Hydra Capital
https://www.hydracapital.ca/2021/10/04/if-oil-and-gas-stocks-are-the-new-tobacco-welcome-to-flavour-country/
Yangarra Resources (YGR.TO, last at $1.83)
Not that long ago, I said that I think the market will start to wake up to YGR when they report Q3 results in late October/early November. Well, the market has woken up a little bit, but I think there’s more gas in the tank, so to speak. CEO Jim Evaskevich hasn’t been idle over the last two years… instead he’s been busy making structural changes with respect to YGR’s operations that should see his already-low operating costs stay that way. YGR has around $200 million in debt, which Jim plans to get down to ~$190 million by year-end and into the $150-160 million range by Q2 2022, at which point his debt to cash flow multiple should be around 1x. Attentive readers will notice that implies 2022 cash flow of around $160 million and they would be right (that assumes $30/boe netbacks on 15,000 boepd in 2022). A quick review of YGR’s corporate slide deck will show that the company expects to free cash flow somewhere between $300-500 million (that’s ~$4-6/share) over the next five years at $65 oil and $3 AECO gas. YGR’s current plan is to run one rig, full time, in its Alberta Cardium fairway at a cost of about $80 million per year and to pay out excess free cash flow after every quarter in the form of a special dividend. With only 85 million shares outstanding, and after accounting for a $30 million debt repayment in H1 2022, that implies the potential for $0.65/share of free cash flow in 2022 alone — this is on a stock currently trading at $1.80. Even if production was held flat in 2023 at 15,000 boepd, YGR would free cash flow $1/share. For those paying attention, that’s nearly the entire share price in free cash flow over that two-year period at oil prices $10/barrel lower than where they are currently, and a fairly conservative AECO price. YGR’s year-end 2019 reserves (remember that I don’t even look at year-end 2020 reserves values because that was a scorched-Earth year) showed that PDP reserves alone were worth over $3/share at the time and I suspect year-end 2021 reserves will be at least that much, if not higher. YE 2021 1P reserves values could be knocking on the door of $10/share, but I’ll have to wait and see in Feb/March when reserves are reported. Did I mention YGR is essentially unhedged? The last of YGR’s minor oil hedges (1,000 bbls/d) just rolled off at the end of September and the company has only a little over 730 boepd (4.4 mmcf/d) of gas hedged until the end of 2021. That means that YGR is reaping vast rewards this year from elevated energy prices and that’s set to continue in 2022 and beyond. YGR has had a nice run, but I haven’t sold a share and am unlikely to until I see prices approaching PDP reserve values unless the market turns absolutely upside-down. Right now, an average YGR Cardium well would be expected to pay out in about 6 months and would boast an IRR greater than 300%. Sometimes it’s nice to be small because there’s a lot of torque in YGR in my opinion, and YGR has good leverage to AECO gas, for which I like the long-term outlook.