This section covers twenty companies on our Coverage List reporting their Q1/23 results.
- CWC Energy Services (CWC-V)
- Crew Energy (CR-T)
- Enbridge (ENB-T)
- Ensign Energy Services (ESI-T)
- Essential Energy Services (ESN-T)
- Gran Tierra Energy (GTE-T)
- Keyera (KEY-T)
- NuVista Energy (NVA-T)
- Obsidian Energy (OBE-T)
- Paramount Resources (POU-T)
- Pembina Pipeline (PPL-T)
- Pine Cliff Energy (PNE-T)
- Precision Drilling (PD-T)
- Surge Energy (SGY-T)
- TC Energy (TRP-T)
- Topaz Energy (TPZ-T)
- Tourmaline Oil (TOU-T)
- Vermilion Energy (VET-T)
- Whitecap Resources (WCP-T)
- Yangarra Resources (YGR-T)
For those wanting more knowledge of companies they own, they can get access to webcasts of companies’ conference calls in the investor section of their websites, under their events section. Most companies especially the larger ones hold webcasts and these are archived thereafter on their websites.
Our ‘Quality Score’ highlights how strong companies are and if they will (A) thrive and be successful going forward, (B) survive the difficult times or (C) have problems we are concerned about. We explain in each company report why we rated the company as we did. If the prospects change, we highlight the change in rating and the reasons for doing so when we go over each of the companies’ quarterly results.
The scoring criteria includes:
- Insider Ownership – The higher the better. If there is low ownership that is a negative and selling is watched carefully.
- Hedge books – Is the company a successful hedger? Has it added hedges given the war premium prices?
- Balance Sheet – Do they have positive working capital, is debt low versus equity and is the direction down versus rising at the current time?
- Debt Maturities – Do they have debt maturing in the next year or so? Do they have capability to roll it over or extend?
- Production Profiles – Are they going to see production grow 10&, have modest growth of 5-10% this year, or be flat to down?
- Free Cash Flow – Are they generating free cash flow to pay down debt, provide shareholder returns and improve their balance sheet?
- Interest Coverage – Is their coverage ratio better than 6x or between 4-6x or below 4x?
- Debt/EBITDA – Is the ratio less than 1x, below 2x or is it above 2x?
HIGHLIGHTS OF Q1/23 RESULTS
CWC Energy Services (CWC-V $0.21)
CWC is a small cap driller with activities in the US and Canada. Its contract drilling fleet has 15 active rigs in the US (after 2022 acquisitions) and seven rigs in Canada. It is Canada’s second largest player in the service rig industry with 141 rigs of which 63 were active in Q1/23. In 2023, they see production services being 45% of revenues and contract drilling – in the US 41% and Canada 14%. Revenues in Q1/23 rose 41% to $57.5M versus $40.8M in Q1/22. EBITDA rose 30% to $10.9M versus $8.4M in Q1/22. Net Income in the quarter was $4.7M up from $3.4M in Q1/22. Capex in Q1/23 was $10.1M and they plan on spending $30.3M in 2023 (growth $23.3M and maintenance $7M). Long term debt is a manageable $43M at the end of Q1/23. Under our SER Quality Scoring system we rate CWC as a ‘B’- a Survivor entity, as they have reasonable debt and generate free cash flow. They have an equity base of $215M and book value of $0.42 per share. Our tentative forecast for 2023 is for revenues of $255M, EBITDA of $56M and for CFPS of $0.07 per share.
The stock trades below 2022 book NAV of $0.42 per share. Our BUY range is ($0.18 – $0.21). Our one-year target is $0.50 per share and our Bull Market peak target is $1.00 per share. Further, consolidation is coming to the service sector as utilization rates pick up. Will CWC end up being an acquisitor or the acquired? We hope the former. We added CWC to our Action BUY List on March 13th at $0.205 when our first energy sector BUY signal was triggered. We became shareholders thereafter on March 21, 2023.
