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pump-jack group (Getty Images/iStockphoto)

Number Cruncher

Exploring for undervalued energy stocks Add to ...

Mr. Bowman is a portfolio manager at Wickham Investment Counsel Inc. michael@wickhaminvestments.com

What are we looking for?

Undervalued, efficient Canadian oil and gas explorers and producers that have been growing their production over the past year.

The screen

My colleague Rob Belanger and I looked for companies that were larger than $400-million (U.S.) in market cap with healthy increases in production.

More Related to this Story

We gauged production in terms of barrel of oil equivalent, or BOE, which measures supplies of oil or gas in terms of the amount of energy they contain, using a barrel of crude as the standard.

Each barrel contains 5.8 million British thermal units, or 1,700 kilowatt hours.

Other criteria include:

-Recycle ratio: an important measure of the profitability of an oil company. It is the profit per barrel divided by the total cost of discovering and extracting that same barrel. The higher the ratio, the higher the firm’s profitability. Only companies with positive recycle ratios are shown.

-Price-to-BOE reserves. This is the current share price as a multiple of the company’s oil-and-gas reserves. The lower the number, the more undervalued the company may be.

What did we find?

Birchcliff scores very well and appears undervalued according to this screen. Its recycle ratio is second highest, next to Cenovus, and its price-to-BOE reserves is exceptional.

All of Birchcliff’s operations are concentrated in the Peace River Arch area of Alberta where the company increased production by more than 27 per cent in the last year.

Many companies have a recycle ratio that is worse than that of Canadian Natural Resources. Canada’s largest oil company by market cap also comes in second in the price-to-BOE-reserves calculation.

Talisman has increased production by an anemic 3.57 per cent.

While Freehold Royalty is quite efficient at discovering and extracting the barrel, it is the most overvalued company that we found.

What is surprising is the poor price-to-BOE reserves of Crescent Point and Vermillion.

For Crescent Point, 12 of 19 analysts have a buy rating on the company, and the median price estimate 12 months out for Vermillion is 14 per cent higher than the price today.

 

Canadian oil and gas companies growing production

Company Ticker Recent price $ Market cap. ($ mil.)
Birchcliff Energy BIR-T 6.83 966
Can Natural Res. CNQ-T 32.23 34,896
Pengrowth Energy PGF-T 7.00 34,699
Cenovus Energy CVE-T 34.43 25,927
Talisman Energy TLM-T 13.62 13,817
Crew Energy Inc. CR-T 7.60 901
Bonavista Energy BNP-T 17.76 3,285
Enerplus Corp. ERF-T 16.68 3,320
Penn West Pet. PWT-T 15.13 7,129
Nexen Inc. NXY-T 24.58 13,096

Source: Wickham Investment Counsel; Bloomberg

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  • BIR-T
  • CNQ-T
  • PGF-T
  • CVE-T
  • TLM-T
  • CR-T
  • BNP-T
  • ERF-T
  • PWT-T
  • NXY-T
  • TBE-T
  • ARX-T
  • LEG-T
  • WCP-T
  • PBN-T
  • CLT-T
  • SGY-T
  • TET-T
  • CPG-T
  • VET-T
  • POU-T
  • FRU-T
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