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1 INVESTMENT STRATEGY GROUP MONTHLY WORLD MARKETS REPORT INSIDE THIS ISSUE WHO S RESPONSIBLE? 2 CANADIAN EQUITIES: 3 VERMILLION ENERGY INC. PARKLAND FUEL CORP. MARKET RETURN DATA 4 CIBC WORLD MARKETS INC. 5 INTEREST RATE OUTLOOK CIBC WORLD MARKETS INC. ECONOMIC OUTLOOK COMPANY DISCLOSURES AND DISCLAIMERS CIBC WORLD MARKETS INC. 6 RESEARCH RATING SYSTEM CIBC WORLD MARKETS INC. DISCLAIMERS See Disclosures And Disclaimers at the end of this report for disclosures, including potential conflicts of interest. Complete research on any equities mentioned in this report is available from your Investment Advisor. Unless otherwise noted, all prices quoted in this report are as of the close of markets on May 25, THE RISE OF OIL June 2018 A confluence of factors have caused West Texas Intermediate Crude (WTI) oil prices to rally 12% year-to-date. This has been a nice tailwind for the Canadian and U.S. economies. After all, the energy sector accounts for 19.9% and 6.4% of the S&P/TSX and S&P 500 Indices, respectively. Given the recent strength, we take a closer look at the factors fueling oil prices higher. Robust demand: Thanks in part to highly accommodative monetary policy around the world since the 2008 financial crisis, the global economy is still enjoying strong, synchronized growth (although as we suggested in last month s issue of the Monthly World Markets Report, global growth may have peaked for the current economic cycle). The International Energy Agency (IEA) explains that world oil demand rose by 1.6% (1.5 million barrels per day) in 2017, a much higher rate than the annual average of 1% seen over the last decade. More recently, the IEA noted that the sharp rise in the price of oil will likely dampen demand. Nonetheless, it expects world oil demand to grow by 1.4 million barrels per day (bpd) in 2018, projecting total global consumption of 99.2 million bpd. Strong demand is also resulting in dwindling inventory levels. Geopolitical risks and supply disruption: While demand has been strong, oil prices have also been supported by rising geopolitical risks and supply disruptions. Venezuela, which has the world s largest oil reserves, for instance, used to produce nearly 3.5 million bpd in the late 1990s. As a result of economic mismanagement, which has caused significant social unrest and multinational companies to end operations in the country, oil production now stands at roughly 1.4 million bpd (and is expected to fall further in the coming quarters). On the other side of the globe, the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) and the corresponding reinstatement of sanctions on Iran could mean production from the Organization of Petroleum Exporting Countries (OPEC) member could potentially fall by 500,000 bpd or more. This has also put upward pressure on oil prices (though other OPEC members have indicated a willingness to increase supply in order to offset any decline in Iranian oil production resulting from sanctions). OPEC curtailments: The advent of horizontal drilling and fracturing more than a decade ago helped unlock previously uneconomical resources from geological formations, such as shale. Thanks to refinements to this extraction process, producers today are able to extract a higher percentage of the resource locked in these formations and drilling costs have declined. As a result, in recent years there has been a big increase in oil and liquids production from these shale formations, resulting in a global oil supply glut. In order to bring the global oil market back to equilibrium, OPEC and Russia agreed to curtail production by 1.8 million bpd. Today, the global oil market is roughly balanced. While OPEC could bring spare capacity back to market, the Saudis in particular have hinted that Brent oil prices between US$80 to US$100 per barrel are necessary for the country to balance its budget and fund social programs. As such, OPEC might continue to curtail production, even as demand begins to outstrip supply. We can conclude that today s higher oil prices are the result of both endogenous (robust demand and falling inventories) and exogenous (geopolitical risks, supply disruptions and OPEC curtailments) factors. Oil prices that are too high can crimp growth, especially in emerging economies, as higher fuel costs erode disposable income and push inflation expectations and borrowing costs higher. On the other hand, oil prices that are too low are a major drag on the economies of oil producing nations, such as Canada. As such, we think a WTI oil price of roughly US$60/barrel is a level that achieves a balance between energy producers and consumers and supports stable economic growth. For exposure to the energy sector, we would continue to highlight large-cap integrateds, exploration and production companies as well as energy infrastructure companies that have healthy balance sheets and tenured management teams. YOGESH OZA, M.Econ, CFA Investment Strategy Group CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 1

