Weekend Show – Rick Rule & Dan Steffens – Investing In Gold and Oil Stocks

Welcome to the KE Report Weekend Show! On this Weekend Show we focus on investing in gold and oil stocks. Featuring two veterans in each sector they share the stocks they think are offering the best value for investors and company specific fundamentals to watch for when doing your due diligence.

We are at a couple resource investing conferences this week in Vancouver so if there are any specific companies you would like us to meet us please email me and I will set that up.

Segment 1 and 2 – Rick Rule, Founder of Rule Investment Media kicks off the show with an honest assessment of the gold stock sector. He shares his thoughts on the valuation of gold stocks compared to the gold price, some of this favorite gold stocks, the current financing environment and his view on the micro-cap juniors.
– Rick offered to share his thoughts on the stocks in your portfolio. Click the link to visit the Rule Investment Media site and share the stocks in your portfolio – https://ruleinvestmentmedia.com/

Segment 3 and 4 – Dan Steffens, President of the Energy Prospectus Group wrap sup the show with a focus on the oil and natural gas sectors. We recap the macro drivers behind prices then get into stocks. On the stock front we discuss the sustainability of dividends and 2 stocks he thinks are highly undervalued.
– Click the link to visit the Energy Prospectus Group website – http://www.energyprospectus.com/

Timestamps
Rick Rule
0:30 – Value of gold stocks compared to the gold price
9:24 – Factors holding the gold stocks back
13:43 – What are the best gold stocks? – Franco-Nevada, Wheaton, Endeavour Mining
19:31 – Financing environment for gold stocks
22:56 – Does the resource sector and stocks need to change the way companies are run?
27:59 – M&A outlook
Dan Steffens
32:52- Why is the oil price stuck in a range?
35:49 – Supply and demand data for oil
37:23 – Natural Gas volatility
40:23 – LNG facility builds being delayed
41:35 – Oil company dividends, will dividends be cut?
44:07 – Is it simply looking at the income statement to gauge if dividends are sustainable?
44:46 – SM Energy (SM) stock, what Dan likes about this Company
47:58 – Growth outlook for SM Energy
48:48 – Vital Energy (VTLE) stock outlook
52:01 – 2023 acquisitions (2) filtering into this year’s production and hedges

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Managed by SmallCap Communications: https://smallcapcommunications.com

Welcome to the Corin Economics Report a weekly look at financial and political topics relating to asset-based investing guests on this program pay no fees to appear and guests and hosts disclose any Equity interest in company’s profiled now the corand Economics Report hey everyone welcome in to the weekend

Edition of the K reports Cory and Shad here your host for the weekend edition also your host throughout the week on our website K report.com and podcast the KE report it’s going to be a busy weekend for us as there are a couple resource conferences in Vancouver that

Chad and I are both attending so posting on Monday will definitely be a bit lighter but that is because we are taking time to meet with a lot of resource companies a lot of Juniors that are coming into Vancouver we’ll keep you all up to date on the meetings we have

And please keep in touch with us in terms of companies that you think we should be swinging by their Booth or setting up extra meetings with we will for sure do that and follow up with all of you to kick off this show happy to report we have Rick rule back on the

Show founder of rule investment media now Rick we’re going to go around the horn here number of different Commodities we’re going to talk about out and I really want to start with the one topic that is first and foremost on a lot of precious metals investors Minds

That is how you are seeing the value or market cap of gold stocks gold equities to the underlying gold price it’s been years that we’ve had many uh gold commentators say we haven’t seen stocks this cheap compared to where the gold price is unfortunately it seems like this disconnect is growing almost Rick

How do you view value of gold stocks to where the gold price is well arithmetically if you don’t believe that the gold and silver price is going to fall arithmetically it’s arguable that the market capitalizations of gold and silver companies relative to the underlying commodity price is the

Cheapest that it’s been in 50 years commentators say that that has to do with the Market’s anticipation of a decline in inflation uh and uh the fact that gold from point of view is no longer necessary uh they will suggest that the price of gold equities suggests

That the price of gold will decline my own suspicion is that they’re wrong and that gold and silver equities prices are in fact cheap and I would like if it’s permissible uh Corey and Shad to defend that thesis briefly by all means please in the first instance inflation as

Measured by the uh CPI the Consumer Price Index I think is a misnomer the CPI is by anybody’s estimation a constructed index for at least three reasons the first is that it’s hedonistically adjusted which is to say it doesn’t take into account the cost of living but rather adjusts

The so-called cost of living by bureaucrats figuring what the true value of your apartment or home is uh and what the utility that they can attribute to your computer is which is to say it doesn’t measure the real cost of the goods and service but rather the imputed value delivered it’s a manufactured

Index the second thing is when it’s inconvenient it doesn’t measure food or fuel I guess that’s okay for people who don’t drive fly or eat but for most people a CPI that purports to be a cost of living index that doesn’t measure food or fuel is irrelevant but the

Biggest problem that I see with the CPI as a measure of the deterioration of purchasing power which is the other way of saying inflation is that it doesn’t include the impact of tax for almost all of your listeners gentlemen tax constitutes their largest cost of living expense larger than housing larger than

