An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014.Reuters
Globe editors have posted this research report with permission of Mackie Research Capital Corp. This should not be construed as an endorsement of the report's recommendations. For more on The Globe's disclaimers please read here. The following is excerpted from the report:
In our last feature report, we recommended three international oil and gas companies that have limited exposure to weak oil prices that we expect to demonstrate substantial production and cash flow growth in 2016. In our current issue, we present a more bullish oil price investment scenario.
We expect oil prices to remain volatile in the short term and eventually turn bullish as it becomes more apparent that oil declines are erasing the production surplus and the market is balancing. We expect oil prices will be supported by a period of catch up as the financial sector, spooked by the past false bull rallies and mounting debt defaults, is reluctant to jump in with both feet and to recapitalize the E&P sector. We also expect that with the decimation of the service sector, it will take time for the industry to rebuild and to respond to higher oil prices. This opens a window of opportunity for E&P companies that are leveraged to oil.
In this scenario, we recommend quality names with a high percentage of oil production that are highly correlated to oil prices. Parex Resources Inc., Gran Tierra Energy Ltd. and Ithaca Energy Inc. have a high percentage of oil production and low cost structures and hedging strategies in place that should allow them to weather the storm in the short term. During the current low oil price environment, we expect these stocks to take advantage of acquisition opportunities, which could amplify the stock price returns once oil prices rebound.
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