After writing Part 1, I decided to continue with Part 2 (planning to end this series with Part 3) to cover all the overlooked Canadian oil-weighted producers of my list. I consider these producers to be overlooked as the headlines section of Yahoo/finance has almost never hosted an article for them thus far. In the meantime, it hosts several articles for the U.S.-based oil producers on a daily basis. So it is clear that the authors of the online financial publications either ignore the following companies or pass them. I think it is quite unfair as the following Canadian operators are proven and established producers with significant potential for further growth.
In addition, the subject companies carry lower metrics than many U.S.-based peers like Kodiak (NYSE:KOG), Halcon Resources (NYSE:HK), SandRidge Energy (NYSE:SD) etc. as it is evidenced by my detailed analysis and this is how they showed up on my screen. So here we go:
1) Arcan Resources (OTCPK:ARNBF): Arcan Resources is one of the two remaining junior oil producers of the emerging Beaverhill Lake formation. The other one is Second Wave Petroleum (OTC:SCSZF) and I have already written an article about it.
Although Arcan's assets are beyond exploration stage and there is more predictability going forward, the share price has been a victim of the Canadian sell-off in resource and oil stocks. This oil stock has over 400 net horizontal locations in the Swan Hills area of Alberta with over 170 net sections of land. Arcan recently increased its borrowing limit on existing credit facility to $200M from $120M and as of the latest news the credit line remained unchanged. The company increased its credit facility in early 2012 to $200M on the back of stronger 2011 2P reserve values. Management has stated that going forward, the company will continue to live within cash flow and that the new line exceeds the company's financial requirements.
Additionally, as the company continues to add infrastructure, the operating costs continue to decline. Arcan has 17 water injectors at DM2 and 4 injectors (1 HZ) at Ethel currently. With a stabilized production base Arcan believes that the production can grow using waterflood, which can increase the oil recovery factor to 40% or 400,000 bbls/well. So the incremental upside from waterflood can be significant. In the meantime, it can slow the pace of drilling new wells to keep costs down going forward. A combination of cost reduction, growing production, increasing cash flow and debt reduction will most likely help a lot the stock price.
It produces 4,000 boepd (98% oil and liquids) currently. The Enterprise Value (EV) is $385M currently so it trades for $96,000/boepd.
The current market cap is $85M, PBV=0.27 and the annualized FFO is around $70M, so the company trades 1.2x its FFO annualized.
The long-term debt stands at $300M so the DCF ratio is 4. However half of this long-term debt consists of convertible notes, which do not mature soon but in 2016. It has 2P reserves of 35.7 MMboe based on the latest news so the company trades for as low as $11 per Mboe (EV/MMboe).
The operating netback is $39/boe assuming Edmonton at C$85 [$84.83] per barrel.The insiders ownership is 5%. According to regulatory filings, 2 key insiders (VP of Engineering and VP of Production) have been adding on their positions during the last 2 months.
2) Twin Butte (OTCPK:TBTEF): It is an intermediate oil producer who pays a 6,5% dividend currently. So the income investors will definitely appreciate this annual yield. It has a focus on heavy oil holding 400,000 net acres with most of this acreage in the greater Lloydminster area along the Alberta and Saskatchewan border. After the latest acquisition of the privately held Waseca from Sprott, Twin Butte produces 19,100 boepd (89% oil and liquids) currently. EV is $900M currently so it trades for a decent $47,000/boepd.
The current market cap is $695M and the annualized FFO is around $160M, so the company trades 4.3x its FFO annualized.
The long-term debt stands at $210M on a credit facility of $280M so the DCF ratio is 1.3. Twin Butte has 2P reserves of 60 MMboe so it trades for $11.5 per Mboe.
The operating netback is $29/boe assuming WCS at C$70 per barrel. The insiders ownership is 4%. There are no acquisitions or dispositions from the insiders during the last 2 months.
3) DeeThree Exploration (DTHRF.PK): It holds 338,000 net acres in Peace River, Brazeau and Lethbridge of Alberta. It produces 5,000 boepd (70% oil and liquids) currently. The EV is $492M currently so it trades for $98,500/boepd.
The current market cap is $455M, PBV=2.5 and the annualized FFO is $50M, so the company trades 9x its FFO annualized.
The long-term debt stands at $37M so the DCF ratio is 0.75. It has 2P reserves of 14.6 MMboe (the 6 drilled Bakken wells of 2012 included) so the company trades for 33.7 per Mboe.
The operating netback is $31/boe assuming Edmonton at C$85 per barrel. The insiders ownership is 10.7%. According to regulatory filings, the insiders' purchases surpass the dispositions during the last 2 months.
4) Novus Energy (OTC:NOVUF): It holds almost 120,000 net acres of Dodsland and Provost Viking oil Lands in Alberta and Saskatchewan. It produces 3,500 boepd (84% oil and liquids) currently. The Enterprise Value is $220M currently so it trades for $63,000/boepd.
The current market cap is $172M and the annualized FFO is around $40M, so the company trades 4.3x its FFO annualized.
The bank debt stands at $48M on a credit facility of $85M so the DCF ratio is as low as 1.2. It has 2P reserves of 14.5 MMboe as of December 2011, so it trades for $15.1 per Mboe.
The operating netback is $42/boe assuming Edmonton at C$85 per barrel. Novus initiated a share buyback program in September 2012, to buy up to 5,000,000 of its issued and outstanding common shares that will expire in September 2013. According to regulatory filings, there are no changes at the insiders' positions during the last 3 months.
5) Surge Energy (OTCPK:ZPTAF): It holds significant land (~200,000 net acres) in Southeast Alberta, Manitoba and Williston Basin in North Dakota. It produces 10,000 boepd (71% oil and liquids) currently. The Enterprise Value is almost $600M currently, so it trades for $60,000/boepd.
The current market cap is $441M and the annualized FFO is $100M, so the company trades 4.4x its FFO annualized.
The long-term debt stands at $153M so the DCF ratio is 1.5. Surge has 2P reserves of 36.77 MMboe (the recent private company acquisition included) so it trades for $16.3 per Mboe.
The operating netback is $35/boe assuming Edmonton at C$85 per barrel. According to regulatory filings, the additions and the dispositions from key insiders are balanced during the last 3 months. Some insiders have been adding but some others have been trimming their positions.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCPK:ARNBF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: This article is not an investment recommendation and does not provide a view on the value or price direction of any security. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment professional for advice on your own investment strategy.