SER Quality Score
Crew Energy Inc. (CR-T – $4.61)
Crew is a BC Montney natural gas company with a strong growth focus. Crew’s production fell slightly in Q1/23 to 32,963 boe/d from 33,399 boe/d in Q1/22 as they focused on paying down debt, and they lowered debt meaningfully. Debt at the end of Q1/23 was $105M down from $149M at the end of 2022. The also increased cash in the quarter from $55M at year end to $81M at the end of Q1/23. They had decent performance even though commodity prices having retreated, especially natural gas. Adjusted Funds flow in Q1/23 was $74.5M ($0.48 per share) versus $77.7M ($0.51 in Q1/22). Capex was held back and was $22M in Q1/23 down from $55M in Q1/22. Due to the significant debt reduction Crew, on our SER Quality Scoring system, is an ’A’ – a Successful entity. Their core area in NE BC now produces all their volumes. We see average production in 2023 at 31,500 boe/d with liquids volumes growing as a percent of volumes to 27% from 21% in Q1/23. Net capex should be around $200M and Crew should generate cash flow of around $280M or $1.81 per share.
Crew is trading below book value of $8.00 per share and our conservative NAV at year-end 2022 of $15.70 per share, 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. Crew is on our Action Alert BUY list. We own CR personally and hold a core position. The stock would be a very attractive purchase below $4.40 (range $4.00-$4.40) per share. The stock is a clear BUY for long term investors wanting exposure to the potential of LNG off the west coast of Canada.
SER Quality Score
Enbridge Inc. (ENB-T – $53.28)
Enbridge moves around 30% of the crude oil produced in North America (3.1 Mb/d) and nearly 20% of natural gas consumed in the US. The company has a market cap of $108B. Enbridge sees itself as building a bridge to a cleaner future and has a meaningful renewable energy (wind farm) business in Canada, the US and Europe. Revenues in Q1/23 were $12.1B down from $15.1B in Q1/22. Operating income for the quarter grew 10% to $2.66B from $2.42B in Q1/22 Corporate Adjusted EBITDA was $4.47B in Q1/23 up 8% from $4.15B in Q1/22. Liquids pipelines are their most profitable area with segment profits of $2.36B. Gas Transmission and Distribution was in second place with $1.92B of profits. Earnings were $1.73B down from $1.93B in Q1/22. The company forecasts corporate Adjusted EBITDA for 2023 at $15.9B – $16.5B.
This Conservative stock trades at 1.67x book value of $32.11 per share or at $53.28 per share. The stock would be an attractive BUY around 1.6x book value or around $50.00 per share. On a yield basis, a good BUY target would be at a 7% yield or below $51 per share. Our BUY price range is therefore below $51 (range $49-$51 per share). We have a one-year target of $60 per share. We added ENB to our Action BUY List on March 15, 2023 at a price of $50.57 per share when we got one of our key BUY signals for the sector.
SER Quality Score
Ensign Energy Services (ESI-T $2.02)
Ensign is a large international driller with operations in the US, Canada and Internationally. Its contract drilling fleet has 114 active rigs in Canada, 86 in the US and 32 rigs Internationally. It also is a meaningful player in the service rig industry with 47 rigs in Canada and 47 in the US. It is Canada’s largest land driller and in number five slot in the US. Revenues in Q1/23 rose 46% to $484M from $333M in Q1/22. Of this 29% came from Canada, 57% from the US and 14% from International. Funds flow in the quarter was $118M ($0.64 per share) versus $77M in Q1/22 ($0.47 per share). Capex during the quarter was $50M and they plan on spending $157M for the year. For 2022 is forecast at $165M of which $60M is for growth initiatives and the rest maintenance capital. Operating days for drilling rigs rose 2% in Canada, 25% in the US and 26% Internationally. We forecast revenues for 2023 at $1.6B, EBITDA at $360M and Funds Flow per share at $2.07 per share. Under our SER Quality Scoring system we rate Ensign as a ‘B’ – a Survivor entity. They have an equity base of $1.3B, book value of $7.01 per share and net debt at $1.42B. Our tentative forecast for 2023 is for Revenues of $2.0BM. EBITDA of $500M and for Funds Flow per share of $2.50 per share.
