Energy Update. April April 2016

Transcription

1 Energy Update

2 The Canoe difference Knowledge Calgary-based team of energy professionals with long, successful history in the industry Specific expertise in engineering, corporate finance, financial analysis Unique ability to recognize undervalued situations/trends earlier Position our funds ahead of the curve Deal Sourcing Deep roots in local business community Strong relationships with oil & gas executives formed over many years of business dealings Access to exclusive private/public investment opportunities Favourable allocations on highly sought after equity issues (eg. Prairie Sky Royalty, Cardinal Energy, Whitecap Resources) 2

3 Buying Energy sub-sectors, not stocks Light Oil Operating netbacks have declined. Many companies are broken, but others still have some cash flow generating capabilities largely because of hedging gains. Decent opportunity for select names in this sub-sector. Heavy Oil Crude oil differentials have remained less volatile than last year. Significant heavy oil production comes online in the next few years. Significant fixed costs equate to zero netbacks for many of the heavy oil producers at today s prices. Liquids Rich Natural Gas Condensate pricing has decreased significantly, however still best-in-class when compared to other products. Keeping a close watch on storage levels, supply and demand, and weather through the heating season. Capital is being drastically reduced by the Producers, which will likely be positive over the medium/long term for this sub-sector. Dry Natural Gas Current economics extremely hard-pressed considering today s natural gas market pricing dynamics. Lack of capital investment into this sub-sector could present a medium-term opportunity. Services Percentage of TSX: 25% Number of Securities we analyze: 500 Utilization levels, margins, and day rates under extreme pressure. Outlook has not looked this bleak in decades. Select sub-sectors within services have been drastically overbuilt. Price to book valuations look intriguing but the question becomes what are the true book values for these companies. Infrastructure (Pipelines and Midstream)/Utilities Producers may be forced to sell off select assets to the midstream companies given the environment, which is a positive for the group. Future projects at risk given Producer cash flow streams/outlooks? Dividends appear safe, but what is the true maintenance capital of these assets? Throughput volumes at risk, in addition to potentially less spreads received from marketing divisions which benefited throughout Significant exposure to higher interest rates. Other (Renewables/Refiners/Rail/Fertilizer) Refiners seeing margin compression on crack spreads (difference between the purchase price of crude oil and the selling price of finished products) considering the builds in gasoline, diesel, and distillate products. Renewables gaining momentum but harder to compete at lower commodity prices. 3

4 Energy life cycle From September 2014 presentation Current position International companies Junior/Private companies Service companies New equity markets Large/Mid-cap companies M&A activity Capitulation Source: Canoe Financial LP 4

5 Reduced buyers New equity window closes Selling pressure Capital programs reduced Energy life cycle Back to capitulation Derivatives sell + short positions Current International companies Junior/Private companies Service companies Services (utilization rates decline) Debt leverage Accelerated selling Cover short, accelerate long position M&A activity New equity markets Large/Mid-cap companies Current position Debt restructure Capitulation Source: Canoe Financial LP 5

6 Investment approach: risk management Where we fit on the spectrum Optimistic Cautiously Optimistic Neutral Cautiously Pessimistic Pessimistic 6

7 Upside/downside capture Definition Upside/downside capture ratio show you whether a given fund has outperformed--gained more or lost less than--a broad market benchmark during periods of market strength and weakness, and if so, by how much. Upside Capture Upside capture ratios are calculated by taking a fund's monthly return during months when the benchmark had a positive return and dividing it by the benchmark return during that same month. An upside capture ratio over 100 indicates a fund has generally outperformed the benchmark during periods of positive returns for the benchmark. Downside Capture Downside capture ratios are calculated by taking a fund's monthly return during the periods of negative benchmark performance and dividing it by the benchmark return. A downside capture ratio of less than 100 indicates that a fund has lost less than its benchmark in periods when the benchmark has been in the red. If a fund generates positive returns, however, while the benchmark declines, the fund s downside capture ratio will be negative (meaning it has moved in the opposite direction of the benchmark). 7