2 WHO S RESPONSIBLE? Whenever I hear the word responsible, I think of the Jerry Seinfeld bit where he asks: Responsible? Who wants to be responsible? Whenever something bad happens, it s always, who s responsible for this? While I always enjoy Jerry s comedic insight, when it comes to investing, more and more investors are raising their hand to say that they want to be responsible. Investment themes will always come in and out of favour but Responsible Investing is only continuing to gain steam and by now it s clear that it is not going away. The wave of investment money into this space has been led by institutional investors and retail investors are right behind. This growing retail demand has resulted in new investment options as fund companies respond by releasing new funds. We also have responded by adding Responsible Investment funds to our CIBC Wood Gundy Recommended Mutual Funds List. What is Responsible? Responsible Investing is also commonly referred to as ESG investing, which stands for Environmental, Social and Governance. Although Responsible Investing can take many forms, it will typically fall under one of the components in ESG. See the following table for a sampling of some of these sub-themes. We searched for funds that would meet the broadest definitions of responsible/esg investing and tried not to get too caught up in the niche themes. However, within the three verticals of E,S, and G, we had a bit more of a focus on the first two. The reason is that much of the focus in governance such as corporate board independence and corporate risk management is, or at least should be, a focus of all fundamental managers and thus already prevalent in most investor portfolios. Found What We re Looking For As we canvassed the fund universe looking for various Responsible Investing funds, we found that there is a growing number of funds but there were only a few fund companies that we feel are dedicated to the space. Three of them are NEI Investments, OceanRock, and Desjardins. However, during our analysis, NEI Investments and OceanRock announced a merger into Aviso Wealth, which will be 50% owned by Desjardins. While this concentrated the fund companies involved in Responsible Investing, it did confirm that NEI Investments is likely to have what we re looking for. Two of the funds that we found are the NEI Ethical Global Equity Fund and the NEI Environmental Leaders Fund. The NEI Ethical Global Equity Fund incorporates a broad based approach to Responsible Investing. The fund is sub-advised by Hermes Investment Management, which is located in London and has assets under management in excess of $45 billion. Fundamental to Hermes philosophy is the belief that the worst-governed companies underperform in the long-run Instead the focus is on companies with a good or improving ESG track record that can make money. In addition to searching for stocks that score favourably from an ESG perspective, it will also screen out tobacco, nuclear energy and controversial weapons. The NEI Environmental Leaders Fund is, as one would expect, focused on the environment. As the manager describes it, the fund is specifically focused on global investment opportunities that address the environmental challenges of our time. The four key environmental markets it addresses are water, energy, waste and food. This strategy will naturally lead to very little exposure to financials and energy, which makes it very complimentary to a typical Canadian portfolio. The fund is sub-advised by Impax Asset Management, which is headquartered in London. Impax was founded in 1998 and manages in excess of $19 billion, primarily in environmental thematic investing. Find Balance in Vancouver ia Clarington offers a full suite of funds, and a growing spotlight for them is their Socially Responsible Investing funds managed by Vancity Investment Management. We have added the ia Clarington Inhance Growth SRI Portfolio to our list of recommended funds. The manager uses negative screens to remove companies in unwanted industries as well as screening in companies with positive ESG traits. This fund is a balanced growth fund with roughly a third of its assets in fixed income. We shied away from recommending a solely fixed-income mandate as we think ESG investing in fixed-income mutual funds still has a lot of room to improve. To learn more about how this opportunity set will increase going forward, refer to this past February s Monthly World Markets Report for a discussion on green bonds. Source: Morningstar as of May 18, 2018 Jonathan Vapsva, CFA Investment Strategy Group CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 2