Energy larger than transportation and larger than food combined and the idea that the CPI is construed as a cost of living index when it doesn’t include the largest uh cost component and by the way the fastest increasing cost component of any of the components suggests that the

CPI is in fact a lie when I back tested my own expenditures uh admittedly crudely over the last five years what I learned to my chagrin was that the basket of goods and services that I personally consume is increasing at price at about 7% compounded which is a

Different way of saying that the present value of my savings and the present value of my income is deteriorating in terms of consistent purchasing power by about 7% compounded what that means is that if you are planning your future lifestyle and you are using the CPI number at

2.7 uh you are understand you are understating the impact of inflation on your personal budget by in excess of 4% a year I watched exactly the same circumstance occur early in my career in the early part of the decade of the 70s the outlook for inflation was crystal

Clear to anybody who cared to look but people were lulled into a sense of security by the beneficent economic climate that we enjoyed in the 50s and 60s and I would suggest to you gentlemen that people’s expectation of inflation in the future has been not tempered but

Rather stilted by the fact that we’ve gone through probably 40 Years of the most benign economic climate in human history and I think that when the reality of a deterioration of purchasing power at 7% comes into uh conflict with the expectation set by a 2.6 or 2.7 CPI number that the realization of

The importance of hedging accounts to inflation will become very very very apparent to people my suspicion is that the circumstance that we have seen in 2023 mirrors the market circumstance that we saw in 1975 in 1975 an increase in nominal interest rates clobbered the gold price and clobbered the gold stocks despite

The fact that we were in a 10-year long bull market in 1975 late in 1975 when the FED lost its nerve and lowered interest rates then gold and silver and gold and silver stocks were in fact Off to the Races I’m not suggesting that in 20124 gold and silver stocks will be Off

To the Races I am merely suggesting that inflation is likely more persistent and higher than people believe and as the narrative changes from inflation has been tempered to inflation will be with us for a substantial period of time particularly if that’s accompanied by lower interest rates I think that you

Will see gold and silver and gold and silver stocks do very well one other fact is that the market share of precious metals and precious metals related investors Investments is the lowest that it has been in my lifetime it is estimated by JP Morgan Chase no friend of gold and silver that the

Market share of precious metals related investments in the US savings and investment Market is about 1 half of 1% which is to say 1 half of 1% of all the savings and investment Assets in the United States are denominated in gold and silver this is down from a four decade mean uh of

2% if gold and silver were to return to their four decade mean which is what I think will happen then demand for precious metals related assets both bullion and stocks will quadruple and I think that that will occur within the five-year time frame so I personally am

Attracted to gold and silver stocks does that mean that your listeners should cash in all of their Investments and go out and buy penny dreadfuls with the money of course not the truth is that these are some of the most volatile asset classes known to humankind and a

Fairly small investment in gold and silver in the type of Market that we saw in the 1970s will shield a portfolio from all kinds of sin elsewhere don’t overinvestment facing and it’s an interesting time where we’ve seen as you say one of the most aggressive rate

Hiking cycles and now even if they shift to a more loose monetary policy and start cutting it seems like inflation may be stickier to the point about the gold stocks uh having such low valuations a lot of people point to the delution the sector has had over let’s

Say the last decade where gold has channeled Sideways from that 1921 top in 2011 hit over 2,000 again in 2020 again in 2022 and again last last year and looks to be close to breaking out but they’re saying look how much dilution the sector has had then again there’s

Been a lot of value Creation with Acquisitions and buying projects but then there’s also the cost Factor the costs have crept up but we’ve seen inflation moderate and we’ve seen the metals prices break out will it take a big breakout let’s say a couple hundred dollars in the gold price or a couple

Bucks in the silver price to really fatten up the margins or do you think that the valuations are divorced for something Beyond just delution and cost uh three points to the that the first is that if you’re investing in the gold and silver sector in the bullion you don’t

Care too much about corporate performance from my point of view people who don’t own a little bit of gold and silver bullion if for no other purpose than insurance purposes are people that really need to examine their investment performance meaning I think that people

Need to do it if you look at the stocks one of the things that’s held them back I think is the anticipation of failure that anticipation was born more I think in the decade 2000 to 2010 where the corporate underperformance of precious metals companies at all valuation levels

Which is to say penny dreadfuls all the way through the best of the best could best be described as horrific the truth is that if you look at that decade the uh gold and silver the the gold price Advanced from $256 to $1,950 and the free cash flow per share

In the X declined it took real skill to mismanage a price move that magnitude as badly as they did I will point out to the pessimists however that uh virtually without exception the management teams that presided over that destruction of value were thanked and excused allowed to pursue other employment opportunities

And I would suggest to you that the industry is better LED now than it was then it would be impossible to be worse LED but I would suggest to you also that the investors in the space are much less tolerant of corporate Shenanigans than there were in the past that

Notwithstanding Corey we have talked on your show before going back 20 years to the coralin days about the fact that you need to be particularly in the more speculative part of the market the part that will be in evidence at the VC that probably 85% of the companies in

