Hi there weekly readers!
It is almost getting boring to report every week how great both Uranium and oil are doing recently… here is last week for example. Is there a part of me who wishes to have some crazy drop to make it interesting? well… no…
If you’d like to understand the background to the Uranium situation, and why I think it will keep going higher I recommend this video from Uranium Insider. I don’t get any kick-back from the guy, and I would not pay for his service, but the situation summary is good IMHO.
One thought that I just started having, is the risk of government intervention in SPUT (Sprot Uranium Trust). It is kind of crazy, but these guys are holding a massive amount of U3O8 which is intended to… never be used… The entire purpose of this trust is hoarding, it is partly to “blame” for the tightness in the supply. So, what happens if the situation goes so crazy, utilities are not able to contract, there is simply no product out there. Price goes up and up, but nothing comes back in supply (as most of the Uranium is in yet to be developed projects). Can the Canadian or U.S. government intervene? Pass a law that mandates the trust to sell some or all of its holdings? Yes, this is against free market, but things are getting crazier by the day recently. Go back and read about Executive order 6102. 1930’s saw the U.S confiscate gold from private citizens. I don’t hear anyone talking about this, but I have it in the back of my head, if and when I see Uranium rocket past 100 USD in a single day, I will take some profit off the table. Just in Case…
Now to oil, here is a short write up on a stock the I personally hold: CPG Crescent Point Energy.
Crescent Point Energy is a Canadian oil and gas E&P with operations in Alberta and Saskatchewan. Its drilling activities are focused in the Duvernay and Montney plays in Alberta, and the Viewfield Bakken, Shaunavon, and Flat Lake plays in southern Saskatchewan.
Source: CPG September 2023 Corporate Presentation.
Before 2020, CPG was a more diverse collection of assets overseen by a board of directors and management team that allocated capital inefficiently. The company’s low profitability caused its shares to trade at a low multiple relative to peers. Its far-flung operating footprint and sub-par management caused us to avoid its shares for years. However, under CEO Craig Bryksa, CPG has transformed into a more focused operator. Under Bryksa, the company has sold mature, high-cost acreage, much of which involved substantial abandonment liabilities. It reallocated capital to more profitable acreage in short-cycle plays, where results are repeatable and capital spent on drilling activities is paid back more quickly. The transformation is pictured below.
Source: CPG September 2023 Corporate Presentation.
CPG also allocated capital toward paying down debt, thereby increasing value and reducing risk for shareholders. We expect the newly emerging CPG to garner a higher multiple as the market better appreciates the high quality of the company’s acreage and the repeatability of its results.
CPG’s transformation has already been recognized in a higher share price. Year-to-date, it has outperformed Canadian E&Ps with a 12.9% return versus the XEG ETF’s 8.6% return. It has also outperformed most of its Canadian mid-cap E&P peers. However, the company still trades at a relative discount given its attractive drilling economics and healthy balance sheet. We believe there’s more multiple expansion to come as long as WTI is sustained above US$80 per barrel.
I find cpg to have great risk reward. I suggest you look into them and do you own DD!
See you next week!