Must-Read: Canadian Natural Gas Producers And The OPEC Deal

Alliance offers natural gas producers more access to the east as West Coast LNG prospects fadeFinancial Post

TransCanada’s natural gas pipeline deal with producers just saved the industry from losing US$25 billionFinancial Post

OPEC’s misleading narrative about world oil supplyBelfer Center

Saudis are right back where they startedBloomberg Gadfly

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Must-Read: Saudi Arabia, US Crude Oil Exports And Heavy Oil

Exclusive: Saudi Arabia wants oil prices to rise to around $60 in 2017Reuters

US crude exports surge to a recordBloomberg Markets

U.S. gasoline demand hits record number last yearReuters

U.S. crude oil imports from Saudi Arabia and Iraq combined recently approached five-year high, but are expected to declineEIA

After OPEC cuts heavy oil, China teapot refiners pull US supply to AsiaReuters

Enbridge CEO downplays need for competing pipelines till at least 2025Financial Post

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Choosing An Unlevered Canadian Energy E&P

I raised cash after selling part of my Amaya position (I bought back some, as I said on StockTwits). To let you know: I already spent that cash on Gear Energy last week. My quick calculations were right: Gear Energy is cheap.

I will be looking for a solid balance sheet just in case the rout in oil prices continues. As you know, I already own MEG Energy, a leveraged E&P company. One is enough.

I made a basic stock screening of Canadian oil E&P companies (75% or more liquids production) with low debt (total debt on equity needs to be under 30%).

Unleveraged Oil E&P - TSX Screening

TSX TickersNet debt (C$M)EV (C$M)FFO (C$M)Net debt/FFOEV/FFO
WCP7954,6584231.911.0
RRX1002,2561970.511.4
SPE481,048760.613.9
CJ23647530.412.1
GXO29184211.48.9
GXE34178251.97.5

Source: Corporate presentations and my own work.

I already own Raging River Exploration. I will include the company in today’s comparison nonetheless. I have been handsomely rewarded by holding on Raging River Exploration, let’s try and repeat that.

As you know, I need an unlevered company. Gear Energy is an unlevered company in disguise for three major reasons:

First, 38% of Gear Energy’s debt is convertible to equity. The extra dilution from these convertible debentures is included in the EV/CF ratio.

Second, Gear Energy’s cost profile will improve. Indeed, the company purchased Striker Energy, a light oil producer in Western Alberta. This will increase corporate netbacks by over 25%.

Finally, Gear Energy plans to increase production by 10% next year while holding debt steady.

The additional cash flow and decreasing leverage warrant a higher EV/CF ratio. Furthermore, Gear Energy’s transformation is complete after multiple dilutive equity placements.

The company took care of its balance sheet and bought a light oil producer to diversify its production away from heavy oil. It also has an incredible board member in Neil Roszell (CEO of Raging River Exploration), which I know well.

I will update the table above with estimated numbers for next year. I believe the picture will be even clearer.

In conclusion: I’ll buy the dips.

Disclosure: I am long GXE. Not for republication on Seeking Alpha.