8 Effective risk management Upside Capture Ratio 3 yrs Downside Capture Ratio 3 yrs Upside Capture Ratio 5 yrs Downside Capture Ratio 5 yrs Best 12 Months Since Inception* Worst 12 Months Since Inception* Canoe Energy Class A % -34.1% Canoe Energy Income Class A % -27.8% Source: Morningstar Direct and Globeinvestor.com. Data as at March 31, *The best and worst performance return for Series A is shown for a 12-month period since the Fund s inception. The performance commencement date for Canoe Energy Class A is February 18, 2011, and the performance commencement date for Canoe Energy Income Class A is January 11, The best and worst 12-month returns could be higher or lower in the future. 8

9 Energy stocks volatility 1 Yr Upside Capture 1 Yr Downside Capture Total Return 1 Yr Upside Capture 1 Yr Downside Capture Total Return ARC Resources (ARC) 98.4% 76.1% -8% Birchcliff Energy (BIR) 64.1% 90.4% -22% Crescent Point Energy (CPG) Kelt Exploration (KEL) Paramount Resources (POU) 132.2% 152.3% -31% 46.3% 160.6% -48% 218.8% 403.1% -78% Bonavista Energy (BNP) 123.2% 233.0% -55% Baytex Energy (BTE) 352.9% 421.9% -73% Encana Corporation (ECA) 243.7% 239.3% -42% PrairieSky Royalty (PSK) 83.7% 80.2% -13% Lightstream Resources (LTS) 178.3% 284.0% -61% Raging River Exploration (RRX) 49.3% 26.2% +2% Spartan Energy (SPE) 95.6% 73.6% -8% Storm Resources (SRX) Seven Generations (VII) -39.6% 34.8% -25% 212.2% 79.2% +21% MEG Energy (MEG) 328.4% 380.9% -68% Pengrowth Energy (PGF) PennWest Energy (PWT) 265.8% 288.2% -53% 497.2% 337.2% -41% Surge Energy (SGY) 173.2% 151.8% -23% Whitecap Resources (WCP) 56.8% 147.5% -42% Trican Well Service (TCW) 195.0% 312.7% -65% Source: Bloomberg. Benchmark: S&P Capped Energy Index. Data as at March 31, The table above illustrates the performance of a sample of individual stocks that form part of the S&P/TSX Energy Index, and are some of the energy stocks the portfolio manager is asked about most frequently. The S&P/TSX Energy Index is the Fund's benchmark. Fund returns are reported net of all management fees and expenses for all series, unlike the returns of the index and individual stocks, which do not pay fees or incur expenses. 9

10 2014 Energy Headwinds Negative N. American shale production growing OPEC production growing refuses to cut Super major large-scale projects Massive service sector asset expansion Iran sanctions considerations pent up supply Europe economic woes Demand growth slowing Energy markets priced for perfection Speculators net long commodities/equities Equities trading at premium valuations Record new equity issued Elevated exposure in broader indices Positive 10

11 2015 Eye of the Storm Negative Energy markets collapsing Speculators build massive short positions on commodities/equities Companies remain with relatively high valuations despite share price collapse Service costs collapse service companies Producers slow to cut capital programs Global oil inventories increasing Demand growth continues to slow Emerging markets slow down China economic woes Canadian political landscape Alberta Federal Positive Good stewards of capital become apparent Service costs collapse producers Massive capital spending reductions Significant drop in active rigs across N. America Minor services consolidation 11

12 2016 Emerging from the Storm? Negative Speculators still very active maintaining short-term volatility Political uncertainty Canada Crude oil inventories remain elevated Global distillate inventories remain elevated Canadian government energy policy remains unclear Positive Super majors cancelling massive projects N. American production declines kicking in Insolvencies skyrocket M&A activity/debt restructure grows Layoffs increase along with cost cutting Access to capital available for healthy companies Quality assets up for bid More positive tone from OPEC and non-0pec countries regarding working together Valuations on the whole remain significantly below historic levels Hedge funds less inclined to short equities given violent swings in oil price Long-only money remains on sidelines or in large caps Index weightings at historic lows as a result of deletions across the board Drilling rig counts and capital spending at extremely depressed levels 12

13 WTI pricing vs net speculative (managed money) 13

14 Canoe Energy Class Series A vs. Stocks Source: Bloomberg. Performance as at April 12, For illustrative purposes only. The graph above illustrates the performance of a sample of individual stocks that form part of the S&P/TSX Energy Index. and are some of the energy stocks the portfolio manager is asked about most frequently. The S&P/TSX Energy Index is the Fund's benchmark. Fund returns are reported net of all management fees and expenses for all series, unlike the returns of the index and individual stocks, which do not pay fees or incur expenses. Please see the Appendix for further details on the Fund s performance. 14

