It's kind of funny how people were so keen to buy up any drop to 19.5c a short while ago but now afraid when there's plenty for sale at 16c and no one wants a bar of it.
Funny but understandable. It certainly takes guts to buy in after a big drop.
I like to assess stocks based on their value - what's I think it's worth, vs what is the market saying its worth. Most of you will agree with that statement, but I think most people are lying (see first sentence above).
If a stock goes down without genuine justification for it, I like it more, not less. Sure we were around 24-25c before and dropped to 20c after production for the half was moved from 4000-5000 boepd to 4200 boepd, but the drop since then has no real fundamental basis, and just driven by sentiment.
That's how I see the value. It has risen in this case.
For me, the reason why it was a buy at 20c before, and a bigger buy at 16c today, is simple. On a productivity basis (price per BOEPD), efficiency basis (netback per BOEPD), asset basis (price to 2P reserves) and shareholder returns (FCF per share), CE1 presents one of the best value O&G cases on the ASX and TSX.
That's assuming Montney is worth $0. I think it's worth >$100m based on a lot of my own research over the last 6 months. So I take a conservative view, discount it 50% because its not yet a deal made, leaving an EV attributable to the production business of $45m. That's for a business which produces $80m EBITDA ex-capex at $100 WTI, $60m EBITDA on sustaining capex/ 0% growth, and $40m on high capex high / 20%+ growth business.
What's going to bring sentiment back though?
I think the O&G market in US/Canada has turned around, and in the last 6 months started to get its deserved appreciation. Big buying from Buffet and other funds very recently signals broader acceptance and permission to support the industry now that Russia has been barred. It's suddenly become patriotic to invest in domestic production and ensure national security to ensure less reliance on Russia and funding war. Biden announced that the SPR release will be ending early and then will flip to replenishment in July. Why July? Because it takes 2 months to get new production on stream and refiners to improve productivity. I suspect the US has been working with major producers (and their key backers) to ramp up production which will come onstream in a few months which ties in with SPR replenishment time-frame. The sentiment for O&G will reach fever pitch as producers and their shareholders see a win-win - profit upgrades while maintaining elevated (but not extortionate) prices. I will watch the OFS businesses and drill rig activity stats over the next couple of weeks. That's the test to see if I am right.
Also, I think once Blueberry claims matters are resolved we will get a massive boost in buying interest and change in sentiment and serious speculation on Montney value.. Even though we aren't part of their lands, I think it's holding us back. I will try to keep a look out for it.
Based on long standing metrics it suggests we could see 3x rerate on the broader O&G sector based on S&P sector attribution. Small caps will generally do far better. Buffet and co win big on profit upgrades and the broad sentiment, Govt wins on national security and inflation - perfect for election timing.
Just my opinions.
Good luck all
CE1 Price at posting:
16.0¢ Sentiment: Buy Disclosure: Held
(20min delay)