3 CANADIAN EQUITIES Vermillion Energy Inc. (VET, $45.10, Outperformer) Price Target: $55.00 Investing in the energy sector has been difficult over the past few years, especially for those investors who have leaned on the sector in search of yield. It was especially painful in the recent bear market cycle (June 2014 February 2016) as investors not only saw their shares fall in value but also watched as dividends were slashed by companies with declining cash flows. One name that maintained its dividend throughout the recent bear cycle is Vermillion Energy, an intermediate oil & gas company with producing assets in North America, Europe and Australia. Vermilion s corporate strategy is guided by its focus on sustainable long-term dividend growth, supported by a relatively high netback and low-decline asset base. The company has paid a monthly dividend since 2003, has a dividend of $0.23 equating to a current yield of 6.1%, and has generated positive free cash flow each year since 2003 despite volatility in commodity prices. CIBC analyst Dave Popowich rates shares of Vermillion Energy Outperformer. He notes that while the performance of Vermilion s shares could be choppy over the short to medium term, as the company absorbs its recent acquisition of Spartan Energy, he continues to view Vermilion as one of the strongest all-around businesses within his coverage universe, which has trailed the recent move in oil prices. Defensive Throughout the cycle VET Share Price Index WTI Oil Price (NYM $/bbl) Index Source: Bloomberg Turning to the recent Spartan Energy acquisition, Mr. Popowich believes the assets are a natural fit with Vermilion s existing asset portfolio, given that both companies existing operational footprints are in southeast Saskatchewan. In addition, Spartan offers top-quartile cash netbacks (calculated as revenues from oil, less all cash costs associated with extracting and bringing that oil to market) of $30.94/Boe vs. Vermillion s $27.05/Boe in Q4/2017, a deep inventory of high-return drilling opportunities, manageable production declines, and strong free cash flow visibility. The Spartan acquisition is also expected to be accretive on production per share, at 7%, and funds flow per share, of 15%. While results in the latest quarter were slightly below consensus, Mr. Popowich believes the miss was driven mainly by transient factors (rapidly rising commodity prices on the hedging side, and a major well shut-in), which he believes will be more than offset by benefits from the Spartan acquisition. Parkland Fuel Corp. (PKI, $30.44, Outperformer) Price Target: $37.50 Parkland Fuel is the largest independent distributor and marketer of refined petroleum products in Canada. It is a bestin-class company with a platform that combines integrated supply, logistics and fuel marketing. This vertical integration allows the company to generate synergies throughout the supply chain and capture value from the refinery to end-market customers. With Parkland s recent acquisition of the Burnaby refinery in British Columbia from Chevron, it is now able to control and use this structure to provide a more stable margin than a typical E&P company could. Parkland Fuel recently noted that it completed the turnaround of the Burnaby refinery on budget and within the expected timeline Volume Breakdown Source: Bloomberg Wholesale Parkland USA Commercial Retail CIBC analyst Kevin Chiang recently raised his price target on Parkland Fuel from $36.00 to $37.50 following first-quarter results. Parkland reported higher-than-expected earnings before interest, taxes, depreciation and amortization (EBITDA) and raised its full-year 2018 adjusted EBITDA guidance to $650 million (from $600 million). Mr. Chiang also believes that Parkland s convenience store strategy should provide positive same-store growth and that the company s private label brand, 59th Street Food Co., continues to post solid performance. The brand is expected to expand its current offering in the Chevron and Ultramar networks and will launch new product categories in Parkland expects the private-label brand to account for approximately 20% of stock keeping units (SKUs) within its convenience stores and provide a margin lift of nearly 50%. Parkland has raised its total synergy expectations from its recent acquisitions to about $80 million by Mr. Chiang believes that this figure is conservative based on the progress so far. He argues that the synergies could be in excess of $100 million and that Parkland Fuel s longer-term earnings growth profile is underappreciated by the market. Mr. Chiang also notes that Parkland Fuel is conservative in its crack spread assumptions - the pricing differential between a barrel of crude oil and the petroleum products refined from it. He argues that Parkland s long-term earnings guidance assumes a normal crack spread and does not account for the stronger crack spread of late. BRAD BROWN, CFA & NADEEM KASSAM, CFA Investment Strategy Group Stock Market Price Price Cash Flow (CF) per share P/CF Dividend Company Name Symbol Rating Cap 25-May-18 Target 2017A 2018E 2019E 2018E Yield Vermillion Energy Inc. VET OP $5.5B $45.10 $55.00 $4.93 $6.42 $ x 6.1% Parkland Fuel Corp. - 1 PKI OP $4.0B $30.44 $37.50 $417.8 $667.0 $ x 3.8% A Actual for the fiscal year; E Estimate for the fiscal year. For a full description of the CIBC World Markets Inc. Research Rating System, please see page 6. 1 EBITDA (in C$ mlns) and EV/EBITDA are stated instead of Cash flow per share and P/CF respectively. CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 3

