Will high oil prices help CNQ?

[00:00:00]With the possibility of the end to the conflict in the Middle East, markets are looking increasingly stretched. So, are all-time high valuations still justified? And can you find good long-term investment opportunities?

[00:00:11]Let's find out with Rebecca Teltsch, portfolio manager at New Haven Asset Management. Rebecca, good to see you.

[00:00:19]>> Nice to see you.

[00:00:20]>> Let's get into it, shall we? I'm curious your thoughts just before we get into the rest of some of the opportunities and the latest developments that we're seeing in the Middle East right now. And you know, we we have seen the markets react a little bit, maybe not quite as dramatically as we have earlier in the conflict, but what's your sense on on where we could go? The price of oil coming down and otherwise, but you know, what's your sense of where things stand here?

[00:00:41]>> Yeah, I mean it's interesting. I would say, you know, for most of this year the market, for lack of better words, has been very uninspiring. It's been very hard to find, you know, good long-term value in a market that seems most of the valuations are stretched.

[00:00:58]You know, we are long-term investors. We like to buy, you know, names that have dividend yields that are backed by, you know, growing cash flow. And so, what we've seen in the past year is that, you know, valuations have gone up, cash flows have gone up a little bit, but not as enough to justify those higher valuations. But what we've seen recently, you know, and when I mean like in the past few weeks is, you know, some of the oil holdings that we own and love, they've come down, you know, 10 to 15% just on, you know, on speculation of this deal signing. And I think that creates a good long-term opportunity to get more invested for clients that are not at full weight. So, you know, a perfect example is our favorite oil holding has always been and I think will always be CNQ.

[00:01:46]You know, for most of our clients owned it when it was 40 to $45.

[00:01:51]And then we saw, you know, reach over 70 when the conflict began. And you know, just in the past month alone, it's down 15% and it's back under $60 and for us, I think that's a really good um entry point for clients that don't have exposure to it yet.

[00:02:08]>> Which is interesting cuz we had the guest earlier in the day too as well who was, you know, not as hot on oil and gas at this point. So I I I like I like the contrast here and and and why you're a little bit more bullish on it too at least for at this point. What else do you like? I think is Tourmaline also among a pick for you at least right now?

[00:02:24]>> Yeah, I mean, so you know, like CNQ, back to CNQ, you know, they were profitable when oil prices were $50. So we were buying it for our clients then um and you know, right now oil has come off. It's not, you know, $100 anymore, but it's still over 70 and that's still excess cash flow than what they were making a year ago and so, you know, for us that's just extra cash flow that gets paid out either in share buybacks or in dividends. So that's a good long-term hold. Tourmaline is a name that, you know, again, for different reasons, we just initiated a position, you know, maybe a month ago. It was after um Shell announced the Arc deal cuz we owned Arc Resources and when we when we found out that was going to get taken out by Shell, we still wanted to maintain that natural gas exposure and we really like Tourmaline as well.

[00:03:11]And again, since we initiated that we initiated the Tourmaline position at around, you know, $63, $64 and now it's back, I mean, yesterday it was back under 60, now it's a little it's a higher today, but again, we see a really good long-term opportunity there.

[00:03:25]Similar to what Shell sees in Arc. I mean, there's a real, I think, opportunity in owning these long long-term resources in Canada, um oil, but specifically in in gas. I mean, just because the market is pricing in that this conflict is over, doesn't mean that all the infrastructure that was destroyed in the past few months is going to get fixed and and, you know, back in running at full capacity in the next, you know, a few months. I you know, uh Ras Laffan, which is like the huge LNG facility in in Qatar, you know, is still not back at an operating. And, you know, there is an opportunity for LNG. I think, you know, Shell sees an opportunity in Canada. We are a lower-risk, you know, jurisdiction, at least at least, you know, when it comes to geopolitical conflict. And so, I think there's a real opportunity here.

[00:04:15]>> And how much does that speak to some of that confidence, you know, with Shell and seeing that opportunity with Arc Resources here in this country? You know, is that Would that offer a boost otherwise, do you believe?

[00:04:25]>> Yeah, I mean, I I think So, I I've said this over and over again with regards to the Arc deal. I think Shell got a great deal. I think it was a very positive deal for Canada, but for Arc shareholders, like ourselves, I think it was disappointing. I mean, the deal was announced, I think, at 32.80, something like that. But, the stock was over $30 just a few months before. So, the premium actually was very low if you I mean, that's a short-term chart, but actually, if you look right at the end, you know, in the summer, if you go a little bit longer term, you know, the stock would have reached 32.80 on its own and probably surpassed it over the long term. We were very patient investors, long-term investors, and so there was, you know, a short-term blip with regards to one of their growth projects, the Attachie project.

[00:05:17]And I think that's caused a short-term drop in the price, but as long-term investors, they would have been able to extract the opportunity there. Shell got a great deal. They see the opportunity.

[00:05:27]They own, you know, the LNG export facility. So, I think that And again, it's positive for Canada, cuz now there's more of an opportunity for that expansion to happen as now that Shell actually owns the production that's coming on to that But, at the end of the day, as Arc At the end of the day, as Arc you know, we we would have rather not see that deal happen. But, as long as it's positive for Canada and we and and, you know, other international investors are seeing the opportunity there, I guess we could look at that as a positive.

[00:05:59]>> The price of oil, you know, around $76, $77 a barrel right now to, you know, and some of the inflationary pressures we've been talking about given what we're seeing in the Middle East. But, what's your sense of of what, you know, how this might and I and I know best guess with the crystal ball it can be very difficult right now given all the factors. But, you know, what's your sense here of oil and and where we're going maybe short-term? If if this peace deal does hold up in the Middle East and like you said, it's going to take a long time and it's been well documented for how long it's going to take to get back to some sort of normalcy when it comes to supply flowing through the Strait of Hormuz, rebuilding that infrastructure that's been that's been destroyed. But, what's your sense here now too as as we get into the summer and then into the fall?

[00:06:38]>> Yeah, your guess is as good as mine when it comes to, you know, announcements and and, you know, whether the 60-day deal is going to hold. I mean, yesterday seemed to hold and then after market closes, you know, there was the first talks were delayed and now and now it's back on. So, you know, that fluctuation I think is going to continue to happen in the next 60 days. I will say what I have been very shocked about is that the market seems to take at face value anything that's coming out of both sides. So, um you know, if if Trump is announcing that, you know, that the deal is signed and then the market is very quick to react and vice versa. So, um I think that the market right now is very much pricing in the end to the conflict. I think what is announced and what the real outcome is is going to be very different. So, I do think that there could be more volatility. Probably until we have a little bit more understanding of what the components of the deal are. Um oil will probably remain range bound between, I don't know, $65 and $85 unless obviously there is a blow up in in conflict again, but I do think like you said it's going to take some time before we see all that production um and uh the Strait of Hormuz, you know, fully opened again. And not just that, but you know, the transport, the insurance costs, like this is going to take I think months if not years to to regulate. You know, often the economic consequences outlast the military ones by many years.

[00:08:07]So, uh I think we're still at the beginning stages, but the market seems to be um you know, pricing in a more immediate reaction to the end of the conflict.

[00:08:16]>> Yeah, it feels like it's definitely going to be long-term here before we actually have any sort of again any sort of normalcy back into it.

[00:08:22]Rebecca Teltsch, your portfolio manager at New Haven Asset Management, Rebecca, always appreciate your time. Thanks for this.

[00:08:28]>> Thank you so much. Have a great day.