Every month Investor’s Digest of Canada surveys leading securities analysts for their advice on over 1,000 Canadian stocks. This month the survey found two junior western Canadian oil and gas stocks in the top six strongest recommendations on the list.
Canadian oil and gas stock Tourmaline Oil Corp. (TSX—TOU) is engaged in the acquisition, exploration, development and production of oil and natural gas properties and other related activities in the western Canadian sedimentary basin.
According to a recent company update, it was operating 10 drilling rigs in July and planned to ramp up to the full 18 rig fleet.
The company added during the update that it was still anticipating record average production volumes in the 235,000 to 240,000 barrels of oil equivalent (BOE) per day range for the second quarter. It remained on track to easily accomplish full-year 2017 production guidance of 240,000 to 260,000 BOE per day.
The company released its financial and operational results for the second quarter, and Calgary-based Desjardins Capital Markets analysts Kristopher Zack and Chris MacCulloch, in an Aug. 3 research note, say Tourmaline’s results for the quarter were solid. Cash flow per share came in at $1.16, which beat the consensus estimate of $1.09. The production tally came in at 235,540 BOE per day, in line with prior estimates.
“The company announced plans to moderate spending and production growth over the next five years, shifting focus to improving returns and accelerating free cash flow although improved commodity prices are required to support the latter,” add the analysts.
“This should be viewed as a more disciplined approach to the business by the market—and could even be interpreted as a necessity by some given the size of the company. Either way, we believe the market was already discounting growth, with the stock trading at approximately 6.5 times forward consensus cash flow.”
Citing Tourmaline’s top-notch balance sheet and enticing valuation, Messrs. Zack and MacCulloch keep their ‘buy’ recommendation and their 12-month target share price of $37.
All six of the analysts who cover Tourmaline rate the company a ‘buy’. This puts the oil and natural gas extraction company in a three-way tie for the number one position—with Canadian Pacific Railway Ltd. and Canadian Natural Resources Ltd.—on Investor’s Digest of Canada’s ‘What’s Hot, What’s Not’ list.
In early June, Raging River Exploration Inc. (TSX—RRX) announced its entry into a new light oil focus area.
Raging River is a crude oil and natural gas exploration, development and production company based in Calgary. The company’s operations have been focused in south-west Saskatchewan.
But over the last year, the company has been accumulating land and, to date, it has amassed about 100,000 net acres in the Duvernay Shale basin in central Alberta.
The company expects to drill its first evaluation well in this play in the fourth quarter of 2017 with up to six additional evaluation wells planned for 2018.
In an Aug. 4 research note, Calgary-based Beacon Securities oil and gas stocks analyst Lyndon Dunkley focused on Raging River’s results, both financial and operating, for the second quarter of 2017 as well as on the company’s credit facility increase to half a billion dollars.
According to Mr. Dunkley, the company’s production and production per share (PPS) were up 38 per cent and 35 per cent, respectively, compared to the year-earlier period, and cash flow and fully-diluted cash flow per share (CFPS) were up 48 per cent and 45 per cent, respectively.
“Raging River did post a three per cent decline in production from its first 2017 quarter, a trend that is expected to reverse during the current quarter with expectations for at least a three per cent increase,” says Mr. Dunkley. “Operating net-backs continued to be industry leading, nearly $5 per BOE higher than Raging River’s closest oil-weighted peer.
“Capital expenditures and net debt were both higher during the quarter as optimal field conditions allowed for the drilling of 60.6 net wells while the company spent another $9 million on land purchases targeting the East Duvernay shale oil play in Central Alberta.”
As well, the analyst notes that Raging River boosted its credit facility by $100 million to $500 million, and he says that the company likely sees substantial acquisition opportunities that it could take advantage of within its new core region.
While maintaining his ‘buy’ recommendation, he lowers his 12-month target share price to $11.25 from $14. All five of the analysts who cover Raging River rate the company a ‘buy’ which puts it in a tie for fifth place with Open Text Corp. on our ‘What’s Hot, What’s Not’ list.
This is an edited version of an article that was originally published for subscribers in the August 25, 2017, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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Investor's Digest of Canada •9/7/17 •