Energy Investing - melhoffgroup.camelhoffgroup.ca/content/uploads/Energy-Update-From-Canoe.pdf · Global Energy Market Size: ... Demand OPEC Market Share Strategy Overwhelms Steady

Energy Investing

Short-term opportunity. Long-term necessity.

FOR ADVISOR USE ONLY NOT FOR DISTRIBUTION TO THE PUBLIC

FOR ADVISOR USE ONLY

NOT FOR DISTRIBUTION TO THE PUBLIC 2 2

The Energy Team

Rafi G. Tahmazian

Senior Portfolio Manager & Director

Kyle Hunter, CFA

Portfolio Manager

Nicholas Sokul, CFA

Trader

• More than 27 years of oil & gas, energy banking and investment management experience

• Spent 13 years at First Energy Capital, a leading investment dealer that focuses on the energy industry

• On the board of directors for Artis Exploration Ltd, and Well Ventures Corp.

• Rafi graduated from the University of Calgary with a Bachelor of Arts in Economics

• Manages the Canoe Energy Class, Canoe Energy Income Class, Canoe Energy Alpha Fund LP, the Canoe Flow-Through Limited

Partnerships and the Canoe Unique Energy Funds

• Prior to joining Canoe, was Vice President and Portfolio Manager, Canadian Equities at BMO Asset Management

• Has worked in research for a Canadian boutique investment firm

• Holds a Master of Business Administration from the Richard Ivey School of Business and is a CFA charterholder

• Portfolio Manager on the Energy Team, and assists in managing the Canoe Energy Class, Canoe Energy Income Class, Canoe

Energy Alpha Fund LP, the Canoe Flow-Through Limited Partnerships and the Canoe Unique Energy Funds.

• Prior to joining Canoe, was a trader at Franklin Templeton Investments

• Eight years experience in trading equities, fixed income and options

• Contributes research ideas for all of Canoe’s Energy Funds




Protecting capital and providing appreciation during market volatility

Effective Risk Management

Source: Morningstar Direct, as at August 31, 2017. Series F.

Canoe Energy Income Class

5 Year Sharpe Ratio 5 Year Upside/Downside

Canoe Energy Class

123

71

0

20

40

60

80

100

120

140

Upside Capture Downside Capture

97

58

0

20

40

60

80

100

120

140

Upside Capture Downside Capture

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

Canoe EnergyIncome Class F

Canoe EnergyClass F

S&P/TSXCapped Energy

TR

iSharesS&P/TSX

Capped EnergyETF




Superior risk reward profile vs stocks

Effective Risk Management

Source: Morningstar Direct, From January 10, 2012 to September 30, 2017

Definition: Standard Deviation – is a measure of the dispersion of a set of data from its mean. If the data points are further from the mean, there is higher deviation within the data set. The graph above is for

illustrative purposes and illustrates the performance of a sample of individual stocks that form part of the S&P/TSX Energy Index. and are some of the energy stocks the portfolio manager is asked about most

frequently. The S&P/TSX Energy Index is the Fund's benchmark. Unlike individual stocks, the Fund and the benchmark are more broadly diversified Fund returns are reported net of all management fees and

expenses for all series, unlike the returns of the index and individual stocks, which do not pay fees or incur expenses.

-30

-20

-10

0

10

20

30

0 50 100 150

An

nu

ali

ze

d R

etu

rn (

%)

