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People love this stock. It has cash on the balance sheet and no debt. They do 37000 boe/day. He prefers Gran Tierra, which also drills in Columbia. The stock sells at a significant premium to book value. The stock has almost doubled in the last year. Sell Parex and buy Gran Tierra on weakness.
(A Top Pick July 28, 2017. Up 41%). The management team is great. They did 31,426 boe/day last year and should do 37000 this year. That’s a big increase for a sizable company. They’ve had success with both exploration and development drilling. His target is $5.50 plus for this year and $12 for next year. There is good upside and people should buy it any time it breaks below $4. The company will be drilling 19-21 development wells and 8-11 exploration wells. That’s a very high percentage of exploration wells. Initial results from the exploration wells have been very encouraging.
(A Top Pick July 28, 2017. Down 40%). He recommended buying on weakness, the stock dropped and he recommended it most strongly last December. It is up 50% since then. He thinks the stock can go up to $7. He pointed out on the 10 year chart that the stock has massive upside when the price of oil moves. For example, it went from less than $15 in 2012 to nearly $60 in 2015. Similarly in 2009-2010, the stock went from $2 to $17. They go from being hated to being loved, and right now, the natural gas story is getting strong. Storage is low, last week there was even a draw. The US industry is so focused on drilling oil and liquids that the focus on natural gas is just not there. The LNG takeaway capacity in the US is going from 2 bcf to 9 by the end of 2019. Canada does have the pipelines into the midwest, and they are expanding. These can carry a lot of Canadian production into this growth of demand of 7 bcf. He also expects LNG to BC to be approved, which will result in a further increase of demand for Canadian natural gas, at better prices.
(A Top Pick July 28, 2017. Down 23%). This is quiet money. It’s a driller. Its book value is $4.15, which is much higher than its trading price. This is a Canadian driller with only 3 rigs in the United States. Its price hasn’t improved because it is locked in Canada. The AECO price (http://www.gasalberta.com/gas-market/market-prices?p=pricing-market.htm) is about $2 but will be $2.75 to $3.00 by Q4. Similarly, the NYMEX price (https://www.eia.gov/dnav/ng/NG_PRI_FUT_S1_D.htm) was up a nickel today even as oil went down, could by $4 by Q4.
The stock has bounced because of the higher oil price. It has sold assets to bring down debt, but debt is $600 million compared to an equity base of $1 billion, so it is still a bit high. At this point, they don’t have any key assets for sale. Their low production is 19,000 boe/day, which is this quarter. They will bring on more wells to bring production to 23,000 boe/day by the end of the year. Cash flow will be about $0.20 per year. His target for this year is $2 and $4.50 for the next 3-to-5 years. The company has a new CEO, with relevant (thermal oil) experience.
He’ll be going to the Annual General Meeting this week, to be at the contentious Board election. The company has a fabulous asset base in Saskatchewan and in the United States. He thinks the stock would be a good buy under $10 and better under $9 with the oil price retreating later this year. Management has seen the pressure that they have to perform. Debt went up in 2017 and has to come down.
On Light Oil in Saskatchewan. He is optimistic about the light oil in Saskatchewan. On his list, there are three companies (large cap, intermediate cap and junior) that have exposure to Saskatchewan: Crescent Point, Spartan (now Vermillion), and Surge Energy. This is a desirable area because (1) takeaway capacity is not as difficult from Saskatchewan and (2) this doesn’t have the differential issue.
Their Q1 production was 488,000 boe/day because of all their acquisitions but they reported losses from their hedge book. Their operating margin was $157 million cash versus $305 a year before, but they spent $522 million. The company has $9.8 billion of debt, up from 9.5 billion at the end of December. They have about a half billion dollars of assets for sale. They have $19.4 billion of equity. Book value (ex goodwill) is about $13.92, which is higher than the stock price. The dividend is about 5 cents per quarter. They have a new CEO. It is not clear where their growth will be. Schachter thinks they should focus on their thermal operations and get rid of their conventional-world assets. He is concerned about the balance sheet. The debt to equity ratio looks tolerable. He compared it to Whiting Petroleum, Chesapeake Energy and WPX Energy, all well-known American energy companies that are treated as very exciting but have much worse balance sheets. He sees the Canadian energy companies as value stories compared to the American ones. The bargains are in Canada.
This stock compares to Trinidad Drilling (TDG-T) and both are on his coverage list. He likes what he sees out of Ensign. It has $740 million debt versus $1.7 billion of equity. Their book value is $10.77 and the stock trades at $6. They have a very big presence in the United States. Of $1 billion in 2017 revenue, $459 billion came from the US, $262 from Canada and the rest international. They’re in the Middle East and in Mexico and Venezuela. Venezuela adds some risk to the stock. He is hoping to add coverage on weakness.
A large amount of US exports are products. The refiners have crack spreads that are currently very favorable, which is why you’re seeing merger mania. Imperial Oil, Husky and others in this space are talking about significant profit growth in their Refining and Marketing business. Their net income this quarter was $516 million up from $333 the year before. If you look at the long-term chart, this stock hasn’t made money for investors. The dividend yield is not great. Compare it to Suncor. This hasn’t been an exciting place to be.
This is the star of the industry. They push a million barrels a day. The company has generated a lot of excess cash flow and have been using it to buy back stock. They will generate $10 billion cash flow this year and will spend $5 to 5.5 billion. They’ve increased the dividend to $1.44 and are doing buybacks. They are bringing in over 4 billion discretionary cash this year. They’ve repaired their balance sheet. Debt is down to $13.3 billion at the end of December compared to $16.1 the year before. Their equity base is $45 billion. The one problem for them is their operating cost. They have a large stake in Syncrude, and its costs are about $20 higher per barrel than Suncor’s own costs.
They have gone through a lot of stress at the Board level but that seems to have cleared up. They have a strong balance sheet, with $328 million in debt compared to $2.17 billion of equity. Their production this year will be about the same as last year. He thinks this stock is cheap, like many of its peers, a humbler reflection of what it was in 2008.
This was his top pick last year too. They are doing 37000 boe/day, production volume is up 16% from the year before. He thinks that going forward they will do 38000 boe/day. The company’s cash flow should be over $1 this year, so it is trading under 2x cash flow. He thinks the stock can go up to $7 in one year, and has a $20 target for 5 years. He pointed out on the 10 year chart that the stock has massive upside when the price of oil moves. For example, it went from less than $15 in 2012 to nearly $60 in 2015. Similarly in 2009, it was a $2.40 stock and a year later it was $23. They go from being hated to being loved, and right now, the natural gas story is getting strong. The company can make money at $2 gas, but he expects gas prices to go up as American exports of LNG rise. If AECO goes to $3 at the of this year, this stock will go a lot higher. The book value is over $15.37 and NAV is $13.68. This stock is ridiculously cheap. (Analysts’ price target is 1.58$)
It is on his action alert list. His target is $3.70 this year and $8.50 over the next 3-5 years. The balance sheet is decent, $246 million debt versus $776 million equity. The company is doing 15,700 boe/day, they are 80%-plus light oil. They have a 60 cent cash flow. He thinks the stock could back off into the low $2’s. The stock offers a 4% yield. Below $2 it is a table-pounding buy.