Choosing The Best Leveraged Energy E&P From The TSX: Part 1

The basis of this investment is that the recovery of oil will happen sooner than later. I believe it is safe to say that the oil market will be balanced sometimes in 2017. Therefore, it could be interesting to find a leveraged energy E&P company that will still survive the current downturn and offer high upside once the recovery begins.

For the sake of stock picking, we have to find the one very best stock in the energy E&P sector. This is a gigantic task: this is one of the reason why I’ll separate the work in multiple parts. Let’s start with the initial screening of the TSX using these criteria:

  • Energy E&P sector.
  • Total Debt/Total Equity over 50%.
  • Market capitalization of over C$500M.

Let’s take a look at the tickers this search gave me. The tickers are sorted by current market cap.

Leveraged Energy E&P - TSX Screening - All Results

Company #TSX Tickers
1CNQ
2PEY
3VII
4VET
5ECA
6OER
7MEG
8ERF
9BIR
10PWT
11BNE
12BTE
13PGF
14POU

Because betting on the recovery of oil using a leveraged company is a very risky business in itself, I want to concentrate the risk on the pricing of oil, and minimize any other potential risks such as geopolitical or legal for example. Therefore let’s remove all companies with operations outside of North America. It is also interesting to have companies with concentrated assets in one area.

Leveraged Energy E&P - TSX Screening - Concentrated North American Producers

Company #TSX Tickers
1PEY
2VII
3ECA
4MEG
5ERF
6BIR
7PWT
8BNE
9BTE
10PGF
11POU

Let’s find the oil producers next. The production of selected companies should be at least 33% oil in their respective Q3 2015 MD&A. Therefore, a company with high liquids production but no oil production such as Seven Generation Energy was excluded from this list.

We now have the final selection of our leveraged oil producers operating in North America.

Leveraged Energy E&P - TSX Screening - Concentrated North American Oil Producers

Company #TSX Tickers
1ECA
2MEG
3ERF
4PWT
5BNE
6BTE
7PGF

The next step is to analyze each company’s debt and cash level, debt maturities and cash flow from operations. This will lead us to Part 2.