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NUMBER CRUNCHER

Canadian oil stocks with a track record of growth Add to ...

Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high net worth clients. michael@wickhaminvestments.com

What are we looking for?

We received many e-mails from readers asking whether we could look at Canadian oil companies using the same criteria we used last week for U.S. oil companies, which was annual production growth per share.

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The screen

My colleague Rob Belanger and I started with companies that have their head office in Canada, and we sorted them by barrels of oil equivalent (BOE) production growth over the past 12 months, expressed as a percentage per share. We only included those companies that had positive growth.

The BOE production is also expressed as a percentage of a BOE per share.

Price to cash flow (P/CF) shows the one-year forward-looking cash flow – based on analysts’ estimates – compared to the current share price. A high ratio indicates that the stock price is expensive relative to its cash flow. A smaller ratio is preferred.

The recycle ratio is the profit per barrel of oil divided by the total cost of discovering and extracting that barrel. A high ratio means greater profitability.

The reserve replacement ratio is the percentage of the company’s oil and gas reserves consumed by production during the year that was replaced through acquisition, improved recovery, new discoveries or net purchases.

What did we find?

If investors are looking for high oil exposure, one share of Baytex Energy represents 45 per cent of a barrel of production, the highest on our screen, yet the company is only replacing 33.6 per cent of reserves. Enerplus produces 42 per cent of a barrel per share, and while the recycle ratio is below average, and production has been almost flat in the past 12 months, it is replacing 120.4 per cent of reserves.

Only four companies are better than the average when it comes to the P/CF and the recycle ratio. They all show production growth better than 26 per cent per share, and all are replacing reserves at more than 150 per cent. They are: Long Run Exploration; TransGlobe Energy; Whitecap Resources; and Legacy Oil + Gas.

Cenovus Energy has the best recycle ratio, thus the greatest profitability, although the company has a high P/CF.

Ithaca Energy sports the best (lowest) P/CF, showing good value, but the recycle ratio is below average and the company is only replacing 95.1 per cent of reserves. The top growth story belongs to DeeThree Exploration, although the recycle ratio is well below average.

These last two companies are good examples of why investors should always examine more than one ratio in their research, or contact an investment professional.

 

Canadian oil firms ranked by annual production growth per share

Company Ticker Market
Cap
($-mil)
BOE -
Production
% per Share
DeeThree Exploration DTX-T 553 6.3
Ithaca Energy IAE-T 578 2.3
Crocotta Energy CTA-T 263 7.8
Long Run Exploration LRE-T 421 14.5
TransGlobe Energy TGL-T 447 23.8
Whitecap Resources WCP-T 1,516 12.4
Legacy Oil + Gas LEG-T 808 11.4
Twin Butte Energy TBE-T 552 7.2
RMP Energy Inc. RMP-T 455 5.4
Surge Energy Inc. SGY-T 367 12.5

All currencies in Canadian dollars. Source: Bloomberg

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  • DTX-T
  • IAE-T
  • CTA-T
  • LRE-T
  • TGL-T
  • WCP-T
  • LEG-T
  • TBE-T
  • RMP-T
  • SGY-T
  • TET-T
  • PEY-T
  • BIR-T
  • CVE-T
  • CPG-T
  • FRU-T
  • LTS-T
  • ARX-T
  • CR-T
  • BTE-T
  • BNE-T
  • POU-T
  • NGL-T
  • ERF-T
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