New kid on the Block -Duvernay Energy

 As of January1,2024 Duvernay Energy will become a newly formed Canadian oil company.It will be formed by the combination of  Cenovus (CVE) and Athabasca Oil(ATH).CVE will own 70% and ATH will own 30%.It will own 200,000 gross acres,most of it in the Montney and Duvernay region.It will inherit Kaybob acreage from Athabasca Oil and Cenovus Energy.Athabasca has 3 Duvernay pads in the Kabob region.Duvernay will own a pipeline network  connected to Pembina Pipeline and Keyera Ppipeline.On January1,2024 Duvernay Energy will start off with production of 2000 boe/day.And the board will give guidance at the end of Q1 2024.

           Cenovus Contribution

   The new Duvernay Energy board will have a 4 man board with one member from CVE.And Duvernay will get $18 million of it's $40 million seed capital from CVE.Also Cenovus will contribute some of it's profitable  Kaybob acreage to Duvernay Energy.In total, Cenovus will earn 30% of  Duvernay's net income and own 30% of it's assets.

   The opening production in Q1 2024 will be 2000 boe/day.A further 2 well pad will be producing in Q2 2024.Athabasca plans to have production of 6000 boe/day in 2025.This blog finds this to be a low forecast.However this could produce from $100 million to $125 million of revenue for Duvernay Energy in 2024.And Athabasca plans to have no debt on it's books for 2024.The average netback for thermal oil is $35-$39 a barrel.And Duvernay (especially Kaybob Duvernay ) assets have relatively high netbacks and low decline rates.

 

 A Low Risk Investment

  At this point in time it seems like the main way that investors can participate in Duvernay Energy is through Athabasca Oil and Cenovus Energy.However more leverage can be obtained by investing in Athabasca Oil (ATH) as no IPO ( an initial public offering of shares) has been mentionned yet for Duvernay.Although Duvernay is intended to be a separate entity from Athabasca, net income earned by Duvernay will be added to ATH.Capital and financing costs are minimal as there will be no debt and seed capital is added by ATH and CVE.Still this blog sees only moderate profits for Duvernay as it goes through startup costs.On the other hand if the price of oil gradually moves towards $80 a barrel and Duvernay netbacks increase, Athabasca Oil will likely hit $5.00 a share.

                  MarketBeat: Stock Market News and Research Tools     Dale Mcintyre is a freelance writer that submits articles chiefly to Marketbeat.com and Zacks Research.

Cenovus' total Production (upstream and downstream) now Exceeds Imperial Oil Production

 Many investotrs don't realize the improvements that Cenovus has made since taking over Husky Energy about 2 years ago.For example,downstream production was about 100,000 boe/day in Q2 2021 but in Q2 2023 (as written in Econothon dated October 10,2023) downstream production was 650,000 boe/day.However downstream production in Q3 was 664,000 boe/day in comparison to Imperial Oil downstream production of 350,000 boe/dayThis is a tremenduous increase in downstream and total production.Econothon dated October10,2023 also stated that upstream production was 797,000 boe/day which was near the top end of guidance.Counting upstream and downstream production Cenovus is now one of the top 3 producers in the Canadian oil patch.

    It cannot be overstated that Cenovus changed dramatically after it bought Husky Energy.Most analysts(including this blog thought that CVE would sell off one or both of the two refineries that it acquired in the deal.However in 2021 ans 2022 it refurbished the Superior and the Toledo,Ohio refineries.Consequently there was an additional 660,000 boe/day of downstream production in 2023.However in order to improve both refineries CVE had to takea substantial risk and add a lot of new debt.For example,in 2021 CVE had total debt of about $14 billion.But in 2022 and 2023 Cenovus reduced their debt.So that in Q3 2023 debt was reduced by  another $1 billion to remain at $6 billion.And more debt will be eliminated in Q4.

                         Financial Highlights of Q3

   Cenovus showed total operating funds of $2.7 billion and adjusted funds flow of $3.4 billion.While free cash flow was a whopping $2.4 billion.These funds were used to reduce debt by $1 billion to $6 billion in net debt.Net income and net income per share at $1.82 per share were up from Q3 in  2022 at $1.53 per share.

                     The Next Step

  Before acquiring Husky, Cenovus was focused on the Lloydminster oil pool and the Lloydminster upgrader and asphalt plant.In 2021 the capacity of Lloydminstrer was 150,000 barrels per day;output was used solely for producing asphalt.But in guidance, CVE has told shareholders that it intends to spend $920 million in order to create a substantial diesel plant.The Lloydminster oil pool is sizeable and close to the American market.So this blog thinks that down the road an upgrader or a refinery will be added to produce gasoline as well as diesel in Lloydminster.

