Earlier this year I was invited by fellow bloggers to a friendly stock picking competition where each blogger picks 4 stocks (or ETFs) they think will outperform in 2011. Well the Q3 results are out and they’re a disaster given what the oil and gas sector is going through since March.
|Rank||Site||YTD Return (%)|
Stock Picks Review
Skywest Energy (TSXV:SKW)
YTD ROI = -59.42%
SkyWest Energy is the disappointment of the year in terms of sp performance. Is the share price reflecting trouble ahead or is this standard market fear? Whatever it is, we are sitting on or near the bottom and it will take a buyout to reverse this poor performance. As long as they continue to execute on their guidance of ~@2,100 boed exit rate, things will eventually turn around for the better.
Arcan Resources (TSXV:ARN)
YTD ROI = -21.83%
Even Arcan Resources is no longer loved by investors. It’s as if sitting on one of the most prolific oil plays in Alberta lost its charm. Arcan is still focused on execution and I expect it to be amongst the first to be rewarded when the market settles down.
Bowood Energy (TSXV:BWD)
YTD ROI = -55.00%
BWD has not released the results of its first horizontal well in the Alberta Bakken which is very disappointing. BWD lost its premium that was enjoyed earlier this year; they drilled their first well and have been completing it for the last 6 months. Maybe their lateral reached North Dakota so it takes time to frack it in stages. All in all, results have not been WoW in the Alberta Bakken, someone has to hit a sweet spot in order to shake valuations up.
Reliable Energy (TSXV:REL)
YTD ROI= -39.71%
REL hit +50% earlier this year and reversed course following record flooding and an extended spring breakup in its areas of operations. Their production got hit, they missed on their guidance and found gas instead of oil on their wild Montana acreage. What a disappointing outcome for a company that has attractive Bakken assets netting $50 per barrel in profit on $82 WTI oil.
What happens when investors are capitulating? Well everything gets sold and the juniors get hit the worst. So much for expecting better results in Q3, lesson learned to always bet on dysfunctional politics not fixing any of the outstanding important issues until the last possible minute following market meltdowns. First the US debt ceiling then Greece and this is where we end up. It could get worse as the fear propagating media might actually trigger a recession if we continue on this path, a recession that would have been probably avoided.
Since the market is forward looking, is it pricing in $50 or $60 or $70 per barrel of oil? If we avoid double dipping this year, oil prices should settle down in a comfortable range for producers. Remember that some OPEC countries use $100 Brent oil to fund social programs and balance budgets. They will not hesitate to cut their production in order to support oil prices. The other danger of low prices would be setting up an imbalance in supply and demand as several projects would be canned if oil prices remain subdued for an extended period of time.
Finally, it would take a miracle to avoid the last spot for 2011 and I am not betting on one. One lesson I learned with BWD for the next picking contest is to avoid exploration companies with a premium attached. I am mentally ready to be sitting in the same spot for Q4 as my optimism in 2011 has been spent following the turbulence we went through this year.