The TSX oil and gas stocks we have identified appear to be undervalued based on their low EV/EBITDAX ratios
SmallCapPower | July 17, 2018: Oil and gas exploration companies rely on drilling new wells to increase production and improve the economics of their operations. The companies that are best able to find high boe/d drilling sites at low costs will often see the greatest margin growth and related increase in value. Unfortunately, exploration costs can be interpreted in different ways, with some companies including it as an operating expense and others excluding it. Consequently, relative valuation metrics such as EV/EBITDA sometimes require an adjustment to be a true apples-to-apples comparison. By adding back exploration costs to calculate EBITDAX, we can compare O&G exploration and production companies on a level playing field. Today we have assembled a list of five TSX oil and gas stocks with the lowest forward looking EV/EBITDAX ratios.
Gear Energy Ltd. (TSX:GXE) – $1.44
Oil & Gas Exploration and Production
Gear Energy is an oil and natural gas producer with assets in Alberta and western Saskatchewan. The Company strives to grow its operations through a balanced strategy of exploration and M&A. Its two core assets are its Lloydminster Heavy Oil and Alberta Light Oil properties. Its 2018 forecast include average annual production of 7,350 boe/d (86% liquids).
- Market Cap: $280.9 Million
- EV/EBITDAX 2018: 3.3 x
- EV/EBITDAX 2019: 1.8 x
- YTD Total Return: -5.6%
Frontera Energy Corp. (TSX:FEC) – $18.70
Oil & Gas Exploration and Production
Frontera Energy is a Canada-based producer with operations focused in Latin America. The Company has diversified interests in more than 30 exploration and production blocks in Columbia and Peru. As of December 31, 2018, FEC’s properties hosted 2P reserves of 154M boe. Frontera is guided to produce an average net production of 65,000-75,000 boe/d in 2018.
- Market Cap: $1,870.2 Million
- EV/EBITDAX 2018: 7.5 x
- EV/EBITDAX 2019: 2.9 x
- YTD Total Return: 30.6%
Baytex Energy Corp. (TSX:BTE) – $4.53
Oil & Gas Exploration and Production
Baytex Energy is a Canada-based oil producer operating in Alberta and Texas, producing 51% of its oil from its Eagle Ford asset in Texas and the remainder from its Peace River and Lloydminister heavy oil fields. On June 18, 2018, the Company announced that it had reached an agreement with Raging River Exploration (TSX:RRX) to merge. The combined company will have an enterprise value of approximately $5B and will continue to operate under the Baytex name. Following the merger, average annual production is expected to range between 100,000 – 105,000 boe/d.
- Market Cap: $ 1,071.8 Million
- EV/EBITDAX 2018: 6.0 x
- EV/EBITDAX 2019: 3.5 x
- YTD Total Return: 69.4%
Crew Energy Inc. (TSX:CR) – $2.26
Oil & Gas Exploration and Production
Crew Energy is a Canada-based oil and gas company operating in western Canada. The Company’s Montney asset in northern British Columbia represents ~1/3 of the province’s natural gas reserves in a siltstone formation, while its Lloydminster asset in Alberta/Saskatchewan is considered a more conventional heavy oil/natural gas asset. Crew’s Montney asset includes over 441 net sections with 2P reserves of 370M boe. In Q1/2018, the Company was producing approximately 26,000 boe/d.
- Market Cap: $343.1 Million
- EV/EBITDAX 2018: 5.2 x
- EV/EBITDAX 2019: 4.1 x
- YTD Total Return: 20.2%
BlackPearl Resources Inc. (TSX:PXX) – $1.45
Oil & Gas Exploration and Production
BlackPearl is an oil producer operating in western Canada. The Company’s flagship asset, Onion Lake, is guided to produce 11,000 – 12,000 boe/d in 2018. The Company plans to expand at another asset, the Blackrod operation, which could produce up to 100k boe/d when fully operational. The Company’s properties host proven and probable reserves of 159M boe.
- Market Cap: $488.7 Million
- EV/EBITDAX 2018: 5.2 x
- EV/EBITDAX 2019: 4.6 x
- YTD Total Return: -28.3%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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