The stock of the Canadian oil company has faced significant volatility over the past year, primarily due to numerous uncertainties, particularly related to gas prices in Europe and production restrictions in Germany.
Jeremy McCrea, an analyst at BMO Capital Markets, fears that these uncertainties will persist, limiting the growth potential of the Calgary-based firm. As a result, he has downgraded his recommendation to Market Perform and lowered his one-year target price from $20 to $16.
There is no doubt that the potential of wells in Germany was a factor attracting investors. Although the company announced last month that its first well in that area was a success, the analyst notes that extraction is facing restrictions that limit short-term cash flows.
Furthermore, while these wells have the potential to deliver excellent returns, the high estimated costs of around $35 million, along with the exploration risks and restrictions that could last several years, lead the analyst to revise his forecasts. Given the current context of low oil prices, the analyst believes that this situation should encourage investors to remain on the sidelines until changes occur.
The analyst also notes that the stock is facing the largest short position among investors in the energy sector, with 13% of shares outstanding.