The stock trades below book value of $7.01 per share. We look for the stock to decline to below $2.30 per share (BUY range $2.10 – $2.30). Our one year target is $6.00 per share and our Bull Market peak target is $12.00 per share. Remain patient and for risk tolerant Entrepreneurial Investors this should be an attractive investment idea. It is now in BUY range and we expect to add Ensign to the Action BUY List when we get our next Action BUY signal triggered. This should occur before the end of June.
SER Quality Score
Essential Energy Services (ESN-T $0.355)
Essential is a well-run energy service company, focused on coil-tubing & pumping services and the sale and rental of downhole tools. They have a working capital surplus of $49M or $0.37 per share. Under our SER Quality Scoring system we rate ESN as a ‘B’, a Survivor. Revenue in Q1/23 rose 22% to $46M from $38M in Q1/21. EBITDA in Q1/23 came in at $5.8M up from $3.6M in Q1/22. Capex in Q1/23 was $1.3M and our forecast is that they spend $8M in 2023. ESN is running the business efficiently and prudently. We are forecasting revenues in 2023 at $165M, cash flow at $12M and CFPS of $0.09.
Essential is cheap on a price to book value basis at 0.36x their book value of $0.90 per share. Longer term, ESN and its equipment would be a significant beneficiary of the LNG Canada project as its deeper coil tubing fleet can do work in the Horn River area of NE BC. We have a one-year target of $0.60 and a $3.00 per share Bull Market Peak target in 2025, so there is lots of upside in the stock (stock reached $0.56 in 2022) for patient Entrepreneurial small cap investors. The stock is a great BUY below $0.32 (range $0.28-$0.32) which is very close. ESN is on our Action Alert BUY list.
SER Quality Score
Gran Tierra Energy Inc. (GTE-T – $7.49)
Gran Tierra works in Colombia and Ecuador with a focus on oil production. Production in Q1/23 rose 8% to 31,611 b/d from 29,362 b/d in Q1/22 but was down from 32,595 b/d in Q4/22. Revenues fell 18% to US$144M from US$175M due to lower commodity prices. Funds flow fell 31% to US$60M from US$87M in Q1/22. Capex was US$71M. Cash at the end of Q1/23 was US$106M and they plan on carrying US$75-US$100M going forward. In 2023 Q4/23 volumes should reach 33,000 b/d (exit 2023 over 33,700 b/d) with capex of US$235M and generate over US$300M of cash flow. The free funds flow will be used to pay down debt and continue their NCIB. Effective May 3rd they got shareholder approval for a 10 for 1 reverse split of the shares. This occurred on May 8th. This reverse split should make the stock more attractive to institutional investors.
GTE trades in both Canada and the US and reports results in US dollars. After the 10 for one reverse slit it trades below book value of $11.95 per share and below our NAV of C$22.50 per share. The stock would be an attractive BUY below $9.00 which it is now. We have a one-year target of $16.00 per share as they will make more progress in lowering their debt load in 2023 and have production growth. Any major exploration success could lift the stock quickly. We are shareholders of GTE and plan to build up this position over time. GTE remains on our Action Alert BUY list. We have been adding to this position regularly. Our Bull Market Peak target is $50.00 per share.
