Intelligence > NAI Reports > Western Canadian Energy Opportunities – 2017 Q1 Update (PART 1)

Western Canadian Energy Opportunities – 2017 Q1 Update (PART 1)

By Editing NAI
06/04/2017 10:19 p.m.

The oil patch has gone through a very difficult time in 2016, and as it stands, hopefully we may have seen the bottom already. But remember, amongst the daily volatility of the oil price, the energy companies still have businesses to operate and manage.  So if investors can figure out who are the better managed companies, there is still plenty of money to be made in the next few years.  We believe oil & gas is a core part of the world’s commodities and a sector one cannot ignore.  Canada, though representing the higher operating cost structure among all of the major oil producing countries in the world, can still play a significant role in the equation.  Our (NAI500’s) focus, is to research and look into more the junior to intermediate producers active in the Western Canada Sedimentary Basin where the drastic decrease of traditional institutional investors’ interests are evident in the past 3 years.  We believe this is where undervalued situations can be found. 

(Usually the industry categorizes the junior producers as any production up to 10,000 BOE/d, and intermediate are 10,000 -50,000 BOE/d but seems like the juniors have extended up to even 20,000 BOE/d nowadays because of the diminishing list of companies that are still active in the Western Canadian basins, and the lowering of the oil price)

As most of the energy companies announced their Q1 results in the month of May, we like to take this opportunity to update our readers how these companies are doing.  The first quarter always is a good sign to provide a realistic view on how the energy players will fare for the rest of the year.

Pine Cliff Energy (TSX:PNE) – spearheaded by one of the legendary oil & gas personnel in Alberta, George Fink, Pine Cliff has done relatively well in maintaining a strong balance sheet over the last 2 years even in the downturn.  Now with the natural gas price being forecasted to continue to be strong, the company is in even better shape than 1 year ago. 


PNE’s net debt was $19.5mm at the end of Q1/17. The company continues to reduce its bank debt paying down $11.3mm generated by the free cash flow.  The company is a well-run gas machine with production level at ~ 21,000 BOE/d which is becoming too big to be ignored by investors if they are looking for a company that is leveraged to gas, has low debt to cash flow and growth. 


Tamarack Valley Energy(TSX:TVE)- After the Spur Resources acquisition last year, Tamarack Valley continues its steady production profile in 2017 with an average of 17,796 BOE/d in the quarter.  The annualized debt to Cash flow ratio is about 1.27 which is expected to decrease further by end of the year with the production and cash flow increases.  Because of the TransGas Coleville Gas Plant Shut-in, the Q2 production will be affected so it will be around 18,000 to 18,500. (not in 19,000 range yet)  The company has had some corrections since Dec last year as the market did not give a lot of credit to the Spur acquisition.  TVE continues to deliver under the low commodity market without hurting its balance sheet, it is definitely one of the better run companies in the intermediate producers list as it continues to move up the ladder and increases its NGLs % in its production profile, which generates more revenue power as a result. 

Prairie Provident Resources – (TSX:PPR) – This is a new company recently added to NAI500’s energy list, the company was formed originally by merging Lone Pine Resources and Arsenal energy in Sep 2016.  PPR holds a high working interest in a large land base, with a primary focus on the development of its covenantal oil plays within three core areas (Wheatland, Princess and Evi) located in Alberta. These assets offer multi-zone potential that offer attractive economics even in the current low commodity price environment.The company announced the Q1 result and it was quite promising.  The production average for the quarter was 5,637 BOE/d , which is a step up from the previous quarter of 4,845 BOE/d.  The company is one of the very few junior producers that are growing and will be close to the critical number of 10,000 BOE/d.  TVE was one that was close and they pushed through by a major acquisition last year.  The operating netback is also a healthy number of $16.25/boe, while its annualized debt to cash flow ratio is manageable at 2.5x.  The company states its debt to EBITA ratio as an even lower number of 1.6 x for investors’ reference.  The company is still a relatively new name in the market so we will continue to provide updates right long this year.

Hemisphere Energy (TSXV:HME) – one of energy companies that presented at our investment conference in Vancouver in Jan this year, has reported its Q1 result last week.  The operating netback continues to improve to $18.26/BOE, a major increase compared to 1 year ago.  The average corporate production rate has increased and the company also recently renewed the credit facility of $12.5M which is significant for a junior company like HME in order to have access to capital.  Hemisphere has been conservative in terms of capital management (and rightly so) in 2017, but is expected to achieve steady growth throughout the year with the success of its waterfloods and additional drilling.  The company is still trading at almost 1/3 of its 2P reserves value for the year ended Dec. 31, 2016.  With the recent volatility of oil prices, the current share price of $0.20 provides a great opportunity for investors to build a position for long term gains.  

To be continued…..

Written by NAI500 Research Team

Disclaimer: This update report does not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. NAI500 makes no guarantee, representation or warranty and the companies mentioned may be clients of NAI Interactive Ltd (NAI500). Do your own due diligence.


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