Small positionThe valuation appears to be compelling here so I took a small position. Undervalued, decent land base and most importantly, financial discipline are my 3 investment criteria.
What I'm looking for more specifically:
#1, good land base with some growth upside. Seems SDE easily passes this test. #2 Judicious capex deployment. Seems they pass this test (focused on best zone), not sure about the old Cequence lands though. #3 capex discipline on a per BOE basis (because this can significantly impact Free cash flow). Seems they are passing this test ie maintain the Deep basin, some growth in the Montney. Not sure if there are any acquisition plans though (as this is the company's history). #4. Low to no debt - seems they should be progressing well here. #5 no "bank" driven hedges - seems they are moving off these. #5 no dividends - not sure. #6 - limited stock options - not sure. #7. Free cashflow deployed to buybacks via NCIB or SIB - not sure.
It would seem like SDE would be in a position soon to start buying back shares and that this could significantly reduce the share count over the next few years. At least that's what I'm counting on.
Of course as we know, financial discipline is not exactly the industry's forte historically so this remains to be seen. They could decide to acquire a company so buybacks would be out the window: or signifcantly increase capex so reduced buyback or not at all; pay dividends or special dividends instead of buying back shares; buy back shares but issue as many stock options in the process leaving us back to square one.
This seems like a good bet. I may stay in this for years if the financial discipline is excellent but if I find another more disciplined E&P, I'd probably sell and buy that instead.
Good luck to all.