   A new Cenovus

  Back in 2020 Cenovus was a quite different company than today. At that time CVE owned substantial upstream assets and the Lloydminster upgrader and asphalt plant.Then it acquired Husky Energy and in 2022 spent a lot of money improving the new,bigger company.And in 2024 (September) the new diersel plant is expected to come onstream.But this blog sees CVE making a bigger opportunity out of Lloydminster with it's sizeable heavy oil pool.Down the road Cenovus could be adding another oil upgrader or refinery to handle gasoline.And it doesn't hurt that Lloydminster is closer to the American market than the refineries in Edmonton.

  The future Price of CVE

  With the W.T.I oil price so volatile the price of all oil shares moves with the W.T.I.But CVE will have greater production than Q3 2022 and the average price(over the quarter) will be lower than Q3 2022.Consequently net earnings per share in Q3 shoiuld be in a range of $1.70-$1.90 per share and around $7.00-$7.50 per share on an annual basis.And this will  keep CVE shares in the area around $24-$28 per share.But in 2024 the price may edge upwards as the diesel plant gets closer to being finished in September.

        

Dale Mcintyre    https://www.marketbeat.com/ M.S.Sc.(econ) is a freelance writer that wrires for several brokers.

Tucows "Dishes Out" of it's Problems

Tucows released it's Q2 report on October 6 and the report was a sign of what is to come for Tucows down the road.Firstly and importantly Tucows acquired a new credit facility from the Bank of Montreal replacing it's old credit arrangement with Royal Bank.The new credit facility is for $240 million with an accordion arrangement for another $60 million.Tucows tells investors that it got lower contributions from it's domain names business but is getting some contribution from Ting ,it's mobile internet service,and increased contributions from it's new internet business called Wavelo.Wavelo seems to be an extension of Ting.

Ting and Wavelo

Both Ting and Wavelo are mobile internet services;it appears that Wavelo is a subsidiary of Ting. Ting was sold to Dish Network and Tucows only has a residual interest left.Yet it is still claiming some net income from it's remaining position.Wavelo is Ting's subsidiary that is showing growth in revenues and net income.But how much equity can they possibly have in this new internet service company which appears to be controlled by Ting that is owned by Dish.On the other hand it is likely that Tucows picked up some equity in Dish from the sale of Ting.It is also likely that Dish picked up some equity in Tucows in this transaction.

On the other hand it is likely that Tucows picked up some equity in the much bigger Dish.This blog believes this is stabilizing TC's share price.   

A Future Scenario

  Dish has a market cap of about $5.5 billion and could easily acquire the much smaller Tucows.But it is unlikely that  a network operator (Dish) would be interested in a retail seller of domaine names.The common interest of these two companies is Ting and Wavelo.Although Tucows has fallen from it's former price of $100 it can still raise equity from it's narrow capital base.And it has a  new credit facilty of $300 million.Reinvesting in Ting and Wavelo would make Tucows more interesting to Dish and Canadian investors.Failing that Tucows must find another Ting to bolster it's domaine name business.Tucows would have little difficulty in raising $25 million in new equity or 1 million new shares at $25 apiece.Putting this together with $75 million from their new credit facility would give them $100 million to create a new subsidary fot TC.This would  create a lot of investor interest in TC.Otherwise TC will stay in it's present trading range.

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                                                                    Dale Mcintyre M.S.Sc(econ.) is a free lance writer that writes on various stocks that trade on the TSX.

Crescent Point buys a Gem in Alberta Montney

       On May 10 Crescent Point (CPG) closed a deal acquiring a bundle of land plus both producing and developing wells in the Kaybob Duvernay region of Alberta Montney area for  $ 1.7 billion.This purchase and two previous ones ( in the Kaybob Duvernay area) has dramatically changed the profile of CPG.In 2021 CPG bought Kaybob Duvernay assets from Shell Canada for $900 million and in December,2022 purchased Kaybob Duvernay assets for $375 million from Paramount Resources.These 2 purchases plus the $1.7 billion purchase from Spartan Delta in May, 2023 have caused a substantial shift in the CPG profile. Consequently CPG had a quite positive Q1 report although the deal with Spartan Delta only closed on May10 so operating for only half of the quarter.

