For every disgruntled consumer, there’s a cowboy out there filling his boots with cash.
On the back of a looming recession and major markets falling 20% or more year-to-date, the energy sector is a standout, even with an uninspiring return of 5.74% (YTD).
However, with oil & natural gas prices skyrocketing, we can only think of one thing; cash flow.
As you recall in our last newsletter, we presented 5 small-cap oil stocks on our shortlist, and after further analysis today we’re going to hone in on one in particular.
✅ Free cash flow
💰 No Debt
📉 Down 45% from it’s 52 high
⭐️ All-star management
Let’s dive in…
Our shortlist from last newsletter:
- Tenaz Energy (TNZ)
- Cardinal Energy (CRLFF)
- Athabasca Oil Corp. (ATHOF)
- Crew Energy Inc. (CWEGF)
- Ring Energy Inc. (REI)
To gain a better understanding of their comparative financial strength, we built a comparable table with metrics falling within our four-pillar strategy to help guide our decision-making.
Although the numbers do not tell the whole story, they paint an excellent picture of a company’s financial standing.
With negligible debt and free cash flow, we found black gold!
There’s a lot to like in that shortlist, but it’s Tenaz Energy (TNZ) that jumped off the page, and let us tell you why.
One of the key factors leading to our decision was based on the current state of the economy and the uncertainty surrounding a potential recession.
Oil & gas is a boom, bust (and boom?) industry, and we don’t want to get caught if conditions turn for the worse.
We wanted a business that was more than capable of withstanding economic turmoil, thus we focused heavily on the business’ debt obligations and cash runway.
Those who are not at the mercy of rising interest rates or are desperate for an immediate financing are likely better equipped to endure hard times such as a recession.
But enough of a high-level explanation, here is our in-depth analysis of Tenaz Energy (TNZ).
Tenaz Energy (TNZ)
A simple business that just makes sense
Tenaz Energy Corp. (TSX: TNZ) is a public energy company focused on the acquisition and sustainable development of international oil and gas assets capable of returning free cash flow to shareholders.
With a well-diversified portfolio of exploration & production assets, Tenaz is positioned for success regardless of fluctuations in oil prices.
That being said, to combat the volatility of prices in this market, Tenaz conducts a conservative risk management strategy whereby they lock in returns using hedging tactics.
There’s no such thing as a free lunch of course, so we’re not ignoring additional risks such as:
- The impact of new environmental regulations
- Increase in costs or a decline in production level
- Exploration, Development and Production Risks
With that said, the business possesses a strong balance sheet, with no long-term debt, and assets that are currently producing excess oil.
Sufficient cash flow to fund expansion
The business’ main competitive advantage comes from it owning a high-quality semi-conventional development project in the Alberta, Canada.
This asset is highly valuable because it offers:
⛽️ robust drilling economics;
⛽️ a large operating land position;
⛽️ self-sufficient infrastructure with excess capacity;
⛽️ ease of surface access;
⛽️ and low abandonment obligations.
With Tenaz looking to expand its asset base internationally, this project alone is sufficient for funding as it produces free cash flow with ease due to the little capital investment required.
Let’s say that again, a micro-cap stock with free cash flow!
Furthermore, given the current prices of oil & gas, these wells reached payout rapidly and are expected to increase overall production to 1,300 boe/d (up 25% YoY).
Management with a track record of fat dividend payouts
In the small-cap arena, and even more so now that we’re discussing a micro-cap, management is the key.
And President & Chief Executive Officer, Anthony Marino is one of the best in the business.
As the former President and CEO of Vermillion Energy, Baytex Energy, and Dominion Exploration Canada, this is not Anthony’s first rodeo.
This is demonstrated by his sound leadership, effective capital allocation, and a keen eye for opportunities in untapped international markets.
To add to the admiration, Mr. Marino boasts a record of returning $3.6 billion in dividends to shareholders over a 16-year period as a C-suite officer.
In the small-cap arena, and even more so now that we’re discussing a micro-cap, management is the key.
Show us the money – that’s the guy we want working for us shareholders!
All of this in a $2 stock?
In the same way that rising tides lift all boats, the same is true in reverse.
Even good companies with reputable management and solid fundamentals haven’t withstood the storm.
With the current share price cut 35% YTD and solid company fundamentals, Tenaz should absolutely be on your radar.
The stock closed at $2.10 today, and we’re going to be strategically adding this micro-cap to our portfolio as our first oil and gas stock since RECO.V.