Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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


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

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 - 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