    The first Quarter of 2023 

                                                

                               

    Crescent Point average annual production for 2021 was 130,000 boe/day.In 2022 the average annual production was 132,683 boe/day.But the guidance for 2023 is 165,000 boe/day for an almost 30% increase.And the average annual price of oil will be higher in 2023 than in 2022.The difference in production is due to the past performance of the Kaybob Duvernay wells and the new Kaybob wells just coming onstream.For example, in 2022 ,4 out of 5, top producing wells belong to CPG.

      Q1 Performance

   This increased production is matched by better financial performance.Foremost is the fact that CPG generated $278 million of excess cash flow.And it paid down debt by $445 million in Q2.Consequently although another $1.7 billion of debt was added to purchase the Alberta Montney assets this brought total debt to only $3 billion.Consequently debt  now(before the North Dakota sale) is only 1.4 times the adjusted funds flow.In fact CPG did so well in Q1 that they paid out a special cash dividend of $.035 per share worth almost $20 million.

     2023 Performance

  Subsequent to this quarter Crescent Point sold off it's property in North Dakota for $625 million.This will reduce their 2023 output at a time when the price of oil is expected to rise.However output will not suffer substantially.As before the sale CPG guidance was for 166,000 boe/day which is up from 132,000 boe/day in 2022.But CPG is counting on the prolific production coming from their Kaybob wells.Consequently their revised guidance for 2023 is now still a healthy 161,000 boe/day.                                                                Their Q1 net income was a healthy $.39 per share.This means that annual e.p.s. could be as high as $1.70-$1.75 per share with a little price escalation in oil in the second half of the year.Even $85 a barrel could bring this result.This would bring a price tag of $12-$12.50 with only a P/E of 7 times.

    A successful Strategy

 Crescent Point has found their properties in the Kay Bob Duvernay region to be more productive than originally thought.And they have added another drilling rig to furthet increase production.As a result their total output has increased and they were able to release acreage in the Bakkens region of North Dakota which has a high decline rate.This has reduced their debt to a reasonable level while not affecting total output by a significant amount.And this puts them in a position to buy another small property in the KayBob region of the Alberta Montneys in late 2023 or early 2024.     

 Dale Mcintyre (M.S.Sc) is a freelance writer that writes for several brokers including ZacksInvestment Research.

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Northland Power shows satisfactory adj.EBITDA but drop in net income

   

   My recent blog on Wordpress  dated May 9 discussed the fact that in this lacklustre market utilities are a good sector to invest in.Two months ago (Feb.23)  Northland Power reported it's fourth quarter and annual performance;it was an excellent report.It showed annual adjusted  EBITDA of $1.4 billion which is a NPI record. And net income increased from $270 million in 2021 to $955 million for 2022.Earnings per share for 2022 were $3.80 and the price/earnings ratio was a paltry 7.7.            

     Q1 Performance                                                                         Only two and a half months later,on May 9, it reported it's first quarter of 2023 results that were only slightly different.Consequently this blog believes these results will not change NPI's annual net income forecast nor it's 2023 guidance..It is true that net income was only one third of net income in Q1 2022 but NPI management accounted for the difference caused by a price spike in Q1 of 2022. If this net income was truly unusual NPI management would have revised downwards it's guidance for net income and adjusted EBITDA forecasts.                                                                            This blog believes that in some cases adjusted EBITDA may be a better indicator of performance than net income.Because the I (interest),T (taxes),(D) depreciation,and (A) amortization are variable.True NPI  adjusted EBITDA fell about 15% from 2022 but that was a record -setting year.While net income was substantially lower than 2022 it still was only a $180 million reduction from a forecasted $1 billion for 2023.

     Temporary not Permanent Problems 

     It is true that the Q1 report was not a good one with a sizeable reduction in net income.But adjusted EBITDA only showed a 15% reduction in comparison to a record setting performance in 2022.Shareholders seeing the report drove the share price down to $27 a share for a 15% drop. But it is possible that there was only a small drop in expected adjusted EBITDA and overzealous accounting that reduced net income  by $180 million.

   NPI has many large utility projects;some have weather problems in one quarter and then an excellent performance in the next.Over the period of a year NPI gets average or traditional weather performance This blog expects that the revenue problem will correct itself in Q2.And the sudden drop in price has made NPI the cheapest utility on the TSX index (an 8.0 P/E).Nevertheless this blog expects NPI  to drift in a range from $29-$32 until the Q2 report comes out and net income shows dramatic improvement.                 