15 Canoe Energy Income Series A vs. Stocks Source: Bloomberg. Performance as at April 12, *Canoe Energy Income Class performance includes distributions, stocks do not. For illustrative purposes only. The graph above illustrates the performance of a sample of individual stocks that form part of the S&P/TSX Energy Index. and are some of the energy stocks the portfolio manager is asked about most frequently. The S&P/TSX Energy Index is the Fund's benchmark. Fund returns are reported net of all management fees and expenses for all series, unlike the returns of the index and individual stocks, which do not pay fees or incur expenses. Please see the Appendix for further details on the Fund s performance. 15

16 Disclaimer This presentation should be read in conjunction with a Fund s Simplified Prospectus. Certain statements contained in this presentation constitute forward-looking statements. The use of any of the words anticipate, continue, estimate, expect, may, will, project, should, believe, objective and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Canoe believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this presentation should not be unduly relied upon. These statements speak only as of the date of this presentation. The forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Except as required under applicable securities laws, Canoe does not undertake any obligation to publicly update or revise any forward-looking statements. The information and commentaries contained in this presentation should not be considered as personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure accuracy in this information and these commentaries at the time of presentation, however accuracy cannot be guaranteed. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical and annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would reduce returns. The indices cited are widely accepted benchmarks for investment performance within their relevant regions, sectors or asset class, represent nonmanaged investment portfolios, and are not necessarily indicative of future investment returns. Mr. Rafi G. Tahmazian, Senior Portfolio Manager, is a director of Sulvaris Corp. 16

17 Appendix

18 Canoe energy investment spectrum Canoe Energy Income Class Income and long-term capital growth Cautious investment approach Higher market cap tickers Lower volatility Participating in full energy life cycle Energy index weighting Canoe Energy Class Long-term capital growth Neutral to optimistic investment approach Intermediate to large market cap tickers Participating in full energy life cycle Energy index weighting Canoe Energy Alpha Fund LP Short & medium-term capital growth Opportunity to use short selling and leverage to maximize capital appreciation More concentrated investment approach Micro to large cap tickers Performance Fee Available by Offering Memorandum Lower Risk Higher Risk Development Flow Through LPs Predominantly mid-cap investments 30% declining balance write-off 10-12% premiums on pricing Capital directed to lower risk plays Exploration Flow Through LPs Predominantly small- & mid-cap investments 100% write-off first year of investment 20-25% premiums on pricing Capital directed to higher risk plays 18

19 Benchmark-beating performance Canoe Energy Income Class A Canoe Energy Class A Morningstar Canadian Energy Equity Category S&P/TSX Capped Energy TR Index +14.9% +11.7% -23.2% -28.1% Source: Morningstar Direct 19

20 Energy: supply, demand & prices Source: J.P. Morgan Asset Management; (Top and bottom left) EIA; (Right) FactSet; (Bottom left) Baker Hughes. *Forecasts are from the March 2016 EIA Short- Term Energy Outlook and start in **U.S. crude oil inventories include the Strategic Petroleum Reserve (SPR). Active rig count includes both natural gas and oil rigs. Brent crude prices are monthly averages in USD using global spot ICE prices. Guide to the Markets U.S. Data are as of March 31,

21 Top-performing energy funds 1 Year 3 Years 5 Years Since Inception Canoe Energy Class A* -21.9% -0.7% 0.5% 0.5% Canoe Energy Income Class A** -23.7% 0.2% - 3.3% S&P/TSX Capped Energy Index -17.9% -9.0% -10.8% Morningstar Energy Equity Category -26.4% -19.1% -8.4% -10.9%* -8.2%** -7.9%* -6.5%** Source: Morningstar Direct. As at March 31, *The performance commencement date for Canoe Energy Class A is February 18, **The performance commencement date for Canoe Energy Income Class A is January 11,

22 Canoe Energy funds outperform Cumulative Returns Peer Group of Largest Energy Equity Funds* January 2012 to March 2016 Source: Morningstar Direct *Peer group showing largest 10 funds ranked by fund size base currency for the Morningstar Energy Equity Category 22