The sector have no value they’re lifestyle companies they’re not gold or silver companies so it’s important to understand that you can’t buy the sector in the Juniors if you do you will lose money the truth is I believe that at least 85% of the companies in the sector

Are valueless that disguises the fact that the 15% Remnant generate so much performance that they add luster and occasion uh pardon me legitimately and occasionally even luster to a sector where 85% of the population is totally useless what that means is that that as you go searching for Alpha in the sector

Which is when you uh hang out in Vancouver when you look to the Juniors stock selection is everything my suggestion to you is that those investors who are looking for beta which I would describe as the outperformance of a sector relative to the broad Market

That you can buy the top five or 10 companies in the sector if you have a five-year holding period with Rel Rel ative impunity I’m not suggesting necessarily that you can buy the index but certainly I think that you can buy five or six very high quality names with

Fortress balance sheets and you can buy them with absolute impunity today so Rick what are some of the higher quality names in terms of characteristics of the stocks then because it’s such a wide world out there how do you go about filtering down what are either red flags

Or what I guess even more so stands out to you as a quality issuer well I think Franco Nevada is unusually cheap today the problems around Cobra Panama which constitute 15% of the net present value of Franco Nevada has caused the stock to Fall by 40% which is to say the succession of

Production at a comp at a deposit which accounted for 15% of the net present value of the issuer has caused the issuer price to decline by 40% this is the highest quality gold company in the world and by the way I don’t think that the final chapter in the Cobra Panama

Story has been written I think that there will be a recovery either via International arbitration or much more likely a political accommodation between first Quantum and the nation of Panama so I would suggest to you that the highest quality gold company in the world is anomalously underpriced as a

Consequence of an overreaction to the occurrence of risk uh in second place I probably would put Wheaten precious a streaming company where the cost component of what they do is already baked in the cake where you don’t take operational risk but you merely participate in the upside inherent in

Very large projects geologically and also in Precious Metals prices moving down the quality Trail a little bit if you are willing to take a bit more operational risk I think you need to look at a name like baric baric will likely sell off if they are successful at taking over first Quantum because

Investors would rather see the money that they would spend to develop Reiko uh and Cobra Panama return to shareholders by way of BuyBacks or dividends but the truth is that both of these activities while have while holding political risk are extraordinarily accretive to the company in the five six and sevene bases agnico

Eagle it appears to me simply goes from strength to strength and I think that that’s certainly a name that would be attractive from a beta Viewpoint and the recent acquisition uh by Newmont of newrest is one that hasn’t been treated well by the market but I think the rationalization of the combined

Companies the ability of the company to sell off tier tier projects tier 2 projects pardon me to strengthen the balance sheet and allow Management’s time and attention to be focused on the biggest and best assets in their portfolio is one that over the four or five year time frame will treat

Shareholders extremely extremely well those are a smattering of names if you want to take a bit more risk I think the recent sell-off in Endeavor mining as a consequence of the termination of that company’s CEO for alleged Financial improprieties has caused a company which has been a Serial

Outperformer for 10 years to become anomalously cheap it is true that one when considering Endeavor needs to determine how deep the financial rot was and whether the examination into the company’s finances will uncover any wrongdoing and Concession acquisition in Africa this is a riskier name but it’s

Certainly very very very cheap and for people who can afford to take more risk there are lots of uh opportunities in the single asset producers uh or the intermediate producers where in the event that the gold price even holds steady either their share prices rise or they are

Taken over by larger companies with more liquidity and a lower cost of capital uh a wonderful set of circumstances what’s really changed for me personally Corey and this may or may not resonate with your viewers is really since 2010 I’ve been out of the hyper Junior

Market I’ve been out of the S Sub 10 million market cap Market because I didn’t think that market was demonstrably cheaper on a net asset value basis than the less risky companies and I felt myself that the terms involved in private placements in the hyper cheap companies were too

Expensive they didn’t factor in the risk that the investor was taking just in the last four or five weeks I’ve seen private placement offerings come around from companies that frankly had to raise money that I felt compensated me for the risk that I was taking and putting uh

Putting that money up so I’m looking forward at the VC and later at my own conference to walking around the exhibit hall and really getting to know the hyper risky hyperspective side of the market again that’s where I cut my teeth so I’m going to spend 2024 I think

Looking at places that other people don’t look at I’m very much back in a risk on circumstance I’m back in a market looking for 10 Baggers and 15 Baggers hopefully 10 Baggers and 15 Baggers with a full warrant knowing that I will lose more times than I succeed

Which is to say out of 10 starts I’ll probably lose money six or seven times 20 or 30% of the money that I invest but hopefully in one or two of those 10 I’ll get a 10 bagger if you get a 10 bagger for a full with a full warrant it’s

Important to know that you didn’t get a 10 bagger you got a 15 bagger or something like that so I’m back in the game Corey in terms of looking at the hyperspective part of the market and thinking more about my upside than about my downside well Rick just to the point of

Looking at the Juniors and the hypers speculative side of the market you’ve made the point in many interviews and on our show before that your background was as a credit analyst not as an economist but you do look at you know lending money to companies and the terms and