Standard Deviation

Canoe Energy Income Class F

Canoe Energy Cl F

Whitecap Resources Inc

Suncor Energy Inc

Tourmaline Oil Corp

Canadian Natural Resources Ltd

Cenovus Energy Inc

Encana Corp

Crescent Point Energy Corp

ARC Resources Ltd

Peyto Exploration & Development Corp

Vermilion Energy Inc

Husky Energy Inc

Pengrowth Energy Corp

Precision Drilling Corp

Paramount Resources Ltd A

Baytex Energy Corp

Birchcliff Energy Ltd

Trican Well Service Ltd

Bonavista Energy Corp

Crew Energy Inc

NuVista Energy Ltd

PrairieSky Royalty Ltd

Seven Generations Energy Ltd

Raging River Exploration Inc

Cardinal Energy Ltd

S&P/TSX Capped Energy TR

Canoe Energy Class





Has Led to Superior Returns

Source: Morningstar Direct. From January 10, 2012 to August 31, 2017

Significantly outperforming benchmark & peers


+38.3%

Peer Group

-24.0% S&P/TSX Capped Energy

-27.3%

Canoe Energy Class

+35.8%

-40

-20

0

20

40

60

80

100

1/9/2012 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016




Positive Net Sales Every Year Since Inception

Source: Canoe Financial, YTD as of June 30, 2017

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

$400,000,000

$450,000,000

2011 2012 2013 2014 2015 2016 YTD June 30,2017

Annual net sales for Canoe Energy Class and Canoe Energy Income Class




The Canoe Difference

1. Knowledge – Calgary-based team of energy professionals with a long, successful history

in the industry

– Specific expertise in corporate finance and financial analysis

– Ability to recognize undervalued situations/trends earlier

– Positioning our funds ahead of the curve

2. Proven Risk Mitigation – Protected investors capital better than the market and individual stock

selections

– Provided a superior risk/return profile

– Proven alternative to do it yourself investing in the Energy sector

3. Deal Sourcing – Deep roots in business community

– Strong relationships with executives formed over decades of business dealings

– Access to exclusive private/public investment opportunities

– Favourable allocations on highly sought after equity issues




We Are Energy Investors

• Energy is the capacity to do work which is the action of moving something

against a force.

• This comes at a cost which means it will make a profit for somebody.

• Our goal is to find the best investment opportunities amongst those

companies in the energy sector.




Global Sub-Sector Investing: New Expanded

Universe

Unconventional Oil Produced or extracted using methods other than

the conventional oil techniques

Conventional Oil/Integrated E&P Conventional Oil is produced from reservoirs

using traditional drilling, pumping and

compression techniques; Companies with

integrated upstream (E&P) and downstream

(refining & retail) operations

Natural Gas / Liquids-rich Gas Produced from conventional and tight reservoirs

and includes production of ethane, propane,

butane and condensate

Refining – Oil / Natural Gas Conversion of crude or raw products into

usable sources of energy; also includes

liquefaction and regasification of natural

gas

Renewables / Alternatives Energy sources other than

those derived from fossil fuels

Size

% Canada / Globally

$1.5 trillion+

$40 billion

$150+ billion

$170+ billion

$30+ billion

$260+ billion

Size

% Canada / Globally

Cash Can be used both tactically or strategically

to protect or take advantage of

opportunities

*Refer to Appendix for more detailed commentary

Pipelines / Midstream / Infra. Infrastructure necessary to process and

transport hydrocarbons from the wellhead

to market

Other (Uranium, Chemicals, Rail,

Fertilizers, Storage Battery Inputs) Other energy-related functions not defined

as a stand-alone sub-sector

Services Services rendered to drill, complete, produce and

dispose of hydrocarbons and other liquids

$410+ billion

$250+ billion

Source: Bloomberg, classification from Canoe Financial, as of July 31, 2017

Global Energy Market Size: Over $3 Trillion




2000-2017

Major Energy Market Changes:

Fundamentals & Influences

2000– 2006 Jan ‘09 – Aug ‘14 Sept ‘14 – Oct ‘16 Nov ‘16 - Today

Technology Speculators Politics/Sentiment Royalty Trust

Robust Demand

Leading Supply

Higher

FUNDAMENTALS

INFLUENCES

New Sources of

Supply Needed to

Fulfill Strong

Demand

OPEC Market Share

Strategy

Overwhelms Steady

Demand Growth

OPEC Reverses

Strategy With

Production Cuts To

Rebalance Market




The Energy Life Cycle: Canada and U.S.

Source: Canoe Financial LP

Canada 2017 Current

Capitulation

M&A activity

Service companies

Junior/Private companies

International companies

New equity markets

Large/Mid-cap companies

September 2014

January 2016

Debt re-structure

September 2016

U.S. 2017 Current




Canadian Energy

Natural Selection Makes for Stronger Herd




Canadian Energy

Natural Selection Makes for Stronger Herd

Offense

1. Clean balance sheet

2. Growing resource inventory

3. Production/Reserve growth

4. Own infrastructure

5. Capital spending flexibility

6. Access to new equity

7. Access to assets/corporate sales

8. Cost efficiency through scale

Defense

1. Debt burdened/Overwhelming interest payments

2. Limited inventory

3. Fighting production declines

4. Third party processing

5. Maintenance capital challenges

6. No new equity

7. Forced to sell good inventory

8. Margin squeeze




I.C.E Age or E.V.olution Internal Combustion Engine versus Electric Vehicle




Internal Combustion Engine versus Electric Vehicle

I.C.E Age or E.V.olution

Are E.V.’s really going to affect oil demand?

