The Canadian oil and gas stocks on our list are operating outside of Canada but are likely trading at a discount due to the recent Trans Mountain pipeline issues
SmallCapPower | May 29, 2018: Since April 6, Kinder Morgan (NYSE:KMI) suspended all non-essential activities and spending on the Trans Mountain Expansion project, which would more than double the pipeline’s capacity. On Tuesday, the Canadian government announced the purchase of the pipeline and its related infrastructure for $4.5B, expected to close in August. However, the success of the project still depends on the co-operation of the BC NDP/Green government. According to the Albertan government, Canadian oil production already exceeds current pipeline capacity, and could further increase should more pipelines be constructed. The Canadian oil and gas stocks on our list today, while Canada-listed, do not operate in Canada, and so their production is not connected with the success of the project. Importantly, the companies trade at a discounted average FY2018 P/CF multiple of 5.3x, compared with their peers, which trade at an average of 6.9x.
Frontera Energy Corp. (TSX:FEC) – $38.14
Oil & Gas Exploration and Production
Frontera Energy is a Canada-based producer with operations focused in Latin America. The Company has diversified interests in over 25 exploration and production blocks in Columbia and Peru. FEC aims to renegotiate contracts, conduct further exploration, and optimize their portfolio. The Company is guided to produce an average net production of 65,000-75,000 boe/d in 2018.
- Market Cap: $1,893.7 Million
- Price to Cash Flow FY2017: 4.1x
- Forward Price to Cash Flow FY2018: 5.0x
- Forward Price to Cash Flow FY2019: 3.3x
- YTD Total Return: -3.7%
Canacol Energy Ltd. (TSX:CNE) – $4.25
Oil & Gas Exploration and Production
Canacol Energy is a natural gas producer operating in Columbia and Ecuador. The Company operates 90 wells, with a guided average production of 114-129 MMcf/d. Canacol aims to produce 230 MMcf/d going into 2019, through acquisitions and additional wells. In March, the Company closed the sale of its oil assets to Servicious Lebertador S.L. for US$36.4M.
- Market Cap: $746.8 Million
- Price to Cash Flow FY2017: 8.9x
- Forward Price to Cash Flow FY2018: 7.3x
- Forward Price to Cash Flow FY2019: 3.0x
- YTD Total Return: -5.3%
PetroShale Inc. (TSXV:PSH) – $2.35
Oil & Gas Exploration and Production
PetroShale is a Canada-based oil producer operating in North Dakota. The Company’s operations are located within the Bakken/Three Forks region (North Dakota), where its production currently averages 6,000 boe/d (92% liquids), a significant increase from its Q4 2017 average of 2,100 boe/d due to the addition of 4.5 net wells. For continued expansion, PSH has 59.5 net drilling locations in the area.
- Market Cap: $374.0 Million
- Price to Cash Flow FY2017: 19.4x
- Forward Price to Cash Flow FY2018: 5.3x
- Forward Price to Cash Flow FY2019: 2.8x
- YTD Total Return: 9.3%
SDX Energy Inc. (TSXV:SDX) – $1.05
Oil & Gas Exploration and Production
SDX Energy is a North Africa focused exploration and production company. In Egypt, SDX has a 50% interest in two producing assets, the North West Gemsa and Meseda. The Company also controls 75% of the Sebou concession in Morocco. Overall, SDX has net production of 3,500 boe/d. Several strong explorations saw the Company’s stock price rise 65% from March through mid-May, although the stock dropped 23% to-date following poor test results.
- Market Cap: $214.7 Million
- Price to Cash Flow FY2017: 7.5x
- Forward Price to Cash Flow FY2018: 3.7x
- Forward Price to Cash Flow FY2019: 3.1x
- YTD Total Return: 10.5%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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