Dale Mcintyre M.S.Sc (econ) is a freelance writer that writes for Zacks Research.   https://www.zacks.com/

Exchange Income Fund (EIF) - A weird name but a good solid business

Exchange Income Fund has been around for awhile but has only gotten the attention of many investors recently.It is based in Winnipeg in the aviation,aerospace and manufacturing sectorsAnd it makes acquistions of small and medium tier companies in a few select industrial areas.It made another acquisition in March (B V Glazing) for $95 million and in April (Hansen Industries) for $42.5 million recently. Now is about half of the market cap of the much older Onex($5.5 billion) located in Ontario.

      History

    EIF has been around for awhile.For example, in 2004 it had a market capitalization of $8 million.But with a steady stream of acquisitions and organic growth it had a market cap of $2.2 billion in 2022.And it has already made another tuck-in acquisition in 2023 ,Hansen Inc.which EIF acquired for about $45 million.In 2022 it made 5 tuck-in acquisitions and one platform acquisition.And it's earnings and e.p.s. rose about 36% in 2022.So now it's P/E ratio is about 17.However EIF can support this multiple and may bring it down  as it has solid organic growth.
 Q4 Highlights  

On April 10 EIF reported both it's fourth quarter and annual performance for 2022.Both showed good gains over 2021.Revenues and adjusted EBITDA showed increases of 30%($390 million) and 10%($90 million) over 2021.While net earnings increased to $23 million or $.61 per share for an increase of 71%.             

 

Guidance and Forecast

Exchange Income Fund has already raised the guidance for 2023 for revenues and adjusted EBITDA.And in only 4 months of 2023 it has made two acquisitions totaling $150 million in market cap.Whereas in 2022 it made 5 small acquisitions and one larger one.Furthermore the average size of it's acquisitions is getting larger.This blog expects at least 1 more in 2023 within the $100-$125 million category.Revenue increased 40% in 2022 and adjusted EBITDA by 30%.This blog expects a further 25-35% increase in both metrics in 2023.While earnings could increase by 25%- 40%.Consequently this blog expects earnings of $3.15- $3.50 and only a small increase in the  dividend maybe to$2.60 per share.The consensus target price of analysts is $63 per share for 2023.This blog expects a steady climb to$60 and then plateauing in the $60-$61 range for 2023.                            If EIF is going to advance beyond this path it must be more like Onex that acquires larger companies in a somewhat distressed state.This,of course, will require more management from EIF.And then it can acquire companies not just in western Canada but almost anywhere in north America.But this is a big step to take.

    Dale Mcintyre is a freelance writer that writes primarily for Marketbeat and Zacks Research Co.           https://www.marketbeat.com/ ;www.zacksinvestmentresearch.com 

Converge Technology (CTS) turns Corner but still looking back

 Converge Technology(CTS) has been on my radar screen for about 5 years.5 years ago the stock price was below $5 and stayed there until 2020.The price rose to as high as $12.50 in 2020 before dropping to it's present price of about $5 a share.This,of course, was partly caused because the Covid restrictions put a damper on sales.Investors were expecting quite substantial revenue and earnings growth.Revenues met expectations but earnings growth was a little slower.Still analysts forecasted quarterly e.p.s. of $.21 to $.46 with the consensus being $.32 per share.  Their P/E ratio as well as their stock price was lowered but only slightly.Now it is about 25 times earnings.So it seemed to many shareholders that Converge Technology was on track.But then management announced that they are having a Strategic Review of all their options.This amounts to putting a For Sale sign on CTS.According to this blog this was a very bad time to think of "folding up the tents" as the future looks at least somewhat rosy.As 2021 was the first year in 5 that CTS showed a profit.

     Q2 and Q3 look better than Q1

   The last 4 years have  shown negative net income but this fiscal year is looking better.One of the problems that CTS faces is a quite esoteric market;it sells things like sotware enabled IT and cloud solutions and digital infrastructure.Most analysts don't know much about these things and can't easily predict the amount of future growth.But all forecasts are rosy for both Q2 and Q3.This blog is predicting  Q2 and Q3 e.p.s. of $.30 and $.40.Annual e.p.s. could be as high as $1.25 to $1.40 and with a P/E ratio of  4-5 the share price might be able to reach  $5-$5.50 in early 2023 even allowing for a slowdown in the IT and cloud solution narkets.CTS has had a togh time for the last 4 years but the future does like brighter.If it insists in puting a For Sale sign up then it is likely that the price has just gone up.

                                   

 Dale Mcintyre (M.S.Sc(econ) is a freelance writer that wotks mainly for Zacks Research and Market Beat.com https://www.zacks.com/