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Ninepoint Energy Fund

Why Invest In Ninepoint Energy Fund

  • Provides access to a focused portfolio of mid-cap energy companies.
  • Benefit from Ninepoint’s exceptional deal flow and numerous company relationships in the energy sector.

 

Fund Objective

The Ninepoint Energy Fund seeks to achieve long-term capital growth. The Fund invests primarily in equity and equity-related securities of companies that are involved directly or indirectly in the exploration, development, production and distribution of oil, gas, coal, or uranium and other related activities in the energy and resource sector.

Performance as of 7/31/2018 (Series F)

MTD % YTD % 1 YR % 3 YR % 5 YR % 10 YR % Inception %
-3.09 3.15 20.78 -2.28 -1.45 -6.08 3.66

Growth of $10,000 Invested NPP008 as of 7/31/2018

Sector Allocation as of 07/31/2018

Sector Weight
Oil & Gas Exploration & Production 90.68
Oil & Gas Equipment & Services 7.34
Oil & Gas Drilling 1.99
Sectors Less than 1% .09

Top Ten Holdings as of 07/31/2018

Issuer Name
Athabasca Oil Corp.
Raging River Exploration Inc
Meg Energy Corp.
Wildhorse Resource Developement
Wpx Energy Inc.
Continental Resources Inc
Trican Well Service Ltd.
Encana Corporation
TORC Oil & Gas Ltd.
Kelt Exploration Ltd

 

How can one of the most lucrative investment opportunities in decades stare investors in the face and yet month after month energy stocks have continued to languish while the market’s focus stubbornly remains on other areas like bitcoin, marijuana stocks, and the general tech space leading to an unintentional shunning of the energy sector?

Every morning on CNBC and BNN significantly more airtime is given to discussing in-vogue names like Amazon or Canopy Growth than the $2.3 trillion oil market or the energy stocks which have dislocated from the price of oil by the greatest extent in history while oil trades at multi-year highs (see below…oil spot/strip price in CAD$ terms is up 14%/6% since the beginning of 2017 and many Canadian oil stocks are down 50%-60% over the same time frame = 65%+ relative underperformance!!!).

Source: Bloomberg

What makes this lack of interest (and commensurate lack of investment flow) so frustrating? It is that the current macro backdrop for oil is overwhelmingly positive in addition to our belief that oil is in a multi-year bull market with few things capable of interrupting this reality. Why can’t everyone see what we see?

1. Oil is trading near a 4 year high

Source: Bloomberg

2. The “oil glut” (ie. OECD surplus oil inventories to the rolling 5 year average) has fallen from 334MM Bbls as of January 2017 to a now ~26MM Bbl deficit and this number could swell to a deficit of more than 300MM Bbls by the end of 2018.

Source: Ninepoint Partners

3. OPEC and Russia have pledged that their 1.2MM Bbl/d cut will continue throughout 2018 and their compliance to the cut has been impressively strong, consistently exceeding 100%. Even if they are lying and all of the shut-in production were to come online TODAY the market would be back to an undersupplied scenario by the end of 2018 (this is not well understood).

4. Oil demand is rocking with 2017 demand up ~1.7MM Bbl/d and 2018 looking to be an even stronger year with some firms like Goldman Sachs calling for growth to exceed 2MM Bbl/d.

5. The big boogeyman in the room, US shale, will not grow as quickly as people believe and will be limited to ~1.2MM Bbl/d. This is due to an incredibly important and yet still under appreciated shift in management mindset (and incentive plans with 60%-70% of companies adopting returns based incentive plan in 2018, up from 10% in 2015) to generating acceptable economic rates of return versus absolute production growth (aka “growth for growth’s sake”). In addition, infrastructure, labour, and equipment shortages all are acting as further anchors to growth potential.

6. The oil market in 2017 was undersupplied by 0.7MM Bbl/d (as evidenced by inventory drawdowns at the fastest pace in history). When combined with demand growth of 1.8MM Bbl/d this means that supply would have to grow by 2.5MM Bbl/d in 2018 to reach balance. With US production constrained to about 1.2MM Bbl/d, flat OPEC and Russia production, and non-OPEC/US production to be up about 0.2MM Bbl/d it should remain obvious that the market will remain undersupplied. The last time OECD inventories reached our 2018 projected levels of sub 2.6BN Bbls the price of oil (WTI) was above $70/bbl.