SER Quality Score
Keyera Corp. (KEY-T – $32.21)
Keyera processes, transports and markets natural gas and liquids across Alberta. It has three business lines: Gathering and Processing, Liquids Infrastructure and a volatile performing Marketing operation. Overall revenues grew 6% in Q1/23. Revenues and net income in each line were: Gathering and Processing revenues of $187M in Q1/23 ($154M in Q1/22) and net of $99M ($77M in Q1/22). Liquids Infrastructure $178M of revenues in Q1/23 ($159M in Q1/22) with net income of $117M in Q1/23 ($104M in Q1/22). The volatile Marketing business had a great quarter with revenues rising to $1.56B in Q1/23 ($1.49B in Q1/22) and with net income of $115M in Q1/23 ($92M in Q1/22). Net income for the quarter was $138M ($0.60 per share) versus $118M or ($0.51 per share) in Q1/22. Revenues in Canada were 79% of the total ($1.42B) and the US 21% ($371M).
This Conservative stock trades at 2.6x book value of $12.42 per share or at $32.21 per share. The stock would be an attractive BUY around 2.3x book value or around $28 per share now that the KAPS system is complete and slowly ramping up. On a yield basis, a good BUY target would be a >6.5% yield or below $29.50 per share. Our BUY price range is therefore below $29.50 (range $28-$29.50 per share). Our one year target is $35.00 per share.
SER Quality Score
NuVista Energy LTD. (NVA – T $10.98)
NuVista is focused on the scalable and repeatable liquids rich Montney formation in two core areas (Wapiti and Pipestone). Condensate and liquids make up a high percent of production and revenues. In Q1/23, liquids were 41% of total volumes. NuVista had production growth of 7% to 71,209 boe/d in Q1/23 from 66,599 boe/d in Q1/22 but below Q4/22 production of 74,252 boe/d. Funds flow in Q1/23 was $207M ($0.95 per share) up 9% from $190M in Q1/22 ($0.83 per share). The company has been around since April 2003 and has had a focus on natural gas since inception. Production in 2023 should grow to over 80,000 boe/d with capex of $440M and funds flow of $820M ($3.74 per share). Under our SER Quality Scoring system we rate NVA as an A – a Successful entity, as they have low net debt $170M and generate significant free cash flow to pay this down and provide for shareholders return. They have an equity base of $2.0B at the end of Q1/23 or $9.17 per share. Our Net Asset Value calculation is $19.80 per share at December 2022.
The stock trades below our 2022 NAV of $19.80 per share but above book value of $9.17 per share. We look for the stock to decline to below $10.50 per share (BUY range $10.00 – $10.50) before it would be a BUY recommendation. When it does we plan on adding this idea to our Action BUY List. Our Bull Market peak target is $25.00 per share. Remain patient for now.
SER Quality Score
Obsidian Energy (OBE-T $8.04)
Obsidian is an intermediate sized oil producer with three core areas (Cardium, Viking and Peace River all in Alberta). In Q1/23, Obsidian saw production growth of 13% to 33,153 boe/d up from 29,407 boe/d in Q1/22 and above our forecast of 32,200 boe/d. Cash flow was $73M ($0.89 per share) down from $84M in Q1/22 ($1.03 per share) due to lower commodity prices. The company may be known to investors via their prior corporate name of PennWest Petroleum. It was changed to Obsidian in June 2017. Our forecast for 2023 is for average volumes of 33,000 boe/d, capex to be around $270M ($107M spent in Q1/23 to drill 37 gross wells) and cash flow of $350M ($4.25 per share). Under our SER Quality Scoring system we rate OBE as an ‘A’ – a Successful entity, as they have low net debt of $351M at the end of Q1/23 down from $449M at the end of Q1/22. OBE should generate significant free cash flow to pay debt down further in 2023 and provide returns to shareholders via stock buybacks (NCIB). They have an equity base of $1.6B at the end of Q1/23 or $19.51 per share. Our Net Asset Value calculation is $16.23 per share at December 2022.
The stock trades below our 2022 NAV of $16.23 per share and below book value of $19.51 per share. Our BUY range is below $8.50 per share (BUY range $7.50 – $8.50). Our Bull Market peak target is $30.00 per share. We are likely to add OBE to our Action Alert BUY list when we get the next low risk BUY signal.
