Ticker Symbol: CR-T
CREW ENERGY
FINANCIAL HIGHLIGHTS
CR Q3/21 RESULTS & ANALYSIS
- Crew’s production in Q3/21 rose by nearly 17% to 23,659 boe/d (above our 22,000 boe/d forecast). Volumes were lower than Q2/21 (26,712 boe/d) due to a turnaround at the West Septimus plant (18,500 boe/d for seven days) during the third quarter. They spent $56.5M in Q3/21 versus $21.8M in Q3/20. Production is now at 30,000 boe/d even after the sale of their heavy oil assets which were producing 1,009 b/d in Q3/21 (1,050 b/d at the time of the sale). Gross cash proceeds were $10.3M but they also got rid of Asset Retirement Obligations (ARO) of $34.5M. So this sale was worth $44.8M to Crew. We see this deal as a wonderful result as they had the asset for sale for a few years. Their patience was well rewarded.
- Crew is forecasting average volumes this year between 26K-28K boe/d. We are modelling in production this year of 26,400 boe/d with an exit level over 30,000 boe/d. Crew is modelling annual 2022 production of between 31,000-33,000 boe/d, capex up to $95M and funds flow of $190-$210M, so they expect to pay down quite a bit of debt next year. Adjusted funds flow for Q3/21 was $26.5M versus $8.5M in Q3/20. This came out to $0.17 per share versus $0.06 last year. We see funds flow this year at $125M compared to capex of $160M.
- Their core area in NE BC produced 96% of total production in the quarter or 22,622 boe/d, up 21% from Q3/20 when production in this core area wass 18,730 boe/d. Under our SER Quality Scoring system we rate CR a ‘B’ – a Survivor, albeit one with too much overall net debt at $404M at the end of Q3/21. Fortunately the majority of their debt ($297M of senior unsecured notes) has a 2024 maturity. Their bank loan usage at the end of Q3/21 was $71.5M on their $150M line. Book value at the end of Q3/21 was $5.57 per share which rose due to an impairment reversal of $228.5M in the quarter which added about $1.15 to book value.
- Net operating costs fell 11% in the quarter to $5.11/boe in Q3/21 versus $5.75/boe in Q3/20. Operating netback in the quarter was $16.07/boe up from $8.63/boe in Q3/20.
- Insiders are large shareholders. The CEO, Dale Shwed, owns 7.1M shares. We are encouraged to see all of senior management owning shares.
- Crew has a large 2P reserve base of 2.46Tcf so at some point in the future we could see the company get a premium takeover offer. However, we do not see this happening at current depressed stock price levels. Their current infrastructure should allow them to grow in the coming years to 40,000 boe/d. As they reach this level the likelihood of a deal would make sense if the proposed purchase price reflected their reserve position. They have >2,200 Montney wells in inventory. Crew sees their 2P worth $8.22 per share. Our conservative 2P 2020 year-end reserve value is close, at $8.19 per share.
Quarterly Results
Source: Corporate Reports & SER Forecasts
Investment Highlights
Source: Crew Investor Presentation October 2021
Significant Upside to Add Reserves
Source: Crew Investor Presentation October 2021
Excellent Market Access
Source: Crew Investor Presentation October 2021
Shareholders & Bondholders
Source: Crew Investor Presentation August 2021
Annual Financials
Source: Corporate Reports & SER Forecasts
Crew Energy Inc. – Weekly
Source: stockcharts November 19, 2021
Crew Energy Inc. – Monthly
Source: stockcharts November 19, 2021
Valuation Comparison
Source: Corporate Reports & SER Forecasts
Conclusion: BUY on weakness
- Crew is trading below book value of $5.57 per share and our conservative NAV at year-end 2020 of $8.19, which does not include any value for land or tax pools and uses flat commodity pricing. We see Crew as managing its way through the cycle. They are close to the Coastal Natural Gas Link Pipeline for the LNG Canada project and should be a big beneficiary of this project and its volumes in four years. If this key LNG play sees consolidation by the larger players in the years ahead, Crew is sitting with an enviable land position and could get a very attractive takeover offer. We see consolidation starting when LNG Canada comes on in 2024.
- We own CR and added to our position when we got the Action Alert BUY signal when the S&P Energy Bullish Percent Index flagged a low-risk entry point on March 13th, 2020. We expect to add to this position when we get the next low-risk BUY signal. The stock would be a very attractive purchase below $2.00 (range $1.60-$2.00) per share. See value metrics assumed in the chart above.