• Today, increased fuel efficiency will have a far more dramatic impact on demand

with the primary catalyst being the pace of hybrid vehicle adoption

• Government policy focus likely to shift from EV incentives to compliance with

fuel efficiency

2015 2035 Impact to Demand

Number of Cars 950 million1 1.8 Billion2

Total Oil Demand ~19 mmbopd2 ~44 mmbopd*

Number of E.V.’s 2 million3 100 million -1.9 mmbopd**

New Car Fuel Efficiency ~31 mpg4 ~50 mpg -13.0 mmbopd***

Source: Canoe Financial LP, BP, OICA, GFEI, iea

1 – OICA

2 – BP

3 – iea, 2016 yr.-end estimate

4 – Global Fuel Economy Initiative (GFEI)

* Based on no improvement in fuel economy and 1% annual increase in vehicle miles travelled

** Based on BEV displacement of ICE with avg. new car fuel economy of ~40 mpg and ~11,700 miles per car p.a.

Note: To-date EV mix has been 60% BEV, 40% PHEV

*** Based on ~10 mpg improvement in global avg. fuel economy and continued attrition of existing fleet




0

20

40

60

80

100

120

140

160

180

2013 2014 2015 2016 2017est

Total Capex: Oil & Gas Exploration (YOY % Change)

Source: Ned Davis Research

Super Majors Spending Less (BP, Chevron, Exxon & Shell)

What We Know with Certainty

Capex Disappearing

Source: Estimates based on website and 10k filings




The Need for Active Management in a

Concentrated Sector

Concentrated Canadian Energy ETF

iShares S&P/TSX Capped Energy Index ETF

Concentrated U.S. Energy ETF

iShares U.S. Energy ETF

Source: iShares.com, as of September 1, 2017

47% is in 2

oil sands

stocks

8 stocks make up 30%

50.3% in 4 stocks:

1. Exxon Mobil

2. Chevron

3. Schlumberger

4. ConocoPhillips

40.7% is in

remaining 78

stocks

23% is all the

other energy

stocks




Canadian Advantage with U.S. Diversification

Actively Navigating the Energy Sector

As of May 31, 2017

Canada

Other

United States

Canoe Energy Class

Canada

Other

United States


Active share: 79.6 Active share: 77.2




Disclaimer

The Lipper Fund Awards, granted annually, are part of the Thomson Reuters Awards for Excellence awarded by Lipper, Inc. and highlight funds that have excelled in

delivering consistently strong risk-adjusted performance relative to their peers. The Lipper Fund Awards are based on the Lipper Ratings for Consistent Return, which is a

risk-adjusted performance measure calculated over 36, 60 and 120 month periods. The highest 20% of funds in each category are named Lipper Leaders for Consistent

Return and receive a score of 5, the next 20% receive a score of 4, the middle 20% are scored 3, the next 20% are scored 2 and the lowest 20% are scored 1. The highest

Lipper Leader for Consistent Return in each category wins the Lipper Fund Award. Lipper Leader ratings change monthly. For more information, see www.lipperweb.com.

Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Performance for

Canoe Energy Class Series A for the period ended August 31, 2017 is as follows: -5.9% (1 year), -10.5% (3 years), 8.5% (5 years), and 3.7% (since inception on February

14, 2011). The corresponding Lipper Leader ratings of the Fund for the same period are as follows: N/A (1 year), 5 (3 years), 5 (5 years).

Morningstar Ratings are based on fund returns for periods ending May 31, 2017 and are subject to change monthly. Morningstar Star Ratings are assigned based on the

ranked Morningstar Risk-Adjusted Return of each fund compared to other funds in the same CIFSC Category. Morningstar calculates ratings for the three-, five, and ten-

year periods and then the Overall Morningstar Rating is based on a weighted average of Morningstar Ratings for available time periods. Morningstar calculates ratings for

categories with at least five funds. If a fund scores in the top 10% of its category, it receives five stars if it falls in the next 22.5%, it receives four stars; the next 35% earns a

fund three stars; those in the next 22.5% receive two stars; and the lowest 10% receive one star. For greater detail, see morningstar.ca.

