Ninepoint Energy Fund Market View

February 13, 2020

Coronavirus Panic

Yesterday on BNN (https://www.bnnbloomberg.ca/market-call/full-episode-market-call-for-wednesday-february-12-2020) I went through my rationale for why the YTD sell-off due to Coronavirus panic has created an opportunity for energy investors.

  1. Long-life assets are being impaired by 25%+ due to a transient hit to demand that will pass in the coming months.
  2. At the same time, Libyan production (graph below) is down ~900,000Bbl/d year-to-date and is offsetting much of the demand destruction however the market’s focus 100% remains on the demand side of the equation.
  3. One month ago oil was over $60/bbl. Why? The US/China trade war had cooled down, OPEC had taken additional action, and signs of US shale growth deceleration were becoming more obvious.

Once the coronavirus headlines fade, I believe we will rally back to $60/bbl by the 2H of this year and using that price level we are deploying fresh capital (the Fund has been net positive in inflows nearly every day) into names that we believe can double (or more) in value from current levels. Below are graphs showing EV/CF trading multiples (some names <3x versus 8x a few years ago) and free cash flow yields at $60/bbl…again where oil was just one month ago. Patience and the ability to look through the short-term noise will be rewarded.

Eric Nuttall

Ninepoint Partners

 

 

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