SER Quality Score
Paramount Resources (POU-T $30.29)
Paramount is a rapidly growing liquids rich Montney player with its main operations in the Grande Prairie area. In Q1/23, POU saw production growth of 19% to 97,629 boe/d from 82,137 boe/d in Q1/22 and up modestly from Q4/22 volumes of 97,370 boe/d. Funds flow was $268M ($1.89 per share) up from $238M in Q1/22 ($1.70 per share) but down from $341M in Q4/22 ($2.40 per share) when commodity prices were higher. Free cash flow was $60M compared to $103M in Q1/22. Capex in Q1/23 was $184M compared to $117M in Q1/22. Paramount is now debt free. Our forecast for 2023 is for average volumes to exceed 102,000 boe/d, capex to be around $720M and cash flow of $1,080M ($7.56 per share). Under our SER Quality Scoring system we rate POU as an ‘A’ – a Successful entity. The company has a cash balance of $82M and no debt. Its investment assets were worth $498M at the end of Q1/23. POU has an equity base of $3.3B at the end of Q1/23 or $23.21 per share. Our Net Asset Value calculation is $41.31 per share at December 2022.
The stock trades above book value of $23.21 but below our conservative NAV (using flat pricing and no value for land and tax pools) of $41.31 per share. Paramount rose significantly in 2022 and reached our one-year target. The stock has retreated since then. We see the stock retreating during the currant market weakness to under $26.00 per share (bottom range $24.00 to $26.00 per share) providing the next great buying opportunity. Our BUY parameters are 1.0x book value and below 3.4x 2022 CFPS. We intend to add POU to our Action Alert BUY list when it reaches our BUY levels and we get our next BUY signal.
SER Quality Score
Pembina Pipeline (PPL-T $43.15)
Pembina is a transportation and midstream provider that has served customers for 68 years. It has three business segments: Pipelines, Facilities, and Marketing & New Ventures. Revenues fell 24% to $2.3B from $3.0B due to asset sales and a disruption in their northern pipeline system. This is now being repaired and they are working with the regulator to get approval to ramp up once again. This will also impact Q2/23. Earnings fell 23% to $369M ($0.61 per share) down from $481M in Q1/22 ($0.81 per share). Total volumes fell 5% to 3.188Mb/d from 3.369 Mb/d. Pembina has provided guidance of EBITDA between $3.5 – $3.8B in 2023 versus $3.75B in 2022. Capex guidance is for a spend of $730M in 2023.
This Conservative stock trades at 1.51x book value of $28.65 per share, or at $43.15 per share. The stock would be an attractive BUY around 1.4x book value or around $41 per share. On a yield basis, a good BUY target would be an >6.0% yield or around $43.00 per share. Our BUY price range is therefore below $43 per share (range $41-$43 per share). When we got our BUY signals triggered in mid-March we added PPL to our Action BUY List at $42.75 per share.
SER Quality Score
Pine Cliff Energy (PNE-T – $1.26)
Pine Cliff has grown via the drill bit and smaller acquisitions in its three core areas of Alberta’s Central, Southern and Edson areas. Under our SER Quality Scoring system we rate PNE as a B – a Survivor entity, as they have no net debt (net working capital of $50M and cash of $62M at the end of Q1/23) and generate significant free cash flow to pay dividends and make acquisitions. They have an equity base of $128M at the end of Q1/23. Production in Q1/23 fell slightly to 20,076 boe/d from 20,397 boe/d in Q1/22. With the weaker commodity prices funds flow came in at $19.8M ($0.06 per share) versus $32.3M ($0.09 per share) in Q1/22 when prices were robust as the Russian invasion of Ukraine started. Our 2023 forecast is for average production of 21,300 boe/d (before any material acquisitions), cash flow of $94M ($0.27 per share) and capex of $28M.
