Serge / Bleak Outlook
How many companies will be saved by mergers. Only those with something to save.
Production must drive cash flow to survive. Another way to look at this, an oil and gas producer has to have quality acreage to sustain this downturn in commodity prices. The properties should have exploitation and development opportunities, thus providing a base for production and reserve growth.
The monies put into exploration should be minimum and well thought about. I would rather have a company acquire acreage in this downturn in activity, than into higher risk exploration attempts. Once price recovery commences, it will be these companies who will benefit the most.
Is abandoning the sector the right thing to do. Probably, but only for the short term. In order to make this move, you would have to find a home for investment you are comfortable with. If you believe the market will continue to flourish in other sectors, why not take a plunge elsewhere. But I'll say this again, shares in oil companies are low and that is the time to invest into them - if you went to the school of buy low - sell high.
I first began investing into the oils back in 1993. My timing was good for I made some good money. We had a downturn in market sentiment about a year later and I abandoned most of my oil and gas investments and got involved in some risky hi-tech stocks listed in Canada. A huge mistake for I never fully recovered. In the meantime, the oil and gas sector began to strengthen and gained investor confidence. If I had held out, I would of made some mega bucks. As a matter of fact, if I hadn't made the second mistake of investing into the oil and gas service sector, I would of recovered all my losses and even at this time, my holdings would be on the upside.
Anyways, it's a judgement call.
If one holds shares in high risk oil and gas producers, I wouldn't hesitate to dump the shares. High risk spells high debt versus cash flow, declining reserves and no quality land holdings to exploit and develope. Many companies in this category.
On the other hand, if the company you have shares in has the capability to ride out this downturn with ability to expand production and reserves, why dump the shares at this time. Over the longer term, shares in these companies will provide a superior return on your investment.
For the trader, riding the crest of the wave in popular sectors might not be a bad idea with the thought of returning to the oils in the third and fourth quarter of this year.
For those investing longer term, especially into retirement type situations, it wouldn't be a bad idea to accumulate shares in companies like Petro-Canada, beginning now.
|
