Alberta Oil and Gas production companies for the past few years have been an under performing sector to have invested in. And there are a couple of reasons why:
1) Natural gas wholesale prices have declined from $12+ to the $2-4 range per unit.
2) Alberta crude oil (convential and tar sands) is moving at $50 - 65/barrel which is well below WTI at recent $85+/barrel. Why? The promised pipelines are not anywhere near approval let alone constuction to move the ever increasing Alberta oil sands production to refineries in Texas.
3) Questions for Another Day? Why does Canada (Alberta) not also build refineries to process oil into gasoline, diesel fuel, and byproducts for the chemical industries and export/sell them at world market prices?? Alberta should be the Texas of Canada. ??
This disconnect has provided some huge divergences between Alberta oil and gas producers and the major stock market indexes that are near multi year recovery highs in a 20 year secular bear market.
I will discuss one stock to illustrate the point. I have owned this stock in years past when it was an income trust and am now considering repositioning into it.
Disclaimer: This is NOT a recommendation to buy this stock. Consult with your own investment advisor and/or do your own due diligence.
Enerplus Corp (TSX-ERF) Also trades on the NYSE.
Market Cap: $2.5Billion.
Current Share Price: $12.50 Current Dividend: $1.08/Yr Current Yield (COC): 8.6%
Production: 2013 Estimated 84+ thousand barrels oil equivalent per day
This company has been very hardhit by first being overweight in natural gas production and recent low Alberta prices for wellhead oil. Enerplus is NOT in the oil sands production space so has the flexibility to gradually reposition its production base. The company continues to sell non producing assets and reposition and consolidate growing positions in the Bakken Field areas of North Dakota including the Fort Berkhold fields in North Dakota (now 14% of company production) and the Sleeping Giant Fields in Montana. Current production is now 50/50 oil/gas production.
As one can see from the included 9 year price chart Enerplus has seen a huge drop in share price from $65 to the current $12 range. As well in Auguest 2012 Enerplus cut its dividend by 50% from $2.16/Year to $1.08/Year. Also on the negative side the estimated 2013 payout ratio is 130%.
This stock and others like it are a buy for investors who can accept the risk. IE: If the current business plan does NOT develop as planned and the company cuts its dividend another 50% to .54/Year and the stock could drop to $6.
Click on chart to enlarge.
Click on chart to enlarge.
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