The stock trades just below our 2022 NAV of $1.63 per share but above book value of $0.36 per share. Our one-year target is $2.50 per share and our Bull Market peak target is $4.00 per share as we see Pine Cliff growing via acquisitions in the years ahead. PNE pays a healthy dividend providing an annual yield of >10% which defends the stock price. We added PNE to our Action BUY List on March 13, 2023 at $1.30 per share. BUY!
SER Quality Score
Precision Drilling (PD-T – $61.79)
PD is a large land driller with activities in the US, Canada and Internationally. Its contract drilling fleet has 225 rigs and 135 service rigs. It is gaining profitability as old rig contracts are renewed at higher rates and with greater utilization increases returns. In Q1/23 they saw revenues rise 59% to $559M ($351M in Q1/22). Cash from operations rose to $28M in Q1/23 (from a negative $65M in Q1/22). Capex in Q1/23 was $43M and is forecast by the company at $195M (down from $235M previously). In 2022 they bought the service rigs of High Arctic adding 49 rigs to make them the largest service rig operator in Canada. What is disconcerting is that debt rose $75M to $1,161M from $1,086M at the end of 2022. If things are doing so well why would debt rise in this strong quarter for the company?
Precision is trading at 0.7x Q1/23 book value. Debt rose during Q1/23 by $75M when it should have declined. The company awarded 9% of the outstanding shares (1.2M shares) to the compensation in Q1/23 which is egregious given that the debt rose in the quarter, and they claim it would be declining. Management is overpaid for lackluster performance. We are considering terminating coverage if debt does not decline materially in Q2/23 as they state will occur. AVOID!
SER Quality Score
Surge Energy (SGY-T – $7.70)
Surge has refocused the company over the last two years towards two core areas (Sparky and SE Saskatchewan) and on selling non-core assets to pay down debt. Production in Q1/23 rose 25,138 boe/d from 20,550 boe/d in Q1/22 and 22,095 boe/d in Q4/22. Revenues fell 4% due to lower commodity prices and came in at $162M versus $169M in Q1/22. Cash flow came in at $55M ($0.56 per share) versus $52M in Q1/22 ($0.63 per share). Under our SER Quality Scoring system, we rate SGY as ‘B’ – a Survivor. We would raise the rating to an ‘A’ once debt is paid down below $300M. We are forecasting average production (before any additional accretive acquisitions) of 25,000 boe/d, cash flow of $315M ($3.17 per share) and capex of $175M. This should provide room to pay debt down further, pay their current dividend and consider more return to shareholders in 2H/23. They have an equity base of $861M at the end of Q1/23 or $8.66 per share. Our Net Asset Value calculation was $9.39 per share at December 2022.
The stock is trading below our 2022 year-end NAV of $9.39 per share. Surge is paying down debt and growing its core Sparky and Frobisher areas. We see the stock attractive for Entrepreneurial investors below $8.00 (range $7.25–$8.00 per share). The stock is on our Action Alert BUY List and we are shareholders of the company. We have been adding to our position during periods of market weakness.
SER Quality Score
TC Energy (TRP-T – $55.85)
TC Energy is one of North America’s largest natural gas pipeline operators with distribution in Canada, the US and Mexico. EBITDA in Q1/23 was $2.78B, up 16%, of which 46% was from US natural gas pipelines, 27% from Canadian gas pipelines and 6% from Mexico. It also has a large liquids line (Keystone Pipeline) which provides 11% of EBITDA and a Power and Energy Solutions business that produces 10% of EBITDA. Revenues in Q1/23 grew 12% to $3.93B from $3.50B in Q1/22. Net income rose to $1.35B from $400M in Q1/22 (impacted by $571M impairment charge). Net income per share came in at $1.29 in Q1/23 versus $0.36 in Q1/22. On a comparable earnings basis they showed Q1/23 rising by 12%.
This Conservative stock trades at 1.6x book value of $34.02 per share or at $55.85 per share. The stock would be an attractive BUY around 1.5x book value or around $51.00 per share. On a yield basis a good BUY target would be at a 7% yield or around $53.00 per share. Our BUY price range is therefore below $53 (range $51-$53 per share). We added TRP to our Action BUY list when we got our BUY signals triggered on March 15, 2023 at $52.13 per share which provided a >7% yield.
