The downturn in the energy sector has pushed valuations of most Canadian E&P (exploration and production companies) to unprecedented lows but broker Mackie reckons when the tide turns there could be a bull-market for many years.
Microcap stocks have been hit even harder than larger peers and are trading at levels not seen since the dot.com boom in the early 2000s, despite the upturn in crude over the last six months.
Experienced oil analyst Bill Newman, writing in Streetwise Reports, sees this as an "opportunity" to buy highly undervalued firms that are positioned for when valuations "revert to the norm".
One stock on the analyst's list is Prairie Provident (TSE:PPR), which is focused on conventional oil weighted assets in the Wheatland and Princess properties in Southern Alberta, and its Evi area in northern Alberta. It also has 240,000 net acres in Quebec.
Newman says he likes its "cash flow funded 2018 capital program that should grow production” to around 6,000 boe/day.
"Also, in Q2/18 the company may receive a favorable ruling from an arbitration tribunal that could award substantial damages, which could be a major near-term catalyst for the stock, significantly adding to the company's balance sheet and initiating a re-rate in the marketplace," he says.
Pulse Oil Corp..
The EOR project has the potential to add between 2,000 and 3,000 barrels a day of light oil production, which would throw off substantial cash flows and unlock over 25mln barrels of oil equivalent of in-place volumes with potential value of C$177mln (C$1.39 per fully diluted share), he says.
The firm has a market cap of just C$14mln today. "This value could be unlocked for very little investment," says Newman.
It has a large, concentrated land base in Alberta, with a large low-cost Manville and Cardium well development inventory for expected rapid production expansion as the energy market recovers, says the broker.
"The company also has a sizeable stake in the Duvernay Shale oil play with the likes of Crescent Point and Raging River drilling offset horizontals near Point Loma's acreage. Point Loma also has additional financial security with no bank debt and the backing of a large strategic Chinese investor that owns nearly 20% of the company."
Summing up Newman says: "The energy sector has been out of favor for so long now that the lack of investment combined with OPEC production cuts are pushing down global oil inventories while world economies continue to grow.
"This could set up the energy sector for a multiyear bull market and we believe our forgotten micro caps could easily have a 100% to 200% return for investors."