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Falling Canadian crude prices opens door to multi-bagger investor return, says Mackie

Western Canadian Select (WCS), the Canadian benchmark for heavy oil, fell to US$13.46 from about US$53 per between July and November
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Mackie has a basket of small Canadian oil and gas companies it sees potential in

A crash in Canadian crude prices last year has created a buying opportunity for investors of now-undervalued oil and gas companies, reckon analysts at Mackie Research.

It was a volatile year for US oil, but in Canada, inventories reached capacity that sent prices lower. This was compounded by the fact that maintenance programs on several major US refineries took longer to complete, temporarily reducing demand for Canadian crude.

Western Canadian Select (WCS), the Canadian benchmark for heavy oil, fell from around US$53 per barrel in July last year to US$13.46 in November. Meanwhile, the S&P/TSX Oil & Gas E&P Index fell by 46% in 2018.

"Prices have since rebounded in part due to the restart of US refineries capable of handling heavier crude, but primarily as a result of mandatory 325,000 bbl/d production curtailment announced by the Alberta government which took effect on January 1, 2018," writes analyst Bill Newman.

Despite a rebound of Canadian oil prices, the TSX-E&P index has only shown a slight recovery, he adds.

"We believe this has created an incredible buying opportunity for value investors as most companies in our coverage universe are trading at a fraction to core NAV value. At the current valuations, we see very little downside and the potential for multi-bagger returns and we recommend buying a basket of undervalued oil and gas companies which are set to recover with the sector."

READ: Point Loma Resources' Rex well test opens up 'significant' new oil play, says broker Mackie

Included in Mackie's basket to look out for in 2019 are Point Loma Resources (CVE:PLX), which has a large asset base of Mannville locations across its 160,000 net acres (250 net sections) in West Central Alberta.

The firm also has "multi-bagger return potential" from its evolving Rex Oil play, conventional Banff oil play and the Duvernay shale oil resource play, writes the analyst.

Last month, the company announced a new Rex oil pool discovery, which could be a game-changer. The company's own internal mapping has shown the Rex pool had the potential to hold 60 million barrels of original oil in place (OOIP).

Mackie rates the stock a Buy with a target of $1 (current price: $0.21).

READ: Prairie Provident is a potential takeover target, reckons Mackie

Prairie Provident Resources (CVE:PPR) has a working interest and operatorship in around 715,000 net acres of land in Alberta and late last year completed the acquisition of Marquee Energy, which lifted pro forma production to over 7,500 boe/d (barrels of oil equivalent per day), with proven plus probable reserves (2P) reserves of 42.2 million boe -- an increase of around 110%.

Newman says Prairie remains highly undervalued currently trading at 11.2% of Mackie's core NAV (net asset value) estimate of $2.64 per share.  The company trades at a large discount to even its proven developed producing (PDP) reserves value of $1.26 a share

"With the completion of the Marquee acquisition, PPR is a much larger, undervalued company with a larger cash flow and opportunity base, providing more flexibility to allocate capital to projects with the highest potential return. We see long term growth potential through the exploitation of the company’s large inventory of lower risk development oil locations and expanding waterflood programs. At the current market price, we also believe PPR is a takeover target," writes Newman.

Mackie rates the shares a Buy, targeting $1 (current price: $0.19).

READ: Pulse Oil expects both Queenstown fields to be in production late 1Q or early 2Q

Pulse Oil (CVE:PUL) also makes it into Mackie's list. It has 100% interests in two Alberta properties. They are the Queenstown Mannville property, which offers immediate low-risk growth via well reactivations and drilling.

But what differentiates this small-cap company from others in the current market, is its miscible flood Enhanced Oil Recovery (EOR) project of two Nisku Pinnacle Reefs at Bigoray, says Mackie.

A miscible flood here has the potential to add up to 12 mmboe (million barrels of oil equivalent) of reserves with light oil production additions of over 2,000 boe/d (barrels of oil equivalent per day).

The broker rates Pulse shares Speculative buy and has a target price of $0.50. (current price: $0.14).

Contact Giles at [email protected]

Follow him on Twitter @Gile74

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