I have taken a small equity position (roughly 2.5% each) in two Canadian natural gas producers. I’ve exhaustively looked at the (not obviously insolvent) producers that are at least 75% natural gas boe equivalent and chosen the two companies I’ve deemed ‘best’ in lieu of just making a home-brew index of all of them.
This is not a particular call on the natural gas industry in general – right now the economics are absolutely horrible for Canada. There have been some days where spot pricing has been such that you have to pay to give away your natural gas! The federal government is hell-bent on destroying the fossil fuel industry. The USA has shale gas coming out of their… well, you know. There’s no hope and only despair!
Sounds like a good time to invest.
However, run the thought experiment on every company you look at: “Let’s pretend you could acquire 100% of the company’s equity for ZERO, but had to take a personal guarantee on their outstanding debt. Would you take them over?”
Under the right conditions, a lot of these companies will double, triple or even quadruple their equity prices. The timing is unclear, but we will see. I remember getting into oil and gas for a short-lived foray in 2014 that exhibited a colossal amount of stupidity, but will this time be different?
There are some very clean balance sheets out there that have very quick Net backs and solid FCF. I think once the turn occurs you will see 8-9 time Cash Flow an opposed to the current absurd 2-3 times on some very solid Companies.
I’ll even give a hint for people to start on their own:
https://www.tmxmoney.com/en/research/energy.html
Click on: Energy Companies Listed on TSX and TSXV
Just be careful… these companies are very good at appearing to take in much more money than they spend!