Athabasca Oil or Cardinal Energy
Both aiming for higher SAGD output, one deeply undervalued
Athabasca Oil (AAV.TO) put up a decent print for Q2 2024 with debt now gone, buybacks in full swing and plans to increase SAGD output to 40,000 barrels of oil a day. The market yawned and so did I.
Cardinal Energy (CJ.TO) is not yet an SAGD producer but is moving in that direction with its first phase under construction with plans to begin producing within two years at a rate of 18,000 barrels of oil per day.
Both Athabasca and Cardinal are supported by conventional oil & gas production as well. Here is a head-to-head comparison of these two operators on typical metrics. I have assumed both companies are allocating only maintenance capital to conventional output and kept that output constant for the purposes of this comparison. Share prices are recent, not today’s market since the market is open and the prices are volatile.
The foregoing table should make it clear that Cardinal is the better value by a wide margin. By 2026, the two companies should be in the same ballpark in terms of production, have somewhat similar economics - although Cardinal has a very low decline rate for its conventional output. Both companies have pathways to growth outside of SAGD - Athabasca with a joint venture in the Duvernay play and Cardinal with recently acquired Charlie Lake exposure.
I value oil & gas companies based on their reserves which I consider a call option on future commodity prices, so I use a modified Black Scholes valuation model. I have published that model several times and wont’ repeat it here, except to say that based on 2023 year end reserves Cardinal shares have an underlying value of about CDN$11 a share while Athabasca Oil shares have a similarly calculated underlying value of about CDN$5.00 a share.
Cut it anyway you like, my preference is Cardinal. I like the dividend payout, don’t like Athabasca’s focus on “buybacks” and see Cardinal as having a more robust pathway to growth and future reserve additions.
My how far things have come. I remember owning $3.00 Calls on Cardinal and watching them expire at zero, twice. Now my dividend yield on cash is 17%. Definitely not bragging just pointing out how the landscape for oil&gas has changed. Thank you for the note. Looking forward to further gains with Cardinal.
TJH