With the interest rate environment where it is with the sector sentiment as depressed as it is and with it really being a story of the Hales and the Have Nots there are Quality Companies quality management teams that have access to Capital that have been able toise raise sometimes pretty dilutive raises but

Still they’ve been able to build value and there is a huge swath maybe that’s that 85% you were referring to that have just really struggled to raise any money at all we’ve been wondering is there even going to be any work programs in 2024 because so many companies don’t

Even have the funds to keep the lights on much less really fund and aggressive uh expiration or development project how are you looking at the setup between I guess the halves the companies that do have big work programs set up this year but have already raised Capital versus

The have not that have their hand out looking to raise money in a very tough Market if I’m right unfortunately the have knots Will Survive that sounds very harsh my suspicion is that 2024 and 2025 will be pretty good markets and they’ll be led by those that are deserving the

Share price performance of the deserving will probably unfortunately lead to Hope among uninformed check writers who will keep the lame the Halt and the blind the 85 company the 85% of those companies existing that don’t exist don’t deserve to exist we’ll probably keep them alive uh I I say unfortunately not because I

Don’t feel for the employees of those companies who I believe deservedly should lose their jobs but rather because I think if the industry was rational in terms of capital allocation and more money went to deserving people with deserving projects that the investor in the industry itself would be

Better served you may recall Corey in an earlier interview that we did probably 10 years ago I described the fact that an intern for us once took 25 then vsse companies that’ll tell you how long it was ago now TSX V companies at random uh and looked at the balance sheet and

Income statement and found found that for the 25 companies selected at random more than 60% of the money raised was consumed by General and administrative expense and only 40% went in the ground if you start with the postulation that exploration is a risky business to begin with and then you burden the exploration

Expenditure by a 60% GNA charge you can see that the expectation of success and exploration for those companies is functionally zero so when you describe a circumstance where the have knots go begging for Capital I think that’s extremely healthy and I hate to say and this will obviously get me a lot

Of hate at the VC but I hope that 2024 and 2025 are years that are discriminating enough that we see a thousand companies go to company Heaven I don’t suspect that that will happen but that would be a realization of my fondness dreams well if history is is

Any guide for us we all know that these companies are going to survive somehow but Rick what one argument that we have heard within the especially gold sector but resource sector broadly is that companies aren’t Innovative enough they’re not marketing the right way they’re not utilizing new tools they’re

Not developing new tools to either find Metals better produce Metals better what have you what’s your thought on this concept that yes the market doesn’t care but it’s also on the companies and the sector to be better and do better things I I think that’s a wonderful

Comment let’s look at it a few ways I would suggest that particularly with the tsxv for 40 years too much onus has been spent on taking a 25 cent stock to 43 a. half cents uh which is to say that too many management teams have recycled a

Project which has failed in the last four booms a project that had one good drill hole in it and what the management t team does in the first instance is that they option the property and secondly they twin that one good hole this isn’t exploration this is stock promotion this

Isn’t geared uh at all to achieving exploration success but rather to lowering their cost of capital and ensuring that their salary is maintained for 18 months to two years and certainly My Hope would be that that falls aside my suspicion too and this will be uh unpopular I

Think among your listeners is that speculators and managers both need to fear political risk less than technical risk uh it is true that the politics of emerging in Frontier markets is less understood and more tenuous than than the politics around the United States and Canada but

It is also true that really truly world scale deposits will more be more frequently discovered in places with great prospectivity but less competition and I think the industry and the investors too need to emphasize technical success more than they need to emphasize political risk I would suggest you that every single political

Jurisdiction in the world is risky that there is no safe jurisdiction in the world I personally have been treated much better in places like Congo and Chile than I have in California or other states in the United States and so I think that the market needs to take into

Account real risk as opposed other risk and I also believe that it’s incumbent on Capital markets and capital markets participants not to keep metaphorically passing the collection plate through the choir but rather to expand the congregation in my own business rule investment media I’ve been very active

On social media that was partly an outgrowth of my former work at Sprat where in 2011 2012 we noticed that our investor Market was mostly comprised of people look who look like me old bad bald fat white rich males and the fact is that that demographic was identified as really

Truly dying when as uh a consequence really of trying to lower the cost of reaching those consumers we began to adopt a social media policy what we found is that the potential Market was much broader than the market we were serving to the extent that now uh my 80,000 subscribers at rural investment

Media at least those subscribers who we’ve added in the last three years are predominantly under the age of 40 and are 35% female they are very often nonwhite if a 70-year-old person like myself can expand his audience from 5,000 people to 80,000 people and can experience growth in every single

Demographic uh area and in every single geography in the world the mining industry can do it too it is too common for the lifestyle promoters in Vancouver merely to circulate The Collection plate through the choir in good markets and then live off the accumulated Capital during the bad markets and the industry

Needs to be much more Innovative in terms of accessing pools of capital that exist where those Capital Pools do exist I myself have been extraordinarily successful at this and if an old 70-year-old dinosaur like myself can do it certainly the young aggressive smart management teams that inhabit some of

