Canadian Money Forum banner
201 - 220 of 456 Posts

·
Registered
Joined
·
1,240 Posts
Bought a couple of USA small cap energy stocks. Ranger Oil and California Resources. Both have really solid NG production and no problems fully optimizing the NG market. Ranger is in the Texas Eagleforde and just reported outstanding results. CA Resources is interesting. They are a leader in CO2 capture. 30% of the electrical power in CA comes from NG. They own a NG power plant right on one of their production locations. There are no pipelines from other states into CA. RBC is very bullish on both. I took a good look at both and I was impressed. The CEO of Ranger was a very senior executive with Encana . NG selling at $7 plus is a licence to print money for good NG producers. Both of these companies have easy and short access to giant sized markets.
 

·
Registered
Joined
·
1,240 Posts
Will be looking at buying two US oil and gas royalties. They look extremely attractive and are paying out a dividend in the 10% range. Their cash flows and income statements fully cover these payouts within very reasonable levels. RBC has great target price upsides for both. Their holdings are large and they are certainly in the right locations. They are Kimbell Royalty and Brigham Minerals. Have done a comparison to Freehold Royalty and imo they are superior to Freehold . RBC Is projecting a 78% upside on one and a 58% upside on the other. With the market conditions as they are I like the idea of reducing risk by getting a 10% dividend. IMO these dividends are quite sustainable and might be increased with the current prices for oil and NG. In many respects the only bull in this market is the energy sector.
 

·
Registered
Joined
·
1,240 Posts
Interesting play. I remember looking at FRU during the previous oil bull. I am not sure how much risk is reduced with royalty companies but I believe there would be some. Have you looked at Topaz Energy Corp. (TPZ) | TSX Stock Price | TMX Money ? They do not have much history but I have heard they follow a royalty model as well. I haven't done any research.
Yes I have. I figure Freehold is a better option. I noted that RBC in their energy report said USA small and intermediate companies were undervalued compared to the Canadian companies . I think that is also the case with the royalties. One of these companies owns a large block in the Bakke, Permian and central Texas fields. There holdings are many millions of acres..11%dividend . . I hold this stuff inside my RRIF and it is just as easy to hold US stocks in a RRIF as it is a Canadian stock. From a tax standpoint there is no difference. The same for a RRSP.
 

·
Registered
Joined
·
1,240 Posts
Will be looking at buying two US oil and gas royalties. They look extremely attractive and are paying out a dividend in the 10% range. Their cash flows and income statements fully cover these payouts within very reasonable levels. RBC has great target price upsides for both. Their holdings are large and they are certainly in the right locations. They are Kimbell Royalty and Brigham Minerals. Have done a comparison to Freehold Royalty and imo they are superior to Freehold . RBC Is projecting a 78% upside on one and a 58% upside on the other. With the market conditions as they are I like the idea of reducing risk by getting a 10% dividend. IMO these dividends are quite sustainable and might be increased with the current prices for oil and NG. In many respects the only bull in this market is the energy sector.
On second thought owning a US limited partnership can be a messy situation from a tax standpoint. The US has a whole different set of rules for these.
 

·
Registered
Joined
·
1,240 Posts
Will be selling my Cenovus . The proceeds will be going to buying more Whitecap and Tamarack Valley. Cenovus is an integrated and I don't see the upside compared to pure oil and gas producers. I would include Enerplus but I already own a big chunk of it.
 

·
Registered
Joined
·
1,240 Posts
Bought a couple of USA small cap energy stocks. Ranger Oil and California Resources. Both have really solid NG production and no problems fully optimizing the NG market. Ranger is in the Texas Eagleforde and just reported outstanding results. CA Resources is interesting. They are a leader in CO2 capture. 30% of the electrical power in CA comes from NG. They own a NG power plant right on one of their production locations. There are no pipelines from other states into CA. RBC is very bullish on both. I took a good look at both and I was impressed. The CEO of Ranger was a very senior executive with Encana . NG selling at $7 plus is a licence to print money for good NG producers. Both of these companies have easy and short access to giant sized markets.
I neglected to mention the possibility of being acquired by one of the big boys. I don't normally consider this in buying stocks but given the current energy market it makes sense. I own Diamondback and they recently made an acquisition. With the hugh free cash flows companies are using the cash to buy back shares and to pay dividends. With its variable dividend Fang is paying something like a 9% payout.. I guess they decided an acquisition of an attractive small cap producer made a lot of sense. I suspect this may happen in Canada. Companies like Whitecap, Tamarack Valley, ARC Resources and others would be attractive acquisitions for the large cap operators.
 