This presentation should be read in conjunction with a Fund’s Simplified Prospectus.

Certain statements contained in this presentation constitute forward-looking statements. The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, “may”,

“will”, “project”, “should”, “believe”, “objective” and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown

risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Canoe believes

the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such

forward-looking statements included in this presentation should not be unduly relied upon. These statements speak only as of the date of this presentation. The forward-

looking statements contained in this presentation are expressly qualified by this cautionary statement. Except as required under applicable securities laws, Canoe does not

undertake any obligation to publicly update or revise any forward-looking statements.

The information contained in this report should not be considered as personal investment advice or an offer or solicitation to buy or sell securities. Commissions, trailing

commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of

return are the historical and annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales,

redemption, distribution, or optional charges or income taxes payable by any securityholder that would have reduced returns. The indices cites are widely accepted

benchmarks for investment performance within their relevant regions, sectors or asset class, represent non-managed investment portfolios, and are not necessarily

indicative of future investment returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Mr. Rafi G. Tahmazian, Senior Portfolio Manager, is a director Artis Exploration Ltd, and Well Ventures Corp.

Appendix




Oil Price Return

Publication

Date March 6, 1999 $13.3

December, 1999 $27 103%

Been Here Before




Canada May Not Be There - But We Are

Global LNG Market

LNG Segment Notable Players Market Cap ($B)

Global Players RDS, CVX, XOM, WPL, STO, SRE, CNOOC $800+

Terminals LNG, TELL, OSH, OPHR $12+

Storage & Shipping GLNG, GLOG, HMLP $10+

Ship Builders Hyundai, Daewoo, Samsung, Mitsubishi $20+

Source: BP Source: BP

Shares of Primary Energy LNG Demand




Fund Codes

Fund

Series Initial Sales Charge

Option Low Load Option

F A A L/L Sales

Commission

(%)

Annual Trailing

Commission

(%)

Sales

Commission

(%)

Annual Trailing

Commission

(%)

Canoe Energy Class GOC503 GOC501 GOC502 5.00 1.00 2.50 Year 1,2,3: 0.50

Thereafter: 1.00

Canoe Energy Income Class GOC2003 GOC2001 GOC2002 5.00 1.00 2.50 Year 1,2,3: 0.50

Thereafter: 1.00




Picking the Right Energy Investments Can Have a Big

Impact

Source: Bloomberg. Performance as at August 31, 2017.

For illustrative purposes only. The graph above illustrates the performance of the largest individual stocks that form part of the S&P/TSX Energy Index at the time of the

inception of the fund and are some of the energy stocks the portfolio manager is asked about most frequently. The S&P/TSX Energy Index is the Fund's benchmark. Unlike

individual stocks, the Fund and the benchmark are more broadly diversified Fund returns are reported net of all management fees and expenses for all series, unlike the

returns of the index and individual stocks, which do not pay fees or incur expenses.

-120%

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-40%

-20%

0%

20%

40%

60%

PE

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Ca

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Be

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ER

F

EC

A

CV

E

PD

CP

G

CF

W

TC

W

BN

P

ME

G

PG

F

BT

E

OB

E

Canoe Energy Class Cumulative Return Since Inception (February 14, 2011)





Impact

Source: Bloomberg. Performance as at August 31, 2017.

For illustrative purposes only. The graph above illustrates the performance of the largest individual stocks that form part of the S&P/TSX Energy Index at the time of the

inception of the fund and are some of the energy stocks the portfolio manager is asked about most frequently. The S&P/TSX Energy Index is the Fund's benchmark. Unlike

individual stocks, the Fund and the benchmark are more broadly diversified Fund returns are reported net of all management fees and expenses for all series, unlike the

returns of the index and individual stocks, which do not pay fees or incur expenses.