The companies in this space face can do it too great comments Rick on widening the scope of the audience for the sector and and getting a more diverse uh group of people when that collection plate does go around one other question we want to work in here real quick is about

M&a uh we’ve seen over the last year or two really the big Focus has been the big boys acquiring the big boys just to your point earlier about some of the quality stocks at the top of the of the batting order you know Numan acquiring new Crest Barrett going after first

Quantum agnico egole acquiring Kirkland Lake it’s really been those kind of Mega mergers that have fueled and we’ve seen that in the Bas Metals too there have been a handful of deals of single asset producers being scooped up or development projects being scooped up but they’ve been few and far between do

You anticipate seeing more activity where those single asset producers or development projects finally get grabbed by maybe the mid tiers or maybe some of the other producers in the year to come yes yes and yes right now the hyper Majors uh have much more volume and much more trading liquidity which means they

Have a lower cost of capital than the intermediate producers either the intermediate producers share prices rise or the senior producers will take them over similarly single asset producers have less trading liquidity than intermediate producers and much less trading liquid liquidity than the hyper Majors unless their share prices go up

They will certainly be taken over but it’s important that everybody understand that m&a is extremely healthy for the sector larger asset sizes larger trading secur pardon me trading floats larger trading volumes raise share prices which lowers cost of capital cost of capital is a determinant of success in a capital

Intensive business two an intelligently constructed uh merger lowers the general and administrative cost relative to assets under management and relative to eBid which is to say the companies with size become more efficient two the larger companies are able to sell their second tier assets and focus on their

High quality assets which is a very important thing where the m&a cycle should be occurring among the Juniors is where it’s not occurring the need for scope and scale the need for reduced GNA the need to focus on high quality assets uh is most accute in the Juniors

Unfortunately among the Juniors uh the resistance to m&a is the highest and this is because of Management’s in transigence in every acquisition there’s a winning team and a losing team the losing team may be compensated for losing but the truth is that they lose both their dream and to them more

Importantly their salary so the sector of the market that needs the m&a the most is unfortunately the sector that will see it the least well Rick before I get you out of here I know that you have special invitation for our listeners please share that with us if they go to

Rural investment media they can list their natural resource stocks and I will personally rank them no charge no obligation go to rural investment media.com list your natural resource talks I will personally rank them one to 10 I’ll comment on issues where I think my comments might have value please no

Crypto please no pot stocks please no tech stocks let an old man do what he does best which is natural resource stocks rule investment media list your natural resource talks I will personally rank them Rick thank you so much that’s so valuable I will post a link to rule

Investment media I hope all of you our listeners take Rick up on that offer always a pleasure chatting with you and hey I greatly appreciate your honesty whether listeners like it or not you’ve been around for quite a while in these markets and you’ve always told it kind

Of the way it is but interesting to hear that you are starting to get bit more aggressive in almost the micro cap Juniors sounds like because the terms are just so attractive boy oh boy we’ve seen companies really really desperate to raise money so Rick I’m going to be

Having you back on this show next month in February we’re also going to be seeing you in Vancouver very soon safe travels up to Vancouver and Rick again thank you so much for your time on this weekend show Al corin’s firm ab corand and Associates Incorporated provides consulting services to public compan on

Matters of Regulatory Compliance to find out more follow the link from www.kp.com the corand Economics Report will be back after this brief Timeout all right welcome back continuing to listen to the weekend edition of the K report I hope everybody enjoyed those first couple segments with Rick rule focus more on the precious metals now we’re shifting our focus more to the energy sector as I am chatting with Dan stepin president of the Energy

Perspectus Group as we usually do with Dan we’re going to start off with more macro comments on oil and natural gas and then get into a couple company questions that all of you have sent in as well as some companies that Dan thinks are just broadly undervalued due

To uh where the market market prices and their production data Dan let’s start off with the oil price not much to talk about in terms of oil other than it’s trading in a tighter range since really mid November here we’ve seen highs of close to $80 and lows of about

$67 it’s been honestly kind of a boring trade recently as oil is stuck in the low 70s Dan what are some of the catalysts on tap that could break oil out either to the upside or the downside the oil actually came in my forecast for the fourth quarter it actually averag

WTI averag about $77 a barrel for the quarter because you know in October I think we got to 92 for a few days and then it dropped and traded in a low range got to the low 70s but uh I just want to remind everybody these companies

Are very profitable if oil stays at 70 I mean they they made it through a long period of oil below 50 so and they and the balance sheets are in really good shape so the companies themselves are doing fine uh the gas price has been a real disappointment at this at this

Point but maybe uh you know we’re going to get a big very bullish storage report next week so that’ll be interesting it’s really as we were discussing before we got online here I’m amazed with this stuff going on in the Middle East and you know with the Red Sea and all the

Ships having to not go through the Suez Canal that’s a big deal and uh it just doesn’t seem like it’s not reacting right now but uh we’re kind of also in this period where there’s no news coming out from this from the individual companies of trying to wrap up their

Year- end reports and stuff so very little information’s coming out on the companies at this point but anyway I’m I’m hoping that oil’s just in a basing formation I looked at the Ia report monthly report came out and they say that uh above ground inventories declined again in November and at the