·
Registered
Joined
·
13,751 Posts
Companies like Whitecap, Tamarack Valley, ARC Resources and others would be attractive acquisitions for the large cap operators.
Do you actually think so? Who might be potential acquirers? These companies are nothing Imperial, Shell, Suncor, CRNL, or Cenovus would likely see as fits to their businesses, most of whom are consolidating into fewer (and larger) operations. Cenovus is kind of everywhere but with the Husky acquisition, I think their job is to divest much of Husky's fringe assets, many of which really are crap.

I see these players as more likely to merge amongst each other.
 
  • Like
Reactions: doctrine

·
Registered
Joined
·
1,240 Posts
Do you actually think so? Who might be potential acquirers? These companies are nothing Imperial, Shell, Suncor, CRNL, or Cenovus would likely see as fits to their businesses, most of whom are consolidating into fewer (and larger) operations. Cenovus is kind of everywhere but with the Husky acquisition, I think their job is to divest much of Husky's fringe assets, many of which really are crap.

I see these players as more likely to merge amongst each other.
These outfits don't have fringe operations. They are straight low cost oil and gas producers. When you do price/cash flow and other meaningful metrics they are still selling below historic averages. I don't know if it will happen but I don't rule it out. CNQ has history of making acquisitions . One might me see a merger of equals? Whitecap and ARC would make sense . They would have a solid diversified play on a number of different producing areas. Murray Edwards and CNQ started through that sort of process. Who knows , all I know is these outfits are seeing a big pile of cash coming their way and a key requirement for senior management is how successful they are at deploying capital.
 

·
Registered
Joined
·
3,463 Posts
I seriously doubt there will be any significant acquisitions. M&A is far more frequent in stressed times, not good times; CNQ took out two TSX traded companies (Pony and Storm) in 2020 and 2021 and in general, you probably don't want to own the shares of any company they buy because you're not getting a big premium or the company was already in trouble.
 

·
Registered
Joined
·
1,240 Posts
I seriously doubt there will be any significant acquisitions. M&A is far more frequent in stressed times, not good times; CNQ took out two TSX traded companies (Pony and Storm) in 2020 and 2021 and in general, you probably don't want to own the shares of any company they buy because you're not getting a big premium or the company was already in trouble.
I would agree if these stocks were trading at a premium but they aren't. They need to go a good distance before they reach previous levels. Some are selling at 2.5/ cash flows with a CF at 30%. Whitecap is trading around $10 and its recent previous high was $17. ARC was at $31 back in 2014 and is around $17 today.
 

·
Registered
Joined
·
13,751 Posts
None of these will (should) trade again at their previous highs for any sustained length of time. The long term discounted cash flow won't be there when prices turn south again, at least from an oil perspective. There is no longer a 10 -15 year runway for oil robustness. There is already less than 1 million barrels per day of conventional light/medium/heavy oil being produced out of the WSCB scattered among dozens of intermediates and juniors. It won't be for the oil.

There is more long term encouragement for gas given the surge in LNG interest globally and amount of new North American LNG export facilities. I can see more of these gas operations being of interest.
 

·
Registered
Joined
·
1,240 Posts
None of these will (should) trade again at their previous highs for any sustained length of time. The long term discounted cash flow won't be there when prices turn south again, at least from an oil perspective. There is no longer a 10 -15 year runway for oil robustness. There is already less than 1 million barrels per day of conventional light/medium/heavy oil being produced out of the WSCB scattered among dozens of intermediates and juniors. It won't be for the oil.

