At one point, Crescent Point (TSX:CPG)(NYSE:CPG) shares stood at $46. That was in 2014, and oil prices were a bit above US$100/barrel. Now shares are just around $4.50 and oil prices are just below US$60/barrel.
It is easy to look at the 10-year chart for the company and think the shares could hit the previous high. I have even heard analysts say the stock market has a memory, essentially supporting this type of speculation.
In June 2014, Crescent Point Energy was an investor darling and a good income stock. The number of shares was 420 million and the production was 140,000 barrels/day. At that time, the company paid $0.23 in dividends a month, yielding around 6%. That dividend has since been cut several times and is now a mere cent a quarter. Crescent Point also made an ill-timed acquisition when it purchased Legacy Oil in 2015. A number of dispositions have also taken place.
Today, Crescent Point’s production is 175,000 barrels/day and the share count is 550 million, so production per share has actually dropped. Worse is that oil prices have not recovered and probably never will.
The headwinds for oil just keep piling up. Lack of investor interest, electric cars/buses, climate change, lack of pipelines (how many times has the Transmountain Pipeline been approved now?), recycling, and peak oil add up to a miserable investment climate for Canadian oil companies. While the lack of interest from investors and lack of pipelines are the biggest issues, the others should not be underestimated.
For example, governments are starting to ban single-use plastics, and many companies are looking at ways to reduce the use of plastics. Increased recycling of plastics and alternative materials are part of that. The government of Canada recently announced a ban on single-use plastics that takes effect in 2021.
That peak oil is years away and that the timing and impact of other headwinds are unknown doesn’t seem to matter. They still create a high level of uncertainty. While tensions in the Middle East have pushed up prices, it has so far had little impact on share prices. How that will play out is anybody’s guess, but even if oil prices are pushed up to 2014 levels, it doesn’t mean that Crescent Point shares will head back to $46.
In my opinion, hoping for outsized capital gains with Crescent Point Energy is unrealistic. I view the consensus target price of $8.80 as unrealistic as well. A safer option would be Whitecap Resources Whitecap is a well-managed company that buys back shares and pays a good dividend (around 7.5%). Another positive is that Whitecap has some of the lowest decline rates in the industry. Analyst consensus indicates that shares could double.
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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 Henrick Olsson owns shares in Whitecap Resources.