Lowest point that they’ve been in in years at this point you would think that would pushing oil prices up but oil is seasonal oil demand is seasonal and you know when you get these big winter storms people hunker down and they don’t drive around so that cuts down on uh

Transportation but when you get to March and the weather starts improving from March to June Global demand for oil goes up about two million barrels a day so that should push it back to the 80 range I hope at least it has been interesting to see those issues in the Middle East

Just don’t have an impact on oil right now this whole geopolitical or War premium is not in the market for really any sector out there so then circling back to the supply and demand data here anything that stood out to you either in terms of North American Supply or

Anything internationally that has swung maybe a little bit more to a balanc market since we have seen a much flatter price yeah I I think what you’re going to see next week is eia is going to report a pretty significant drop in US production for the weekending January uh

19th uh I heard just this morning that North Dakota production is down about 600,000 barrels a day because of well freeze offs up there in the bach and Shale play and that’s going to be affecting you know the other Rocky stuff in Powder River Basin and I think this

Coming week I expect to hear about a lot of well freeze offs on the gas Wells that are up there in in Ohio and Pennsylvania and the marcelis and uica and that happens here because there’s with all Wells there’s a certain amount of water that’s in what’s coming out of

The ground and uh they’ll have the you know Gathering lines or something freeze and then they got to shut in the wells so that can be a big deal and then it usually takes quite a bit of time to get those Wells back online you have to have

A you know extended period above freezing before you can get them back online so we’ll see but then I think I think people will be surprised by the how strong fourth quarter results are I most of the companies that follow now I expect them to beat my earnings per

Share forecast for the fourth quarter all right well not much more to say in terms of the oil price again it’s stuck in a Range let’s see if it breaks higher or lower but one thing we all see within the stocks is that a flat Commodities price doesn’t really excite investors to

Drive down into the stocks unfortunately let’s move over to natural gas because lot more to talk about here the last time we chatted was mid December pretty much at the low for the natural gas price at about 220 to 230 and then natural gas went up and up and up the

Whole way through early January the whole way up to almost 340 but now boy oh boy it had a big drop this week and now we’re trading back in more around the 250 to 260 range and what’s this volatility in natural gas well natural gas pric is in the Futures Market the

Price you see is the front M Futures contracts now they’re trading the you know gas for February delivery or something and uh and when the utilities believe they have enough gas and storage to make it through the winter then they pull out of the Futures market so there’s there’s nobody willing to take

Those long contracts and actually take physical delivery and then the paper traders that you know that are just hedge funds or something trading the Futures contracts they get stuck in their long positions then they just have to bail out because they can’t take physical delivery I mean if they do uh

They’re going to get invoiced for storage fees and stuff anyway it’s a very interesting market and I will tell everybody it the biggest price spikes in in natural gas Futures Market the Futures Market happen not during the winter they happen during the summer believe it or not if you go run like a

25e chart and just look at the big Peaks and we’ve seen in in the last 20 years we’ve had $13 gas uh just you know last year what we have $9 gas or something thing that spiked to and what that was that was utility companies getting into

A bidding war with the LG exporters for physical Supply so they were coming into the Futures market so then you had an an excess of buyers for those Futures contracts and not enough sellers so they were trading they were bidding against each other now in the spot Market down

Here in Texas because we had for Texas some extremely call weather and we do rely on wind energy and a lot of times when it’s really cold down here which today it’s Crystal Clear Skies it’s going to get below freezing again down in Houston and so in West Texas and

Oilfields and we depend on wind uh we have about 13 or 14% of our electricity comes wi well what happens sometime is when we’re in these high pressure deals is there’s no wind and the windmills stopped turning and then then they really go to fire up the gas fired power

Plants and so in the spot Market down here I think it’s been uh really active in the last couple weeks what about some of these LNG facility build you were sharing with me off mic that some of these are being delayed so how does that also potentially impact price and also

Future price yeah there was two of them that were expected to come online here uh this summer and they’ve been pushed back a few months and they’ll eventually get online that’s going to add about three or four BCF a day of demand I’ve heard that the one problem is you know

There’s a bunch of these things in the process right now and the construction companies that are building them are having trouble finding quality workers you don’t want to hire a welder right out of welding school to be welding pipes that’s going to be taking super high pressures and

Stuff so then they got to all be inspected and everything before they can ramp up but you know that’s going to impact you know maybe if it’s not this year it’ll be next year at a lot of demand anyway we we’re we’re blessed to have an abundance of gas it’s what keeps

Our utility bills low but it’s you know tough on the gassers but they can make money they they are cash flow positive even if gas stays at 250 they’ve they’ve suffered through 250 gas for many many years before if we do ever firmly get above $3 these things are going to be

Making a lot of money okay well I guess we’ll wait for it to get above $3 because when it does get above $3 boy it seems to reverse quite quickly let’s get into the stocks I know a lot of our listeners want to follow along with the

Stocks and I did have a few emails over the last few weeks asking about dividends and how sustainable these Dividends are I had a listener point to B birchcliffe that was paying a 14% dividend but then announced earlier this week on the 17th that they’re cutting their dividend by