SER Quality Score
Topaz Energy Corp. (TPZ-T $19.43)
Topaz is a royalty and infrastructure company founded by Tourmaline Oil (TOU-T) in 2019 and the company went public in Q4/20. It started just with royalty lands from Tourmaline but now deals with other entities such as Whitecap Resources and Tamarack Valley Energy. Revenues in Q1/23 were $78.1M down from $81.3M in Q1/22 due to the decline in commodity prices. Production came in 18,884 boe/d up from 16,122 boe/d in Q1/22 and exceeded guidance. Cash flow came in at $71.8M ($0.50 per share) down slightly from Q1/22 at $74.2M ($0.53 per share). Without any further acquisitions they see volumes at 18,550 boe/d in 2023. Acquisitions are very likely, and they are actively looking at deals, but the current deal flow has not met their financial thresholds. With lower commodity prices currently, Topaz is forecasting lower financial results for Q2/23. We are forecasting cash flow per share of $2.15 in 2023.
This Conservative growth stock trades at 2.1x book value of $9.20 per share or at $19.43 per share. On a yield basis a good BUY target would be a 6.5% yield or around $18.50 per share. On a cash flow multiple our target would be 8.5x. Our BUY price range is therefore below $19.00 (range $18.25-$19.00 per share). We added Topaz to our Action Alert BUY list on March 15th at $18.38 per share when the second of our four BUY indicators flashed a BUY signal when crude fell below US$70/b.
SER Quality Score
Tourmaline Oil Corp. (TOU-T $55.70)
Tourmaline Oil is Canada’s largest natural gas producer with 4.5 Bboe, 75 years of drilling inventory and 24 years of proven and probable reserves. It is now benefiting from sales of natural gas to the US Gulf coast LNG business (the first Canadian firm to do so) and is receiving around US$15/mcf for this very lucrative business. It is also a beneficiary of the attractive California market. Revenues in Q1/23 rose 18% to $2.02B up from $1.71B in Q1/22. Volumes rose 4% to 525,916 boe/d from 507,059 boe/d in Q1/22. Cash flow grew to $1.13B ($3.28 per share) from $1.08B in Q1/22 ($3.18 per share). Volumes are now in the 531,000 boe/d range. We forecast average volumes in 2023 of 535,000 boe/d, cash flow $4.58B ($13.50 per share) and capex of $1.68B. Under our SER Quality Score, we rate TOU as an ‘A’, a Successful entity.
The stock trades above book value of $38.93 but below our conservative NAV (using flat pricing and no value for land and tax pools) of $76.77 per share. We see the stock as attractive again at 1.1x book value or around 3.6x 2023 cash flow per share. This creates a BUY range between $44.00-$48.00 per share. This is a core stock to own for upside from natural gas. Its management team has done very well for shareholders in their various entities, and we see this company being another great success for investors over the next 4-5 years. The stock has had a great run from its low in early 2020 of $5.43 per share. We have a $150 per share target into the Bull Market Peak window. Be patient and wait for the next low risk BUY window. We expect to add TOU to our Action BUY List when we get the next BUY signal from our key indicators.
SER Quality Score
Vermilion Energy Inc. (VET-T $15.88)
Vermilion has been around for over 25 years and has an approach to own assets in Canada and around the world. It was especially rewarded by shareholders for its natural gas assets in Europe when they saw robust prices last year after the invasion of Ukraine by Russia. Prices are still attractive and are at multiples of North American prices, but they have declined from those robust levels which has impacted the stock price. Revenues in Q1/23 were $553M down 32% from $810M in Q1/22. Volumes were down moderately due to asset sales and lower production in Australia. Production volumes were 82,455 boe/d, down 3.5% from 85,450 boe/d in Q4/22 and down 4.4% from 86,213 boe/d in Q1/22. Cash flows rose to $388M from $341M in Q1/22. Under our SER Quality Score, our rating for VET is an ‘A’ a Successful entity. Our forecast for 2023 is for volumes of 84,000 boe/d, capex of $570M and funds flow of $1.45B ($8.90 per share) providing meaningful funds to pay down debt.
