By Angela
Harmantas
There’s
another company scooping up assets in the Canadian oil patch, and it isn’t
Crescent Point. While most of the Canadian business world’s attention was
squarely focused on Crescent Point’s acquisition of Legacy Oil and Gas this
week, one oil and gas stock was floating around the lips of a select group of
investors and analysts. In the crowded oil space, why are people suddenly
paying attention to TORC Oil and Gas?
This week
Canaccord Genuity boosted its price target on TORC (TSX:
TOG) to $13.50 from $12. The firm currently has a buy rating on the stock.
Brickburn Asset Management’s Bill Bonner sung TORC’s praises in an interview
with BNN this week, and Michael Girodano at Stone Asset Management picked the
stock as one to watch in an exclusive interview with SmallCapPower.
Despite the
positive attention, shares of TOG closed at $9.47 on Thursday, down from $9.50
at the beginning of the day.
An emerging
light oil resource play, TORC’s main assets are in Alberta’s Cardium region.
The company recently expanded its asset base in a major way when it acquired
Surge Energy’s southeast Saskatchewan oil assets in a $430 million deal, giving
the company an enormous footprint in the region.
TORC expects
its 2015 production to average a healthy 15,400 barrels per day, with another
87 million barrels of proven and probable reserves in place. Longer-term, the
company has over 600 net undrilled locations between its Cardium and
Saskatchewan plays that present a huge opportunity for growth in already
familiar locations.
One of the
reasons Bonner in particular is attracted to TORC is the diversification of its
asset base across provincial borders. With a new NDP government in place, many
people are left wondering if there could be changes coming to Alberta’s already
strict regulatory regime. Saskatchewan’s more favourable regulatory climate
allows TORC to shift most of its capital to the province in case any changes do
occur.
It isn’t
just analysts and portfolio managers paying attention to TORC: Canada Pension
Plan Investment Board owns 25% of the company. It was the CPPIB that ponied up
$150 million to allow TORC to finance its recent acquisition. CPPIB has been a
significant investor in TOG since 2013.
Financially,
TORC looks to be well positioned to execute its capital program for the rest of
2015, having drawn 50% of its $550 million credit. The company will continue to
focus on delineating its resources throughout the rest of the year, although it
has deferred work on its Monarch property due to high initial costs.
With a new
crop of producing assets in its portfolio, TORC emerged as a rare buyer in an
oil patch where too many companies are looking to sell. We’ll wait and see
whether the market rewards it for this.
