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(Denny Thurston/Getty Images/iStockphoto)
(Denny Thurston/Getty Images/iStockphoto)

NUMBER CRUNCHER

Oil patch stocks: The numbers that matter to investors (and acquirers) 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?

The International Energy Agency has predicted that the United States will be the world’s largest oil producer by 2015. Since my colleague Rob Belanger and I believe a wave of consolidation might hit the North American oil industry, today we are looking at Canadian oil companies in a way that an acquiring company might look at them.

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The screen

We started with Canadian companies larger than $500-million in market capitalization.

One of the most commonly used valuation metrics is enterprise value (market value of equity plus net debt) divided by earnings before interest taxes depreciation and amortization (EV/EBITDA). This ratio is used to find attractive takeover candidates since it includes debt that the acquiring company would have to assume. We are looking for a low number.

The price to cash flow (P/CF) evaluates the price of a company’s stock relative to how much cash flow the firm is generating. Cash flow is simple – how much cash a firm brings in during a given period. In our screen, the lower number is better.

Barrels of oil equivalent (BOE) production growth over the past 12 months is expressed as a percentage per share. Our companies had to have growth greater than 5 per cent.

The recycle ratio is another important measure of the profitability of an energy company. It measures the efficiency of a company’s capital expenditure program. Oil and gas companies deplete their main asset, the reserves, and have to replace them. If you spend $20 to get a barrel out of the ground, and get $40 profit after all costs, then you are recycling your money two to one. We are looking for a high number, and we have only included companies scoring 1.5 to one, or greater.

We are also showing the production of oil, gas and natural gas liquids in thousands of BOE per day.

What did we find?

Calgary-based TransGlobe Energy owns property in Egypt and Yemen. The company scores well in most categories, as does Long Run Exploration, an intermediate oil and gas company operating in Western Canada.

Torc Oil & Gas’s BOE production per share is high as a result of its purchase of Vero Energy in November, 2012, and Torc’s recent acquisition of a southeast Saskatchewan property.

Investors should conduct further research or contact an investment professional before investing in any of these companies.

 

Profitability, productivity of selected oil companies

Company Ticker Market
Cap
($-mil)
EV/
EBITDA
P/CF Recycle
Ratio
BOE -
Prod'n
per shr
Growth
1yr (%)
Thousands
of BOE
per day
Cdn. Natural Resources CNQ-T 34,111 5.64 4.31 2.18 10.53 550.71
Cenovus Energy CVE-T 21,761 7 6.46 3.36 12.61 264.4
ARC Resources Ltd. ARX-T 8,783 12.71 9.69 2.68 8.16 93.55
Peyto Explor. & Dev. PEY-T 4,415 13.65 8.63 1.94 18.52 44.53
Whitecap Resources WCP-T 1,865 11.72 6.03 2.72 38.37 14.05
Lightstream Resoources LTS-T 1,235 4.66 2.01 1.53 8.77 42.78
Torc Oil & Gas Ltd. TOG-T 850 31.56 5.71 3.2 677.46 9.5
Surge Energy Inc. SGY-T 762 10.15 5.09 1.65 20.89 8.87
Crew Energy Inc. CR-T 714 5.95 3.59 1.8 5.18 27.96
Transglobe Energy TGL-T 665 2.84 4.17 4.95 42.54 17.5
Long Run Exploration LRE-T 525 5.23 2.55 3.25 57.32 13.19

Source: Bloomberg and Wickham Investment Counsel Inc.

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