 

Given all of the above it should be obvious that the current backdrop for oil is universally positive. It isn’t just a short term bullish call but rather one that extends over the next 4-5+ years. Why do we believe we are in a multi-year long bull market for oil? There are 4 primary reasons and they all point to a market that should remain undersupplied for the next several years (even as US shale continues to grow and OPEC volumes come back onto the market in 2019) and suggest that oil will have to rally high enough to rationalize demand growth lest inventories fall to dangerously low levels:

1. US supply growth is likely limited to ~1.2MM Bbl/d per year due to the reasons explained above.

2. OPEC supply - which once post the 1.2MM Bbl/d of shut-in volumes being returned to the market will be largely producing at near peak production levels for the next several years offering limited net aggregate growth potential.

3. Demand is likely to grow by at least 1.2-1.5MM Bbl/d for the next several years barring a global recession, given demand trends in both OECD and non-OECD countries.

4. Most importantly, non-OPEC/US production is set to go into a multi-year decline in 2019 given the largest decrease in spending on long-lead (4-6+ years) in history.

Source: Simmons

The summary of these 4 main factors is in the below table and shows that even with tapering oil demand growth rates, ongoing US supply growth, and OPEC bringing back online all 1.2MM Bbl/d of shut-in volumes that the oil market should remain undersupplied for at least the next several years:

Given the fixed nature of US/OPEC growth rates and the very long-lead nature of non-OPEC/US mega-projects (4-6+ years) we believe the global oil supply chain lacks the ability to respond to the coming shortage. As a result, the price of oil beginning in 2019 and increasingly in 2020 will need to act as a demand-rationalizing mechanism which suggests that the oil price will have to increase meaningfully higher than today’s price level.

 

 

Are You An Accredited Investor?

The minimum subscription amount is $150,000.00 in all jurisdictions, unless you meet the definition of "accredited investor" under National Instrument 45-106 Prospectus and Registration Exemptions.

If you meet the definition "accredited investor" (see below), you may invest a minimum of $25,000. Please consult the Offering Memorandum to determine your qualification status. Investment Advisors should consult their company's internal policies.

The Subscriber, or one or more beneficial purchasers for whom the Subscriber is acting, is (i) a resident of, or the purchase and sale of securities to the Subscriber is otherwise subject to the securities legislation of one of the following: British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, Newfoundland and Labrador, Nova Scotia, New Brunswick, Prince Edward Island, North West Territories, or Nunavut, and the Subscriber is (and will at the time of acceptance of the Subscription be) an accredited investor within the meaning of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106") because the Subscriber is one of the following:

(a) a Canadian financial institution, or a Schedule III bank;
(b) the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada);
(c) a subsidiary of any person referred to in paragraphs (a) or (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary;
(d) a person registered under the securities legislation of a jurisdiction of Canada as an adviser or dealer, other than a person registered solely as a limited market dealer under one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland and Labrador);
(e) an individual registered or formerly registered under the securities legislation of a jurisdiction of Canada as a representative of a person referred to in paragraph (d);
(f) the Government of Canada or a jurisdiction of Canada, or any crown corporation, agency or wholly owned entity of the Government of Canada or a jurisdiction of Canada;
(g) a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l'île de Montréal or an intermunicipal management board in Québec;
(h) any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government;
(i) a pension fund that is regulated by the Office of the Superintendent of Financial Institutions (Canada), a pension commission or similar regulatory authority of a jurisdiction of Canada;
(j) an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000;
(k) an individual whose net income before taxes exceeded $200,000 in each of the 2 most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year;
(Note: If individual accredited investors wish to purchase through wholly-owned holding companies or similar entities, such purchasing entities must qualify under section (t) below, which must be initialled.)
(l) an individual who, either alone or with a spouse, has net assets of at least $5,000,000;
(m) a person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently prepared financial statements;
(n) an investment fund that distributes or has distributed its securities only to:
  1. a person that is or was an accredited investor at the time of the distribution,
  2. a person that acquires or acquired securities in the circumstances referred to in sections 2.10 [Minimum amount investment] or 2.19 [Additional investment in investment funds] of NI 45- 106, or
  3. a person described in paragraph (i) or (ii) that acquires or acquired securities under section 2.18 [Investment fund reinvestment] of NI 45-106;
(o) an investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the regulator or, in Québec, the securities regulatory authority, has issued a receipt;
(p) a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be;
(q) a person acting on behalf of a fully managed account managed by that person, if that person:
  1. is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction; and
  2. Ontario, is purchasing a security that is not a security of an investment fund;
(r) a registered charity under the Income Tax Act (Canada) that, in regard to the trade, has obtained advice from an eligibility adviser or an adviser registered under the securities legislation of the jurisdiction of the registered charity to give advice on the securities being traded;
(s) an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) to (d) or paragraph (i) in form and function;
(t) a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors;
(u) an investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser, or;
(v) a person that is recognized or designated by the securities regulatory authority or, except in Ontario and Québec, the regulator as an accredited investor.

 

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