4 MARKET RETURN DATA Price Performance (% Change) North American Indices Price 1 Month 3 Months 6 Months YTD 1 Year 2 Years 3 Years 5 Years 10 Years 15 Years 20 Years S&P/TSX Composite 16, Total Return S&P 500 Index 2, Total Return Dow Jones Industrial Average 24, Total Return Nasdaq Composite Index 7, Price Performance (% Change) International Indices Price 1 Month 3 Months 6 Months YTD 1 Year 2 Years 3 Years 5 Years 10 Years 15 Years 20 Years Bloomberg Euro FTSE Eurotop 100 2, FTSE 100 (England) 7, Dax (Germany) 12, CAC 40 (France) 5, MSCI World 2, MSCI Emerging Markets 1, Total Return 2, MSCI EAFE 1, Total Return 8, Nikkei 225 (Japan) 22, Hang Seng (Hong Kong) 30, ASX 200 (Australia) 6, Taiwan Weighted 10, Sensex 30 (India) 35, Price Performance (% Change) Index Returns In Canadian Dollars Price 1 Month 3 Months 6 Months YTD 1 Year 2 Years 3 Years 5 Years 10 Years 15 Years 20 Years S&P/TSX Composite 16, Total Return S&P 500 Index 3, Total Return Dow Jones Industrial Average 31, Total Return Russell , Nasdaq Composite Index 9, Bloomberg Euro N/A MSCI World 2, MSCI Emerging Markets 1, Total Return MSCI EAFE 2, Total Return MSCI Far East 4, Price as of Yields as of* Commodities 31-May-18-1 Month -3 Months -6 Months -12 Months YTD (%) Yields 31-May-18-1 Month -3 Months -6 Months -12 Months Gold Spot (US$/oz) Canada 3-month T-Bills Silver (US$/oz) Canada 5yr Notes Brent Crude Oil Canada 10yr Notes West Texas Intermediate Oil Canada 30yr Bonds NYMEX Natural Gas Spot Nat. Gas (AECO Hub - USD) U.S. 3-month T-Bills Lumber U.S. 5yr Notes Copper 3-month U.S. 10yr Notes Nickel 3-month U.S. 30yr Bonds Aluminum 3-month Zinc 3-month Price Performance (% Change) S&P/TSX GICs Sectors Performance (% Change) 1 Month 3 Months 6 Months 12 Months YTD Currencies Price 1 Month 3 Months 6 Months 12 Months YTD Consumer Discretionary CAD/USD % -1.0% -0.5% 4.2% -3.0% Consumer Staples EURO/CAD % -3.2% -1.3% -0.2% 0.4% Energy EURO/USD % -4.1% -1.8% 4.0% -2.6% Integrated Oil & Gas USD/YEN % 2.0% -3.3% -1.8% -3.4% Oil & Gas Expl. & Prod Trade Weighted U.S. Dollar % 3.7% 1.0% -3.0% 2.0% Pipeline Financials Strategic Asset Allocation (in C$)* Performance (% Change) Banks (Global Equity/Cdn. Equity/Bonds/Cash) 1 Month 3 Months 6 Months 12 Months YTD Insurance Capital Preservation (5/15/60/20) REITs Income (10/20/60/10) Health Care Income & Growth (20/25/50/5) Industrials Growth (40/25/35/0) Information Technology Aggressive Growth (60/25/15/0) Materials Total Return % Change Gold Bond Returns 1 Month 3 Months 6 Months 12 Months YTD Base Metals FTSE TMX Canada Bond Universe Index Fertilizers FTSE TMX Canada Long Term Bond Index Telecom Services FTSE TMX Canada Mid Term Bond Index Utilities FTSE TMX Canada Short Term Bond Index All data is sourced from Bloomberg unless otherwise noted. Data as of May 31 st. *Data source: Bloomberg & Morningstar CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 4

5 CIBC World Markets Interest Rate Outlook CIBC World Markets Economic Outlook Interest Rates (%) End of Qtr May 25, 2018 Sep/18 Dec/18 3-month T-Bill Canada U.S year Gov t Bond Canada Yield U.S US$/C$ Source: CIBC World Markets Inc. Economic Outlook 2017A 2018E 2019E Real GDP Growth (% Chg) Consumer Price Index (% Chg) Source: CIBC World Markets Inc. Canada U.S Canada U.S PRICE TARGET CALCULATIONS Vermillion Energy Inc. (VET): CIBC analyst Dave Popowich derives his price target based on a target 2019E EV/DACF multiple of 8.6x on strip pricing. Parkland Fuel Corp. (PKI): CIBC analyst Kevin Chiang derives his price target using sum of the parts on 2019E EBITDA and pro-forma net debt DISCLOSURES AND DISCLAIMERS Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by CIBC World Markets Corp./Inc.: Stock Prices as of 05/22/2018: Parkland Fuel Corporation (2a, 2c, 2e, 2g) (PKI-TSX, C$31.24) Vermilion Energy Inc. (2g, 6c, 7) (VET-TSX, C$47.11) Key To Important Disclosure Footnotes: 1 CIBC World Markets Corp. makes a market in the securities of this company. 2a This company is a client for which a CIBC World Markets company has performed investment banking services in the past 2b CIBC World Markets Corp. has managed or co-managed a public offering of securities for this company in the past 2c CIBC World Markets Inc. has managed or co-managed a public offering of securities for this company in the past 2d CIBC World Markets Corp. has received compensation for investment banking services from this company in the past 2e CIBC World Markets Inc. has received compensation for investment banking services from this company in the past 2f CIBC World Markets Corp. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3a This company is a client for which a CIBC World Markets company has performed non-investment banking, securities-related services in the past 3b CIBC World Markets Corp. has received compensation for non-investment banking, securities-related services from this company in the past 3c CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services from this company in the past 4a This company is a client for which a CIBC World Markets company has performed non-investment banking, non-securities-related services in the past 4b CIBC World Markets Corp. has received compensation for non-investment banking, non-securities-related services from this company in the past 4c CIBC World Markets Inc. has received compensation for non-investment banking, non-securities-related services from this company in the past 5a The CIBC World Markets Corp. analyst(s) who covers this company also has a long position in its common equity securities. 