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

SU

Ca

noe

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me

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Benchm

ark

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HS

E

EC

A

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CV

E

PD

CF

W

CP

G

TC

W

BN

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PF

G

OB

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Canoe Energy Income Class Cumulative Return Since Inception (January 9, 2012)





Impact on Your Clients Statements

Source: Morningstar Direct. From January 10, 2012 to August 31, 2017

Using the Index Using Canoe Energy

Class

Account Value (February 2011) $500,000 $500,000

10% Allocation to Energy $50,000 $50,000

Return since February 2011 -39.3% 26.8%

Current Value of Energy Sleeve $30,350 $63,400

Impact to Overall Account Loss of $19,650 Gain of $13,400

Difference of $33,050

Additional 2.7% return on overall portfolio




Buying energy sub-sectors, not stocks

Unconventional Oil/Integrated E&P

• Greenfield oil sands projects are unlikely to be sanctioned given lower oil prices and longer development phase; however, industry is likely to

drive the cost structure lower.

• Declining foreign interest has led to consolidation of assets and fewer, yet stronger domestic producers.

• Global and Canadian integrated E&Ps are well positioned to weather a period of range bound oil and natural gas prices by driving costs lower

across the sector’s value chain.

• There is a growing shift to a focus on return on capital vs. growth, which is garnering increasing acceptance in the investment community.

Conventional Oil

• Oil prices are likely to remain range bound while the global oil market slowly rebalances and producers continue to drive capital efficiencies

higher and costs lower where possible.

• The structure of the oil price forward curve has had a meaningful impact on producers’ ability to hedge and company valuations.

Natural Gas / Liquids-rich Gas

• Pipeline constraints in Western Canada have had a significant impact on company production levels, regional pricing and company valuations.

• AECO prices are likely to trade at a significant discount until adequate basin takeaway capacity is available, which has had a meaningful

impact on company valuations.

Services

• Pressure pumping, production chemicals and waste disposal represent the most attractive areas for investment in the current price

environment.

Renewables / Alternatives

• The global shift to cleaner energy sources will drive significant demand growth over long-term in all forms of renewable energy.

• The pace of adoption will be determined by project economics, political momentum and new legislation, as well as any negative connotation

regarding fossil fuels.

Commentary provided as at August 2017




Buying energy sub-sectors, not stocks

Pipelines / Midstream / Infrastructure

• The WCSB is in dire need of increased pipeline takeaway; however, regulatory, environment and aboriginal impediments have limited needed expansion.

• The Permian and Appalachian basins have seen significant growth in pipeline and midstream capacity; the trend is likely to continue given the basins’ robust economics.

• Rising int. rates pose a big concern from a flow of funds perspective given valuations are at the upper end of hist. range.

Refining – Oil / Natural Gas

• Gasoline prices and crack spreads have moderated post Hurricane Harvey: refineries have been restarting and are able to take advantage of a wider Brent-WTI spread.

• The global LNG market is likely to remain oversupplied over the next 2-5 years; however, there will be company and sub-sector specific opportunities for investment.

Other

• Petrochemical providers are benefitting from low input costs (primarily natural gas) and a steadily growing global economy and demand for its refined products.

Cash

• Cash has been used strategically and tactically to take advantage of sector and sub-sector opportunities.

Commentary provided as at August 2017




Award Winning Energy Performance

1 Year 3 Years 5 Years Since Inception

Canoe Energy Class F*

Morningstar Rating™ -5.9% -10.5% 8.5% 3.7%

Canoe Energy Income Class F**

Morningstar Rating™ -6.3% -8.8% 6.2% 7.9%

S&P/TSX Capped Energy Index -10.8% -17.0% -4.8% -7.3%*

-5.5%**

Morningstar Energy Equity Category -14.1% -18.1% -3.2% -5.6%*

-4.7%**

Source: Morningstar Direct, as at August 31, 2017

*The performance commencement date for Canoe Energy Class F is February 14, 2011.

**The performance commencement date for Canoe Energy Income Class F is January 9, 2012.

***Canoe Energy Class was awarded the best energy equity fund for the three-year period ending July 31, 2016 out of a total of 17 funds, and for the five-year period ending July 31, 2016

out of a total of 15 funds.

CANOE ENERGY CLASS

BEST ENERGY EQUITY FUND OVER

1, 3 & 5 YEARS***

Documents

Energy Investing - melhoffgroup.camelhoffgroup.ca/content/uploads/Energy-Update-From-Canoe.pdf · Global Energy Market Size: ... Demand OPEC Market Share Strategy Overwhelms Steady