Like the Duvernay? Then You’ll Love This Stock

Yoho Resources is the Duvernay pure-play investors are looking for.

| More on:
The Motley Fool

The action is heating up in Albert’s Duvernay. The word in the industry is that this play could rival the prolific North Dakota Bakken or the Texas Eagle Ford. And in the search for growth, the play has attracted the attention of growth hungry energy majors like ExxonMobil and Royal Dutch Shell.

Of course, the operations of companies like Exxon and Shell are spread out across several continents. So Duvernay bulls looking for more of a pure-play may want to consider this lesser known rival.

Is this North America’s next big shale play?

The Duvernay is located in Western Alberta and covers an area about 100,000 square kilometres in size — larger than the states of Vermont,  New Hampshire, New Jersey, and Massachusetts combined. The bounty up for grabs is mammoth. According to the Energy Resource Conservation Board, the field holds an estimated 62 billion barrels of oil and 443 trillion cubic feet of natural gas.

Early drilling results have been encouraging. One Encana (TSX: ECA)(NYSE: ECA) well had an initial production rate of 1,400 barrels of condensate and 4 million cubic feet of natural gas over its first 30 days. Five months after the well was completed, production still averaged 350 barrels of condensate and 2 million cubic feet of natural gas per day. These results have been, in fact, so impressive that the company has highlighted the play as one of its key five fields going forward.

U.S. energy major Chevron (NYSE: CVX) drilled a dozen wells as part of its exploration drilling program. These wells delivered initial production rates of up to 7.5 million cubic feet of natural gas per day and 1,300 barrels of condensate per day. Moreover, liquids yields for these wells were between 30% and 70%.

Here’s how to play it

Yoho Resources (TSXV: YO) is the Duvernay pure-play investors are looking for. This small-cap company generates about one-third of its overall production from the field and investors should consider buying it for two reasons.

First, Yoho is sitting on primer acreage. Not all land in the Duvernay is created equally. Acerage in the thick, liquids-rich Kaybob area is the most profitable to exploit. And Yoho is sitting right in the middle of this region.

Second, the company is a takeover takeover target. Drilling economically in the Duvernay requires a transition to pad drilling, which still runs at $12 million per well. Few companies can front $30 million or more in exploration expenses before any cash-flow generation. While the company does has the financial resources to monetize its land holdings, Yoho’s position would be far more valuable in the hands of neighbouring Chevron or Encana.

Financials from Yoho are thus an important indication of Duvernay profitability. And so far they look pretty good. In 2012, we saw the company add about $58 million in proven and probable reserves after spending $35 million in the field. Overall, each dollar spent created about $1.70 in reserves.

Foolish bottom line

Yoho Resources is not for the faint of heart. With a market capitalization of only $500 million, the stock would definitely qualify has a speculative holding in any portfolio. However, if the Duvernay becomes a commercial success, then Yoho will provide the most upside for shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no positions in any of the stocks mentioned in this article.

More on Investing

growing plant shoots on stacked coins
Dividend Stocks

Here Are My Top 5 Dividend Aristocrats to Buy Right Now

Now is the time to buy these top five dividend aristocrats at their two-year low before they recover to 2021…

Read more »

Target. Stand out from the crowd
Stocks for Beginners

5 Stocks You Can Confidently Invest $500 in Right Now

Whether it's stocks making a comeback or proven investments over decades, these five belong in your portfolio.

Read more »

edit Businessman using calculator next to laptop

Unearthing Incredible Value: 2 Dirt-Cheap Commodity Stocks That Demand Attention Today

Barrick Gold (TSX:ABX) and another great mining stock look like huge value plays right here.

Read more »

A woman shops in a grocery store while pushing a stroller with a child

New Rules for Grocers: 1 Canadian Grocery Stock That Could Soar

Metro (TSX:MRU) stock looks poised to win as it signs onto the new grocery code of conduct.

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

Is NorthWest REIT Stock the Best High-Yield Dividend for You?

NorthWest REIT (TSX:NWH.UN) offers a substantial dividend, but exercise caution with this riskier stock.

Read more »

oil and gas pipeline
Energy Stocks

TC Energy Stock Is Starting to Get Ridiculously Oversold

TC Energy (TSX:TRP) stock is one of those deep-value dividend plays for the next decade and beyond.

Read more »

An analyst uses a computer and dashboard for data business analysis and Data Management System with KPI and metrics connected to the database for technology finance, operations, sales, marketing, and artificial intelligence.

Want to Get Richer? Here Are the 3 Best Stocks to Buy Now and Hold Forever

These three stocks all have fantastic operations and years of growth potential, making them three of the best to buy…

Read more »

Dividend Stocks

Income Stocks: A Once-in-a-Decade Chance to Get Rich

These two income stocks are among the best on the TSX for those seeking consistent total returns over a long-term…

Read more »