50% do you think we’re going to see more of this from the sector here Dan well I we have a high yield income uh portfolio and I look really hard these are companies that I filed for a long time and I only move them in there when I

Think there are sustainable dividends uh the ones that do kind of go up and down with the commodity price directly are the are the minerals compan companies and these are ones that all they do they they own the minerals and they don’t have any drilling costs and they don’t

You know they just get royalty checks from the operating companies that uh are own the working interest so they’re they’re pretty sustainable and there would they would have to have an ex you know a very long period of time before would affect their uh deal and

Especially the ones that have a lot of oil production so look at the production mix now and also I I will tell you of the gassers is I just looked this morning NGL prices are going up with this you know cold winter through the middle of the country a lot of the

People that live in the middle third of the United States in the rural areas they Heat their homes and cook with propane and we’ve had a surplus of propane but man the demand was going Skyhigh and I look at the price chart this morning and it’s up to 80 cents a

Gallon so that’s they’re going to be reporting some nice uh L uh NGL prices the one I like there is ano resources it does not pay a dividend but but their Midstream company which is publicly traded is antaro Midstream it has a a really secure fixed dividend and uh

Their future is tied to an Terrell’s aggressive drilling program so that one looks really good I like for for just safety of dividends the safest companies would be the Midstream companies I like one and Tero Midstream there I like planes planes All American it’s an MLP

That trades as paa but I like the general partner is a C Corp so you don’t have to wait on a K1 and it trades as PP so that’s a real solid dividend payer uh there so so is it simply just looking at the income statement to gauge if

These Dividends are sustainable at current Energy prices yeah and then also look at the balance sheet and look at their debt how it’s structured and the companies that I got in there they have very little debt problems I mean they’re super cash FL positives so they’ve paid

Off a lot of their near-term debt and they don’t have any comeing do anytime soon so that that would be the big thing if if a company’s got like in the next six months they got us some senior debt that has to be paid off so those are the

Ones you kind of want to avoid because then if you get this period of low commodity prices it makes it impossible for them to roll that debt over thanks for the insights there Dan please everyone keep on sending me your questions for Dan let’s get into two

Companies that you have sent me both companies are in your sweet 16 growth portfolio and you consider both of these companies Value Place so that means that they’re both trading at a deep discounts to your current valuations let’s start off with SM energy traded SM it’s a

Midcap focused in the Midland Basin as well as South Texas eagleford area now the current market cap little over $4 billion Dan your uh valuation here is much higher almost double from where current prices are take us through what you like about SM well SM the SM stands

For St Mary uh when they started it was in St Mary’s Parish Louisiana and today I don’t think they have a single drop of oil production in St Mary’s par so so they’re based in Denver and they changed their name to SM energy they are have

Two core areas uh the the big growth area is in the peran Basin on the Midland Basin side that’s the Eastern third of the peran Basin is called the Midland Basin uh they’re running four rigs over there and then in South Texas Way Out West they’re Drilling in an area

That’s kind of gas prone but it it produces a lot of high value NGL so that’s what I like about it so they have two rigs running there so they’re running six rigs total and a couple completion Crews so they’re going to have steady new wells coming online all

Year they’re big enough uh to where they can fund this uh you know continuous drilling program and that’s important I like the production mix it’s got 40 first of all it produces currently about 152,000 Boe per day of production that’s barrel of oil equivalent it’s 42% crude

Oil 18% high value ngls and about 40% natural gas but when you look at their revenues revenues are generated by 83% of their revenues come from liquid sales so so look at the natural gas side if natural gas does ever really you know bounce up get well above three or

Something that would be a big plus for this company and I actually like that you know hanging out their bonus thing uh they’re gener they generated uh about 500 million dollar of free cash flow in 2023 they they pay a small dividend it’s only got about a 2% dividend yield but

Now that they’ve met their their debt reduction goals I think they will be increasing their dividend in fact their last dividend was an increase over the prior a quarter so they paid out 18 cents in the quarter the stock uh again is trading uh about $

3536 and my valuation is $58 so it trades the symbol is SM check it out and uh they have a very good uh PowerPoint that uh describes the business and so I’d recommend if investors go through that first and that’ll give you a really good idea but they got a lot of running

Room that’s another thing I like about this company their leverage on the balance sheet is really low now and they have a lot of Running Room a lot of high quality drawing locations which also makes it a uh takeover Target for a larger company so Dan regarding growth here of SM energy

It’s about a 4 and a half% year over-year production growth which maybe doesn’t excite some investors and as you said current dividends only around 2% annual yield so this doesn’t really seem so much like a gross story more of just a story that’s being very much unloved

By the market yeah and they were a much more aggressive Growth Company a few years ago and they got the message from the market they said we want to see dividends we want to see you guys pay down some debt and everything and uh their management team took that advice

And uh they’ve really improved the balance sheet I mean if you go back like three years ago at the end of 2019 before the pandemic it was a pretty leveraged up balance sheet well they it’s in really good shape now as they’ve they’ve paid off a couple billion