There is more long term encouragement for gas given the surge in LNG interest globally and amount of new North American LNG export facilities. I can see more of these gas operations being of interest.
[/QUOTE. A pile NG in Northern BC and the reserve life for stocks like Enerplus and Whitecap are 20 years plus. Whitecap with its techniques has found ways get a a lot more oil out of its holdings. We are a long ways from Peak oil. ESG and government policies have curtailed Capex and new development for the time being. That can change going forward.
 

·
Registered
Joined
·
13,751 Posts
I wasn't talking about company reserves nor even production. Peak oil is a misused term. It used to be 'peak oil' meant peak supply. More recently, it is generally used in the context of peak global demand.

Global oil demand will roll over in the not too distant future and that will impact prices. They will retract to the $60-70 range most likely. Perhaps considerably lower under some scenarios such as BP's 2022 Energy Outlook See page 44 which was done obviously before Russia's invasion of Ukraine. I think their view is a bit too aggressive but the peak is within 5 years. Unlike Doctrine, I believe there will be plenty of supply once we get over the loss of some of Russian supply. (much of it will still find its way to global markets).
 

·
Registered
Joined
·
3,463 Posts
I would agree if these stocks were trading at a premium but they aren't. They need to go a good distance before they reach previous levels. Some are selling at 2.5/ cash flows with a CF at 30%. Whitecap is trading around $10 and its recent previous high was $17. ARC was at $31 back in 2014 and is around $17 today.
The issue is they are all trading at that low cash flow multiple. So if they merge, you just have a larger company with the same cash flow. There is no accretion without some underlying reason to merge. Or worse, if a company buys another, they buy the cash flow but have to pay back the debt. And that means no shareholder returns for a few years. Companies need to pay shareholders now, and not drill or make acquisitions or other such nonsense. There will be an oil price collapse eventually, as AltaRed rightly points out. Times are good - pay down your debt, and any excess goes to shareholders. If that's a 10-20% buybacks for a few years, great. Just my opinion of course. I own most of the oil and gas stocks discussed above. I would sell any of them that break the principle of less direct shareholder returns.
 

·
Registered
Joined
·
4,804 Posts
Companies need to pay shareholders now, and not drill or make acquisitions or other such nonsense.
It seems to be the way of thinking these days but I would imagine eventually some CEO, of some energy company, will eventually figure out that shareholders never deplete. An older shareholder as no choice but to sell their shares to a newer one, but energy reserves do deplete with every barrel shipped. You might be able to convince a newer shareholder of a brighter future, but an empty barrel is always an empty barrel, at any commodity price.

So eventually someone is going to come up with the bright idea that they should think about either drilling or acquiring more reserves. I suspect you will see a little of both, soon enough...and yes, it will probably all get started at the worst possible time, as it always does.
 

·
Registered
Joined
·
13,751 Posts
Many, if not most of the O&G companies being discussed, more than replaced their proved reserves over the past year. As long as reserve replacement ratios exceed 1 (or 100%), perceived corporate value is being added. I say perceived because while there are strict regulatory restrictions on what can be called proved (economic to develop and produce) reserves, it doesn't mean the replacement reserves are as economic (net margin) as reserves currently being produced. That latter issue is currently taking place in all US shale basins where the sweet spots have been drilled and largely produced, and the replacement reserves are further out from the sweet spots.

Acquiring reserves is not really all that accretive since one has to pay a pretty good penny (as measured in cash flow multiples, dollars per flowing barrel, etc.). It is an advantage only when the host company is starving for capital OR their cost of capital exceeds that of the acquiring company OR they are 'tuck-in' operations for the acquiring company where operating cost savings can be wrung out of the system. As Doctrine explained, acquisitions in good times don't often pay out. Buying distressed assets often is, as is consolidation of operations eliminating/reducing G&A. Only a few O&G companies are actually quite good at that.
 
201 - 220 of 456 Posts
Top