Baytex Energy Corp

Baytex Energy Corp (TSX: BTE) is a North American focused oil and gas company based in Calgary, Alberta. The corporation operates in Canada and the United States. The Canadian operating segment includes light oil assets in the Viking and Duvernay, heavy oil assets in Peace River and Lloydminster and conventional oil and natural gas assets in Western Canada.

Key Highlights:

• Bullish Technical Indicators: From the technical standpoint, the stock is hovering in a steep bullish zone, with stock traded well above the crucial long-term, and short-term support levels of 200-day and 50-day SMAs. Also, the Price/200-day SMA ratio in BTE shares stood at 1.66x, implies that the stock is trading approximately 66% above its long-term support level. The stock was also trading approximately 27% above the crucial short-term support level of 50-day SMAs, which implies a stronger bullish trend in the stock. Also, the MACD is rising, with the difference between short-length 12-day EMA and long-length 26-day EMA is positive, and MACD oscillator moving above the 9-day SMA signal line, another bullish indicator.

Technical Chart (as on February 09, 2021). Source: Refinitiv (Thomson Reuters)

• Strong Sequential Quarter Performance: The company reported a robust improvement in financial metrices on a q-o-q basis, with revenue jumped by 65% to CAD 252.53 million as compared to CAD 152.68 million reported in a quarter over period, driven by significant improvement in the commodity realization prices. Net losses also significantly narrowed by 83% on a q-o-q basis to CAD 29.44 million against the net losses of CAD 138.46 million in a quarter over period.

Underlying Commodity Prices data in Q3 and Q2 FY20. Source: Company Filing

Q3FY20 Financial Highlights:

• BTE declared its third-quarter result, wherein the group reported revenue, net of royalties of CAD 212.486 million, against CAD 349.583 million in the previous corresponding period (pcp). Realised price on a weighted average basis stood at 33.79/boe in Q3FY20, as compared to 47.14/boe in Q3FY19.
• During the quarter, the company reported total production of 77,814 boe/day, lower than 94,927 boe/day in the previous corresponding period (pcp).
• Total expense stood relatively lower at CAD 234.912 million, as compared to CAD 332.849 million. The decline was primarily due to lower operating expense (CAD 73.447 million versus CAD 97.377 million in pcp), significantly lower depletion and depreciation (CAD 106.454 million versus CAD 180.422 million in Q3FY19), coupled with a foreign exchange gain amounting CAD 26.231 million, as compared to a loss of CAD 14.237 million in pcp.
• The company reported a net loss of CAD 23.444 million, as compared to a net profit of CAD 15.151 million.
• The group reported current assets of CAD 139.135 million, while total assets stood at CAD 3,156.414 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company’s revenue depends upon the international crude oil prices and a slide in the commodity prices would likely to hinder the company’s overall performance. Also, the 14-day and 9-day RSI is hovering in overbought zone, so there can be some price consilation in next few trading session; hovever, bullish trend in the stock is largely intact.

Valuation Methodology (Illustrative): Price to Cash Flow

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Stock Recommendation:

The significant improvement in the underlying commodity prices has significantly bolstered the group’s performance on a sequential quarter basis. Moreover, price of WTI Crude, Natural Gas and Energy Commodities has significantly improved in Q4FY20 as well, which is again going to enhance the group’s performance and narrows losses. Moreover, technical indicators are signaling a strong bullish trend in the stock. Therefore, considering the big price improvement in the commodity price in which the company deals in, together with bullish technical indicators and valuation, we have given a ‘Speculative Buy’ rating with lower double-digit upside potential at the closing market price of CAD 1.03 on February 09, 2021.

BTE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Nuvista Energy Ltd

Nuvista Energy Ltd (TSX: NVA), is a Canada-based company engaged in exploration, development and production of oil and natural gas reserves in the Western Canadian Sedimentary Basin. The Company's primary focus is on Montney formation in the Alberta Deep. 

Key Highlights

• The bullish stance of management: Despite volatile economic conditions, the group has maintained its production levels, which reflects the operational resiliency. For FY2020 and FY2021, the group expects its production to be in a range of 49,750 – 50,250 Boe/day and 50,250 – 52,000 Boe/day respectively, looks impressive. On the other side, the group will be having capital investment of CAD 190 million for FY2021.

Source: Company

• Robust future cash flow generation: Regardless of the ongoing slowdown coupled with demand destruction picture, the company has preserved its cash flow levels. During the second half of FY 2020, the company is likely to generate CAD 80 million cash flow, while for FY2021 cash flows are anticipated to be in a range of CAD 200 - 265 million.

Source: Company

• Material reductions in costs, driving improved capital efficiencies: The company stated a lower operational cost over the years, driven by an upturn in drilling performance and constant focus on placing proppant more efficiently while improving completions intensity. This reduction in operating cost will augur margins improvement.

Source: Company

• Healthy Liquidity: The company maintains an adequate level of liquidity to manage its business, future growth plans and ability to meet their minimum volume commitments. In November 2020, the group had a Credit Facility of CAD 440 million, with no debt maturities for the next three years provides extra financial flexibility and resilience to manage continued volatility.

Financial overview of Q3 2020

Source: Company Filing

• In Q3 2020, The Company's petroleum and natural gas revenues decreased 24% to CAD 105.7 million, compared to CAD 138.7 million in the previous corresponding period. Primarily due to a 20% decrease in average per Boe realized price by 20% and decreased production by 5% for the quarter.
• Total Operating expenses stood at CAD 117.7 million decreased by 12.7% in Q3 2020, against CAD 134.8 million in pcp.
• The Company's net loss stood at CAD 44.1 million, compared to CAD 7.6 million in Q3 2019, primarily due to lower-income and unrealized losses on financial derivatives worth CAD 46.5 million, partially supported by a lower total expense.

Risks associated with investment

The company is exposed to various market risks in the ordinary course of operations that could impact its earnings and cash flows. Some important risk factors are like lower demand, lower production, volatility in crude prices. The company also enters physical and financial derivative contracts to manage exposure to fluctuations in commodity prices and foreign exchange rates. 

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

Global crude oil prices have begun to recover and were relatively stable during Q3 2020, as OPEC members agreed to production curtailments. The governments also eased some restrictions that allowed economies to begin reopening, which increased demand. During the second half of FY 2020, the company is likely to generate cash flow of CAD 80 million, while for FY2021 cash flows are expected to be in a range of CAD 200-265 million on the back of improved production and bringing down the operation costs, which looks encouraging. Therefore, based on the above rationale and valuation, we have given a "Speculative Buy" rating at the closing price of CAD 1.54 on February 09, 2021. We have considered Seven Generations Energy Ltd, Birchcliff Energy Ltd, Bonterra Energy Corp, etc. as the peer group for comparison.

Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.