Northern Blizzard - an investable Canadian oil sand business with a cool name

Canadian oil sand production is as expensive as U.S. shale production while often realizing discounted pricing to WTI prices. The lower prices are due to the heavier nature of most Canadian produced oil. Only 25 % of Canadian produced oil is conventional light oil. In order to find a Canadian oil production company investable it is therefore critical that it produces oil at the low-end of the Canadian cost curve. On a more positive note Canadian producers are experiencing lower operational costs than their U.S. counterparts due to the depreciating CAD.

Graph # 1: Mid-cycle breakeven price Canadian oil sands vs. U.S. shale

                               Source: Scotiabank Equity Research

In terms of mid-cycle breakeven economics Norther Blizzard may have one of the best field portfolios out of any Canadian oil sand production company (Graph #2). Furthermore its focus assets which represents 55 % of the company´s current production can bolster an impressive full-cycle return potential even at sub USD 40 WTI prices (Graph #3). These assets alone are expected to double the company´s production from 20k boe/d to 40k boe/d within the next 5 - 6 years. In other words one may consider Northern Blizzard to be a growth case in the mid- to long-term, even at lower than expected oil prices.

Graph # 2: Mid-cycle breakeven economics Northern Blizzard fields (red) vs. peers

                            Source: Northern Blizzard

Graph # 3: Project economics Northern Blizzard focus assets

                              Source: Northern Blizzard

With the current depressed and volatile oil prices it is crucial for any oil producing company to have a healthy balance sheet. Additionally any price hedges made at high prices is beneficial. According to Gurufocus.com Northern Blizzard has a Equity to Asset ratio of 0.6x and a 2016 year end Net Debt to Operational Cash Flow ratio of 2.4x. Furthermore the company is within the boundaries of its debt covenants (with a huge buffer) while having a USD 475 million borrowing base, currently undrawn. Northern Blizzard is also supported by two renowned Private Equity investors: New York-based Riverstone Holdings LLC and Irving, Texas-based NGP Energy Capital Management LLC. The company also has one of the most healthy price hedging programs in place among its peers (Graph #4).

Graph # 4: Northern Blizzard vs. peers 2016 price hedging

                              Source: Northern Blizzard

In terms of pricing the company looks dirt cheap with a Price to Book ratio of 0.4x vs. the industry median of 0.85x and vs. its historic median of 0.75x since its 2014 IPO. The company stock is down by more than 80 % since the IPO. As previously mentioned please note that making a play on the oil industry is currently not for the faint-hearted. You should expect high volatility and at times great unrealized portfolio losses. In order to make this play you have to be a patient long-term investor who can handle crazy volatility.

Disclosure: I am long Northern Blizzard Resources Inc.

I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.