30 Cent ESN.T – Deep Discount Oil & Gas Services in Alberta

alberta oil gas

Essential Energy Services (ESN:TSX 30 cents) – www.essentialenergy.ca 

Net Asset Value (assets after debt) to the end of September 2018 was approx. $168 Million or $1.18 per share

The line below in orange is the price oil producers in Alberta get for heavy oil (WCS). The Blue line is the light oil price you see in North America quoted by the media (WTI)

The Province’s oil and gas remains land locked because they don’t have the pipeline capacity to get their petroleum to market and this severely depressed prices for WCS. So in December the Premier of Alberta forced production cutbacks in the Province – and the positive impact is shown below. The price of Alberta “light” oil is even higher than this.

This helped the energy industry in Alberta to a certain degree, but it is only a short term fix – and with an election coming up in May, the NDP will likely be defeated. What happens after May is anyone’s guess.
Natural Gas prices in Alberta also suffered but coal plants are converting to natural gas and these long cold spells are helping clean up excess gas inventory in Alberta.

Overall, the oil and gas industry in Alberta has a LONG way to recovery, but the situation has definitely improved since December and this week it was announced that the Provincial government will spend almost $4 Billion to lease rail cars for moving more oil to market outside of Alberta.

And while the top tier service companies (like ESN) are staying busy, their margins are very tight (to secure business in a very competitive environment). But many service companies have also disappeared in Alberta, and in theory, this will lead to higher margins. ESN has survived without taking on big amounts of debt and any recovery or consolidation within the service sector, will see the leaders respond accordingly with higher valuations.

ESN hit bottom in December near 25 cents and I have noticed this past week that it has been under heavy accumulation from 27 to 30 cents. This might be a good time for investors (with patience) to take a fresh look as it continues to trade at a VERY deep discount to net asset value.

Insider / Management ownership is very weak and that is something I have an issue with. Senior management and the board have little motivation to move the share price higher when this occurs – and typically they think investors will beat a path to their door as financials improve. But clearly that is not the case or they wouldn’t trade at such a deep discount to net asset value.

But if you like to speculate / invest in sector recoveries and look for solid asset value, ESN fits that criteria well – and downside risk “should be” limited to the mid twenties it hit in December.

ESN is one of the larger oil and gas service companies in Alberta with >400 employees and their equipment fleet is first class. 

Go through their corporate presentation for due diligence.