite the suffering in the sector. In energy, we are at the beginning of the phase, year one of a downturn. Investors are looking for the companies that can generate real cash flow in this environment, and those are going to be the winners with the next upturn.

I also like the natural gas business outside of the U.S., because pricing is regional. In Asia, natural gas is much more expensive, $6–8 per thousand cubic feet ($6–8/Mcf), which can result in very high margins.

TER: Could you give us some examples of companies you like in the oil or natural gas sectors?

CL: I'm holding companies that have great balance sheets, like Pan Orient Energy Corp. (POE:TSX.V). It is trading at below cash, so the downside is limited and the upside is very good.

The company has exposure to both oil and natural gas. It is mostly in Asia. Test results are not in yet, but initial indications show Pan Orient hit some good oil and gas in Indonesia, where the gas price has been very high. Pan Orient spent $50 million ($50M), and because of the tax situation in Indonesia, when it reaches production, it will get the $50M back. It has close to $60M cash, even without that reimbursement, and a $50M market cap. It is a great risk/reward story, but no one is looking. In the old days, when you hit oil, the stock could double. Now, it has no impact on the share price. It's up a little bit in this down market, which is not bad, but very little. Still, value is being created. That's what I like.

Pan Orient also has plans to drill in Thailand later this year, depending on the rainy season. It also has a heavy oil project in Canada that can easily be worth a lot of money when oil prices recover. This is a company with a lot of ways to be successful, and it is now selling at a rock-bottom price.

The next catalyst will be those official test results in the next two to three weeks. Next year, the company is going to have a very big target paid by its partner. Pan Orient is a company where you can see the valuation very clearly. That is why I am happy to hold on to the company through the downturn.

TER: Is another company you like on sale right now?

CL: Canacol Energy Ltd. (CNE:TSX; CNNEF:OTCQX) is reinventing itself as a natural gas company in Colombia. Natural gas is selling for $5–6/Mcf there, twice the going rate in the U.S. When the company turns on the valves in December, it will start generating a lot of cash flow. That's a very simple story. Shareholders just have to be patient and wait for the cash to start coming in. Eventually, the market will wake up and see who can make money in this market. I believe Canacol will be one of those.

I feel very comfortable holding Pan Orient and Canacol into next year. I have large positions in both.

I think tax-loss selling this year could be fantastic, a once-in-lifetime opportunity, because there are a lot of people may just want to get out of energy. If you have dry powder, you will have a lot of buying opportunities.

TER: How do you differentiate between a stock that's been beaten down and is a bargain and a zombie company that is probably going to go away?

CL: Look at the balance sheet and cash flow to see if the company has staying power. A lot of companies are like dead men walking. It's just a matter of time before they file for bankruptcy. If you buy at $0.10, and it goes to $0, you lost 100%. But if the oil price rebounds—or goes down sharply and rebounds—a lot of quality companies could perform really well. There will be some fantastic investment opportunities in energy in the next six to 12 months.

TER: What words of wisdom do you have for investors who are trying to hold on through this?

CL: I would say be selective. Stay with companies that can survive this downturn. Look for opportunities when the oil price turns. I'm very excited right now.

TER: Thank you for your time, Chen.

Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors Inc. While a doctoral candidate in aeronautical engineering at Princeton, Lin found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis.

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.

Bottom of Form

Top of Form

Bottom of Form

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: 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) Chen Lin: I own, or my family owns, shares of the following companies mentioned in this interview: Pan Orient Energy Corp. and Canacol Energy Ltd. 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 (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


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules