Recently, I wrote an article on a small-cap producer involved in the Alberta's Deep Basin. I discussed Trilogy Energy (TSX: TET), a company owning properties in the Duvernay, Dunvegan and Montney, notably. In this article, I will take a look at an intriguing Calgary-based producer engaged in the Deep Basin as well.
A strategy from various angles
Angle Energy (TSX: NGL) is focused on identifying the value in vast resource opportunities for light oil, notably in the Cardium and Viking and liquids-rich gas pools of the Mannville and Duvernay. The producer is committed to maintaining low operating costs combined with maximized netbacks in order to pursue value creation and steady growth. Angle has an extensive portfolio of more than 260,000 acres of land located in the Deep Basin. As we are about to see, the company is very well positioned to develop that tremendous potential lying beneath its feet.
A shifted approach
According to its second quarter results, total production achieved 10,926 barrels of oil equivalent per day, 56% weighting liquids compared to 44% for the same period in 2012. In 2010, the producer's production weighted 57% gas, 54% in 2011, and last year, 50%. This year's ratio should be around 44%.
A fresh angle on higher valued plays
The shift allowed the producer to focus on high-value liquids-rich plays in the Cardium and Mannville. The Cardium acreage is estimated to account for more than 200 million barrels of original oil in place. The company's production currently averages 4,300 Boe/d with the potential to double oil production in 18 to 24 months. Angle, holding 209 net sections of land in the Cardium, represents the fifth largest leaseholder, thereby featuring a real competitive advantage over its peers.
Furthermore, the company reported that more than 500 Bcf of original gas in place was estimated on its 225 net sections of Mannville acreage. Angle uses a relatively new technology to recover gas called slickwater fracturing. This will be a strong catalyst for growth, raising the potential to double the recovery factor to 60% of OGIP. Finally, Angle started to focus on its emerging Duvernay play, an area of 200 net sections estimated to hold more than 2 Tcf of OGIP.
Key financials
Operating costs per Boe increased to $6.36/Boe, compared to the same period last year with $5.72/Boe. The company explains the higher operating costs by its higher liquids production, which resulted in higher costs per Boe than the costs to produce natural gas. However, the producer should be able to decrease costs over time as its liquids production increases.
Operating netback reported in Q2 of 2013 averaged $26.84/Boe, a 44% increase over the average of $18.63/Boe realized for the same period last year. Among its peers, Peyto Exploration & Development (PEY +2.25%) reported netback of $20.82/Boe, Delphi Energy (DEE +0.00%), $12.11/Boe, Baytex (BTE +0.89%), $25.76/Boe and Trilogy Energy, $29.81/Boe. Angle has realized stronger cash netbacks than most of the peers cited above.
To get a good idea of the company's valuation, I looked into its EV/EBITDA multiple compared to its peer group. The chart below shows that Angle trades at a discount with a multiple of 17.23x, significantly lower when compared to the peer group average of 33.99x.
Source: YCHARTS
This shows that Angle's valuation is way below the market valuation of its peer group. Only Delphi trades lower than Angle at 12.78x. Baytex trades at 18.06x and Trilogy, 53.17x. I believe that Angle's valuation should improve over time when some of its core assets are more developed and its shift toward liquids has stabilized.
Bottom line
There is a lot to like in Angle Energy. Like many of its peers, it shifted its production from almost 60% of natural gas in 2010 to as low as 50% at the end of 2012. Furthermore, its quality assets in prominent liquids-rich plays (over 204,000 acres of undeveloped land combined) are providing great potential for growth. Low operating costs and improved netbacks continue to bode well for the future.
