Reuters Insider - Wealth Strategies: U.S. shale oil overplayed, look elsewhere

Questerre Energy (Canada)

05/03/2014 17:27

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 http://insider.thomsonreuters.com/link.html?cn=share&cid=1206938&shareToken=MzphODRjMGQwOS04NTAzLTRiZDYtODVmMy1kZDQzNDg0ZTNhNTM%3D&playerName=ReutersNews 
                                                                       
 Source:             Thomson Reuters                                   
                                                                       
 Description:        Angelos Damaskos, CEO of Sector Investment        
                     Managers, who manages the Junior Oils Trust says  
                     the U.S. shale oil play is overdone. His top picks 
                     for returns include Parex Resources and Parkmead  
                     Group.                                            
 
 
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Transcript (May be auto-generated)

 If you manage a gold fund or you invest in energy companies, the past few days 
have been a white-knuckle ride given events in the Black Sea region. Our guest 
on Wealth Strategies today does both of those things. Angelos Damaskos is CEO of
Sector Investment Managers. He manages the Junior Oils Trust with net assets of 
GBP23 million and also Junior Gold. Hi there, Angelos. Hello. What has the past 
few days changed for you if anything? 

Well, the threat of military conflict between Russia and Ukraine appears to have
subsided since President Putin's statement last night. However, the presence of 
military forces- Russian military forces in Crimea indicates Russia's intent to 
influence if not control the political situation in Ukraine. And with a 
referendum looming in favor of Ukraine joining the European Union, the situation
could very well change in weeks or months to come. Now, I know you've always 
avoided politically-risky areas but has this shifted your focus when you look at
companies at all? Are you focusing on other suppliers now? We have always 
avoided politically unstable regions such as the Russia and the FSU and the 
Middle East. So for us, the focus on investment hasn't changed but the situation
obviously highlights the importance of developing alternative, steady and 
stable, reliable supplies of conventional oil from other parts of the world. The
situation in the global markets for the last couple of years have favored very 
much the shale oil plays in America. And investors tend- seemed to have 
disregarded alternative supply of conventional oil from other parts of the 
world, focusing instead on the shale revolution in America. But you, Angelos, do
you think that's been overplayed? I believe that it has gross- has been grossly 
overplayed because it now becomes transparent that the shale oil is not a cheap 
source of energy. 

And it's technically challenging with very high decline rates. So it will not 
come to production at prices below $100 a barrel and possibly needs 
significantly higher prices to become economic. Okay, what companies do you like
right now? We focus in more stable territories like Colombia with a company- via
company called Parex Resources that has maintained a very strong growth in 
production and reserves. In places like North Sea, we favor Parkmead Group which
is headed by Tom Cross that managed the Dana Petroleum development story over a 
decade, generating very strong returns for us as investors. And looking at other
places like conventional oil in North America via Questerre Energy. Alright, 
let's talk about the gold front now as well. Gold of course we all know lost a 
third of its value last year. 

It's been volatile over the past few days. The safe haven status returned. It 
seems to have pulled back a bit now. What's your outlook for the price and how 
are you investing in it? Well, gold had a tremendous bull market rally over 12 
years from the turn of the century up to 2012. In 2013 it lost, as you said, 
over a third of its value because investors changed their view of gold as a safe
haven and sold out of the exchange-traded funds. Now at the lower levels of 
around $1,200 or $1,300, Asian investment has been very strong. And these have 
been physical investors buying into gold bullion, and that include central banks
which are very long-term holders. And with the situation between Russia and 
Ukraine further highlights the appeal of gold as a safe haven and as an 
insurance policy against unexpected geopolitical or economic events. And we 
believe that this should further reinforce a flow back into ETFs by generalist 
investors who might wish to increase their allocation into gold- Okay. And that 
could have a significant impact on the price. And in terms of investing in 
companies- resource companies, mining companies- what characteristics are you 
looking for in this environment and throw a few names out there for us? Well, 
the gold mining industry damaged its reputation greatly in the last couple of 
years by the lack of attention into cost. There were very ambitious projects 
undertaken that were very marginal even at $1,500 an ounce which are obviously 
now uneconomic and are being suspended or cancelled altogether. So we therefore 
focus on companies that have sustainability even at a lower gold price 
environment- even at $1,100 an ounce or possibly slight lower but yet have a 
very strong growth in production and reserves. And we- again, we focus in more 
stable territories like Canada and some of the stable countries in West Africa 
like Ghana. In Canada, one of our bigger holdings is a company called Kirkland 
Lake which operates an underground mine in Ontario, and it has a very stable 
production pattern and very tight cost control. In Africa, we favor Endevour 
Mining which is managed by Neil Woodyer and his team who are- who have a very 
long and successful track record in gold mining. And again, they have 
demonstrated a very strong record of cost control and growth in production. 
Okay. And in fully-funded development stories where we believe the value 
accretion could be very substantial as they build towards production with a 
company called Asanko Gold that focuses in Ghana and Mali. Angelos, many thanks 
for joining us on Wealth Strategies today. Angelos Damaskos, the CEO of Sector 
Investment Managers. For more shows with money managers, search for Wealth 
Strategies on the Reuters Insider platform. I'm Axel Threlfall, this is Reuters