5b A member of the household of a CIBC World Markets Corp. research analyst who covers this company has a long position in the common equity securities of this company. 6a The CIBC World Markets Inc. fundamental analyst(s) who covers this company also has a long position in its common equity securities. 6b A member of the household of a CIBC World Markets Inc. fundamental research analyst who covers this company has a long position in the common equity securities of this company. 6c One or more members of Investment Strategy Group who was involved in the preparation of this report, and/or a member of their household(s), has a long position in the common equity securities of this company. 7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by this company. 8 A partner, director or officer of CIBC World Markets Inc. or any analyst involved in the preparation of this research report has provided services to this company for remuneration in the past CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 5

6 9 A senior executive member or director of Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., or a member of his/her household is an officer, director or advisory board member of this company or one of its subsidiaries. 10 Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., has a significant credit relationship with this company. 11 The equity securities of this company are restricted voting shares. 12 The equity securities of this company are subordinate voting shares. 13 The equity securities of this company are non-voting shares. 14 The equity securities of this company are limited voting shares. CIBC World Markets Research Rating System Abbreviation Rating Description Stock Ratings OP Outperformer Stock is expected to outperform the sector during the next months. NT Neutral Stock is expected to perform in line with the sector during the next months. UN Underperformer Stock is expected to underperform the sector during the next months. NR Not Rated CIBC does not maintain an investment recommendation on the stock. R Restricted CIBC World Markets is restricted*** from rating the stock. Sector Weightings** O Overweight Sector is expected to outperform the broader market averages. M Market Weight Sector is expected to equal the performance of the broader market averages. U Underweight Sector is expected to underperform the broader market averages. NA None Sector rating is not applicable. **Broader market averages refer to the S&P 500 in the U.S. and the S&P/TSX Composite in Canada. "Speculative" indicates that an investment in this security involves a high amount of risk due to volatility and/or liquidity issues. ***Restricted due to a potential conflict of interest. "CC" indicates Commencement of Coverage. The analyst named started covering the security on the date specified. This report is issued and approved for distribution to clients in Canada by registered representatives of CIBC Wood Gundy, a division of CIBC World Markets Inc., Member of the Canadian Investor Protection Fund and Member of the Investment Industry Regulatory Organization of Canada, and by its affiliates via their registered representatives. This report is not authorized for distribution in the United States. This document and any of the products and information contained herein are not intended for the use of private investors in the United Kingdom. This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of CIBC Wood Gundy. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. CIBC Wood Gundy suggests that, prior to making an investment decision with respect to any security recommended in this report, the recipient should contact one of our client advisers in the recipient s jurisdiction to discuss the recipient s particular circumstances. Non-client recipients of this report should consult with an independent financial advisor prior to making any investment decision based on this report or for any necessary explanation of its contents. CIBC Wood Gundy will not treat non-client recipients as its clients by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. Information, opinions and statistical data contained in this report were obtained or derived from sources believed to be reliable, but CIBC Wood Gundy does not represent that any such information, opinion or statistical data is accurate or complete (with the exception of information contained in the Important Disclosures section of this report provided by CIBC World Markets or individual research analysts), and they should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser CIBC World Markets Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure without the prior written permission of CIBC World Markets is prohibited by law and may result in prosecution. CIBC Private Wealth Management consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. CIBC Private Wealth Management is a registered trademark of CIBC, used under license. Wood Gundy is a registered trademark of CIBC World Markets Inc. CIBC PRIVATE WEALTH MANAGEMENT INVESTMENT STRATEGY GROUP 6