Value Microcaps Junior Energy

[dr_airtime]

Canadian Oil & Gas Bottomed Early!

Bottom was in before tax loss selling lows. A lot of this was the new pipeline takeaway/injection regulation for the main Alberta gas gathering system (NovaGas) putting the bottom for Alberta Gas (AECO) at the start of November.

I've been looking for a month. These aren't microcaps but these are the names I have bought in the last 3 trading days. There may be a US listing for Husky. Combination of personal research, reading analyst report comps and presentations, and Keith Schaefer's O&G Newsletter for idea generation.

**Didn't post charts but they are all at 3 year lows. Canadian O&G is one of most hatest sectors in North American Stock Market...even worse than US O&G. Most stocks bottomed in early November because of the low put in for AECO gas prices then (see my previous post)**

Husky HSE.TO - 5% yield. Integrated heavy oil producer and refiner. Has big US refining segment that insulates it from low $CAD oil pricing (offset by higher margins at US refineris). Net Debt to TTM FFO at 30-Sep-19 was only 1.1X. FCF of CAD 500M in 2020 funds the CAD 500M dividend so capex is financed by debt, but FCF explodes to CAD 1.5Bn in 2021. I don't think you'll buy that 2021 FCF cheaper than now.

AAV.TO Advantage Oil & Gas - low cost gas producer (CAD 1.10/MCF) b/c they own 400 MMCF of gas processing capacity. Liquids rich Motney. Trading at 4.0X 2020 EV/DACF and 3.0X 2021 EV/DACF. Liquids is growing from 7% of production to >20% by 2021 which should double netback. Rest of production gas. 2020 Net Debt/DACF is 1.6X which is manageable. Currently produce around 45,000 boepd of gas. Story here is liquids growth from liquids rich Montey. No dividend.

TOU.TO - Tourmaline Oil. Gas growth story. Set to grow to Canada's largest gas producer for first time in 2020. Big producer. 300,000 boped in 2019 and 61,000 of that was higher netback liquids. ~4% dividend yield (CAD 0.48 annual divvy, paid quarterly)). **Bonus spin out of royalty and processing properties you will receive in early 2020. Like when Viper Energy Partners VNOM was spun out of Diamondback**. 1.4X Net Debt to TTM FFO at SEp-30-19. Like AAV.TO above they are going to grown liquids production, but more in the near term. Guiding for +20% liquids production growth in 2020. Trading around 4.0X 2020 EV/DACF now like a lot of the Canadian sector. I like Tourmaline the most as market isn't pricing in the likely free distribution of the new royalty company Topaz in 2020.

Topaz Energy Formed

WCP.TO - Whitecap Resources. Summary is: 72,000 boped in 2020 @ 85% oil; 1.5X 2020 Debt/FFO; 4.4X 2020 EV/FFO @ WTI USD 75/bbl; juicy 7.7% yield. Short summary launched here today. Couldn't find them on any comp sheet so all those numbers taken from presentation below.

SA Article from today

Whitecap Dec Presentation

PEY.TO - Peyto. Once the darling gas producer of the TSX, now fallen 90% from grace. Bigger gas producer at 85,000 boepd 2020. ~4.2X 2020 EV/DACF and still slated to grow production in 2020 and 2021. Has some of highest debt unfortunately (which is why it has fallen so far). GMP First Energy has Peyto at 3.1X 2020 EV/FFO. That being said, Peyto is one of the lowest cost producers because they own all their gas processing infrastructure.

I own these 5 only very recently but have been watching and researching for a month. A few overbought in the short term so there may be one last window to buy lower between now and December 27th.