U.S. Global's Brian Hicks Shares His Summer Plans For Creating The Ultimate Resource Fund

TER: What will it take for the market to recognize the potential and rerate RMP?

BH: I think execution is the main thing. The company recently issued a production report that showed it is on the right track. In fact, the estimates seemed fairly conservative given where RMP is producing right now. It is experimenting with some new completion techniques that look like they're enhancing the productivity of the new wells. We think there is positive operational and drilling momentum for the company. It looks as though production estimates are more than achievable. Companies that execute are the names that should outperform.

TER: How about a dividend-paying Canadian explorer and producer?

BH: We have been involved in royalty trust companies for some time. It's a model that works well with the right kind of company. Whitecap Resources Inc. (WCP:TSX.V) is a bellwether name with high-quality assets and a strong management team. It recently made an acquisition, which further increases its overall growth profile. It pays a dividend of around 5%, so you get paid to own this name as oil prices begin to recover. This is another company that has historically executed on its drilling plan and should continue to offer value for shareholders.

TER: How, specifically, would Whitecap's acquisition of Beaumont Energy Inc. help to create value?

BH: This is a textbook acquisition for Whitecap. It is going in when there are difficult times and making an acquisition in a core area in West-Central Saskatchewan. It gives the company upside via some basic water flood developments, helps enhance its overall core area as well as its growth profile, and helps offset declines.

"This is a seasonally strong period for oil, which should alleviate the storage overhang heading into the summer months."

This type of acquisition is probably something we'll continue to see with Whitecap Resources, especially since the company has the financial firepower to look for strategic opportunities. This is the time in the cycle when Whitecap can enhance its overall platform and increase its production on a per share basis, while others in the industry are starved for capital. It's an opportune time for shareholders in Whitecap Resources to create some value, and in the meantime there is an attractive dividend yield.

TER: How about one more standout junior in the portfolio right now?

BH: We have owned BNK Petroleum Inc. (BKX:TSX) for some time. It's a little different in that the company has assets with proven oil reserves in Oklahoma. But it has also been doing some exploratory drilling in Poland looking for shale gas, which has come with some challenges and has weighed on the share price. When you couple those challenges with the volatility we've seen in the small-cap space, the shares have been punished to the point where they are trading below present value of future production and reserves booked in the ground. This is rare. But if you back out the liabilities from the PV10 value of this company, you could easily make a case that it could be a double from here in a normalized pricing environment—especially if you consider the role the company could potentially play in Eastern Europe's quest to find an alternative to Russian natural gas. This is another name we've added at lower levels during the energy selloff in the first quarter, and it's beginning to pay off this quarter.

TER: We have talked before about opportunities in service companies. Are you still finding that they are profitable in this environment? Are there some that really stand out to you?

BH: Some investors would think it's a little early to look at service stocks. We would probably agree when it comes to fracking companies and some of the other service providers, but we think it may be an interesting time to look at drilling companies. We are starting to see market share being overtaken by higher-quality, higher-horsepower rigs that can drill multiple wells per pad, as well as rigs that can move much more quickly to different drilling locations. Their drilling days are shorter, which creates a tremendous amount of efficiency and lowers costs for operators. These are the kinds of drilling rigs that operators are looking for, especially in a low commodity price environment.

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Disclosure: 

1) JT Long conducted this interview for Streetwise Reports LLC, publisher of  more

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