Dollars worth of debt in the last few years okay so now it’s more about returning Capital shareholders hey I’ve heard from a lot of companies energy companies that that is what investors are looking for let’s move on to the other company that you wanted to share here vital energy traded

Vtl this is a smaller company especially compared to SM energy it’s about1 a half billion dollar market cap you have a much higher valuation here over double the current $42 share price why do you think this one’s being so UNL okay one reason I wanted to mention this today

It’s it’s not quite as big as SM uh it’s got uh on a production it just reported fourth quarter production of 113 ,400 Boe per day but it’s got a more oily mix which makes those Bo boes more valuable so it’s 70 or 47% Crudo 25%

Ngls and only 28% natural gas so I think when you compare this directly to see where S sm’s Trading at you know a market cap of 4 billion and this one’s only trading at a market cap of 1.4 billion I think it it just it look if

You compare it directly with SM it’s a double it should be a double just to get to where SM is trading they completed last year two very transform transformational Acquisitions one of the the negatives about this company didn’t have a lot of real high quality Running

Room a lot of their perum Basin assets are in the Midland Basin an area that a lot of people considered kind of tier 2 acreage but they’ made some big Acquisitions last year which have increased their production from the from the first quarter of 2023 to the fourth quarter their Productions up 41%

Primarily because of was two deals but it also gives them a lot of high quality Running Room and there if this is a pure keran Basin company and the Acquisitions gave them a really nice foothold in the Delaware Basin which is the western part of the peran where some of the best

Wells in the world literally the best wells in the world are being drilled in the Delaware Basin that they’re coming on at four or five ,000 barrels per day and they released an operations update on January 9th that just crushed my fourth quarter forecast they beat way

Above the the high end of their guidance for the quarter beat my forecast by 8,000 Boe per day a pretty nice beat they are free cash flow positive they’re generating about $50 million a quarter of free cash flow and I think that they’ll be able to maintain that even if

Oil stays at around 70 the balance sheet is not quite as strong as SMS because they’ve made these two big Acquisitions with like half debt and half stock if you’re familiar with earthstone energy that I’ve mentioned on your show several times that’s been acquired by peran resources vital is doing everything they

Can to become a an attractive uh takeover Target I mean I can they’re going down this path just that just exactly where earthstone went and there’s probably going to be a lot of people looking at this company if they’re look for a takeover Target and

This would be you know this would be a couple billion dollar deal to buy it if if it if it happened okay so those Acquisitions the two of them from last year already filtered into the production for the tail end of last year how much more could they help increase

2024 production yeah I got them going up uh hang on let me oh and one thing I want to point out too is uh they’ve hedged about uh 70 93% of this year’s oil production is hedge of $75 and they did that to meet their debt covenants

And to lock in that free cash flow so that that’s a good thing so then in terms of the Acquisitions then we were going to get to the hedging but look they’ve already locked in $75 per barrel what about the Acquisitions how are those going to continue to grow the

Company this year well I mean they have not given any guidance for uh this year but my forecast and my valuation is based on only 115,000 uh Boe per day which now that this you know big production beat for the fourth quarter is out there I’m going to probably need

To increase my production forecast by about 10,000 barrels a day so you know they’ll give more guidance when they release their fourth quarter results but which are going to be good I’m telling you at that price they’re going to they’re going to be they’re going to report about two $285 earnings per share

Now remember this is a stock trading for like $40 or $42 and they’re going to have full year full year reported earnings per share of over $20 a share for 2023 so this Stock’s trading for like two a PE ratio of two the operating cash flow for 2023 $37 a

Share so it’s trading just barely over one times cash flow th when I was working on m&a stuff for H this company would be a a screaming takeover Target for us now big companies like Hess or you know Exxon why did Exxon buy Pioneer they buy these companies not as much for

Their current production what they’re buying them for is their acreage their leasehold how much drilling inventory they have because a lot of these big companies are constantly wanting to maintain their drilling inventory high quality drilling inventory and that’s what I think makes this one really attractive and some of these Wells they

Reported coming online in the fourth quarter look really really strong so uh it it didn’t get the attention I mean right now like we discussed before it’s kind of like the whole sector is just you know under a dark cloud or something I don’t know what but man when I I saw

That operations report I was like Wow and I think the stock just barely moved that day yeah it seems like investors just distracted by other sectors look at how strong the equity markets tech stocks ended this week too so it is one of those as we said early on here is

That if the underlying commodity price is not moving higher and seems like moving higher every day well some of the underlying stocks most of the underlying stocks more or less just get forgotten but hey Dan thank you so much for your insights I love reading over your work

At the Energy perspectus Group we’ll be chatting next month so everyone keep sending me your questions for Dan keep sending me your questions for all the guests we have on the show and the companies that we feature throughout the week on our website kp.com and podcast

The KE report I thank you all for tuning in this weekend I hope you all have a great rest of your weekend we’ll be back next week at a conference in Vancouver but throughout the later part of the week check back on our website we’ll have plenty of updates to give you Dan

Everyone have a great rest of your weekend for our upcoming appearance schedule visit kp.com the Corin Economics Report will be back in just a moment