OIL & GAS ENERGY INDUSTRY OUTLOOK

Exploration and production companies rode a bit of a roller coaster ride in the first quarter declining steadily in January, February and most of March before surging the last week of the quarter. At trough, the group was down approximately 10% but finished the quarter down only 5%. As one would expect, the performance of the energy sector largely tracked changes in oil prices. West Texas Intermediate oil prices dropped from the mid-fifties to a price of $47.73 on March 27, before rising back above $50. We continue to maintain a cautious outlook towards the group. We expect energy prices to move in a narrow range. Any increase in energy prices is likely to be met quickly with increased drilling. Companies generally have an inventory of projects ready to go if the economics warrant the investment. Meanwhile, technological advances continue as horizontal drilling and fracking are fine tuned for individual areas and that will continue to put downward pressure on pricing.

MINING AND METALS INDUSTRY OUTLOOK

Mining companies started out the year on a roll rising more than 10% in January, but declined sharply in the second half of the quarter. Gold prices have been stuck in a range of $1,250-$1,300 per ounce with weakness in February and March being the root cause of mining stock weakness. Silver prices have performed better than gold rising back above $18 per ounce on a surge in the last week of the quarter. Results for the fourth quarter were slightly disappointing as companies have cut back production in this lower price environment. We expect continued low production and investment to reduce the current supply glut and eventually lead to higher prices. We favor companies willing to invest for the future and believe they will be rewarded over the next several years.

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