The low valuations of the Canadian oil-sands companies strike John Stephenson of First Asset Investment as strange, because these producers have long-term reserves that dwarf those of the supermajors, as he explains in this exclusive interview with MoneyShow.com.
We’re talking today with John Stephenson, and he’s got some ideas for investing in Canada. So John, particularly you do focus on the energy sector, so give us some ideas from that area.
The energy sector is the biggest business in the world, and I think it’s something that has to be part of everyone’s portfolio.
Of course, Canada is sitting on the second-largest reserves in the world. When you’re talking about oil investing, you’re really talking about the oil sands in Canada. We have 179 billion barrels of reserves here; 175 billion—the lion’s share—are in the oil sands.
The beauty of investing in oil-sands assets right now is that they’re cheap. Oil is trading roughly in the $80 to $90 range right now, but the equities are discounting $70 oil. So, it’s like buying it as if oil were $70.
So, Suncor (SU) and Canadian Natural Resources (CNQ), and these are interlisted both in both Canada and the US. These are names that, I think, everyone can buy.
Best yet, they have a 50- or 60-year reserve life. If you look at ConocoPhillips (COP), Chevron (CVX), ExxonMobil (XOM), all the majors in fact, they’re looking at 12 years…meaning that at current production, they’ll be out of business in 12 years’ time.
And do you own any of these personally or in your professional portfolio?
I own them both personally and professionally, and I think these are mainstays for most investment portfolios whether you’re in the US or in Canada, because I think this is where it’s at.
Most people don’t recognize that 89% of the oil reserves out there are either in the control of foreign domestic oil companies or foreign governments. Most of them are hostile to Western interests.
Now, forgive the pun, but if investors want to drill down a bit and find out a little bit more about some of these companies, what factors are you looking for in a stock?
Well, I think really what you want to look for in most resource stocks is secure resources in geopolitically stable parts of the world.
Look at what the history of the oil industry has been lately. We run to Venezuela, we run to Russia, we run to Nigeria. What’s been the story? Nationalization, expropriation, getting kicked out.
That’s the beauty of being in North America, whether it’s one of the Texas shale plays, Louisiana shale plays, or if you’re talking oil, Canadian oil sands names, because these are areas where you’re not going to have that political risk. And you know the resources there, so you’re facing very low geological risk, and you’re facing very little political risk. Those are two very good things.
Now, when you’re looking at these holdings, are these medium- or longer-term holdings? How do you view the timeframe on these?
I view everything I’m putting in my portfolio as 12 months or more, I think. So I would define that as a reasonably long term from an investment perspective.
Certainly they’re not trading instruments, although some of these names, because of their heavy oil rating, you do, in fact, see people trade them as proxies for ETFs, and this is not just domestic participants. This is people in London, Hong Kong, as well as New York.
And are you really looking at the Canadian oil companies, or do you kind of cast the net more broadly?
We’ve owned Total (TOT), for example. BP (BP) was a no-brainer to own, particularly after the Macondo spill in the Gulf.
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