Vermilion is the poster child for benefiting from the parabolic rise in European natural gas prices. The stock has risen from $7 per share in August 2021 to $38.73 per share at its high last year. The stock would be attractive again below $18.00 per share (range $15.00-$18.00 per share). VET is an attractive long-term story, and we have a $60 per share Bull Market Peak target. It did decline in mid-March to our BUY range and was added to our Action BUY list on March 13, 2023.
SER Quality Score
Whitecap Resources (WCP-T $9.87)
Whitecap has grown rapidly over the last decade from under 30,000 boe/d to 166,392 via internal growth and quite a few acquisitions. Its largest was made last year when they bought XTO Canada from Imperial Oil and ExxonMobil for $1.9B adding 32,000 boe/d of liquids rich natural gas and adding to their inventory of Montney and Duvernay locations. WCP is now doing a bit of rationalization and selling some non-core assets. Production in Q1/23 was 155,124 boe/d down from 166,392 boe/d in Q4/22, the first quarter after the deal for XTO was concluded. Funds flow in Q1/23 was $448M ($0.74 per share) down from $506M ($0.81 per share) in Q1/22 due to the decline in commodity prices. Net debt was $1.47B at the end of Q1/22 from $2.19B at its peak after the XTO deal. WCP targets getting this down to <$1.3B by the end of 2023 or 0.7x debt to cash flow. Under our SER Quality Score, we have WCP as an ‘A’ a Successful entity. Our forecast for 2023 is for volumes of 162,000 boe/d, capex of $925M and for CFPS of $2.97 (lower than the $3.74 per share in 2022) due to the weaker commodity situation.
We are big fans of the company but after its nearly 20-bagger stock price run over the last three years, the stock price needs a breather. It would be an attractive BUY at 1.1x book value, <3.2x CFPS or at a yield >6%. Using these parameters, the stock would be an attractive BUY below $9.50 per share (range $9.00 – $9.50 per share) if the market decline develops as we foresee. We intend to add WCP to our Action BUY list when our next Action Alert BUY signal is triggered.
SER Quality Score
Yangarra Resources Ltd. (YGR-T $1.76)
Yangarra works in the greater Cardium area of Central Alberta. Production in Q1/23 rose 24% from 10,044 boe/d in Q1/22 to 12,412 boe/d. Revenues fell modestly due to the decline from the robust war prices in Q1/22. Revenues came in at $49.1M down 4% from $51.4M in Q1/22. Funds flow came in at $30.0M ($0.34 per share) down from $39.8M ($0.46 per share) in Q1/22. Capex was $32.5M in Q1/23 ($21.3M in Q1/22). YGR paid down $13M of bank debt in Q1/23 to $122M, which is now below 1x debt/cash flow. In 2023 we see volumes averaging 13,000 boe/d with capex of $115M and YGR generating cash flow of $145M ($1.53 per share) so they should be able to pay down debt even further ($25-30M) and then initiate shareholder returns.
The stock trades below Q1/23 book value of $5.30 per share and our 2022 net asset value (NAV) of $10.92 per share. The stock is very cheap and attractive below $1.90 (range $1.65 to $1.90 per share) for entrepreneurial investors. These targets are based on the shares trading below 0.4x book value and trading at 1.1x our 2023 CFPS forecast. Our one-year target is $4.00 per share which was reached last June when the sector peaked. We added YGR to our Action Alert BUY list on March 13, 2023, when we got our first new BUY indicator for the sector. The stock may stay cheap until they inaugurate a decent dividend and take a more proactive role in Investor Relations outreach.