Market experts believe an economic downturn will pull down the TSX by the second half of 2023, while others anticipate an upward scenario. However, Allan Small, a senior investment advisor at IA Private Wealth, said Canada’s primary stock market hasn’t lost two years in a row. The last time it happened was in 2001 and 2002.
Those with positive outlooks expect OPEC+ members to shore up crude prices and achieve market stability by increasing production cuts. If the bull case is a rebound in oil prices, Athabasca Oil (TSX:ATH) is well positioned to explode by 2024. Despite weakening oil prices, this small-cap stock is flying high with its 22.4% year-to-date gain.
Top growth stock
Athabasca trades at less than $5 per share yet delivered solid returns in the last two years, 600% in 2021 and 103% in 2022. At its current price of $2.95, the total return in three years is a mind-boggling 935.1%, a compound annual growth rate (CAGR) of 117.8%.
The energy sector was red-hot in the last two years due to rising demand and sky-high commodity prices. On the 2022 TSX30 list, an annual list of top-performing stocks, 14 oil and gas companies were among the winners. Athabasca ranked 19th in the fourth edition of the flagship program for growth stocks.
Sustainable resource development
The $1.8 billion energy company focuses on sustainable resource development of thermal and light oil assets. Athabasca operates in a vast land base in the Western Canadian Sedimentary Basin. The Thermal Oil division boasts a low decline production base, while the Thermal assets use an enhanced oil recovery technology to produce bitumen.
Leismer, a top-quality oil sands project, is the cornerstone asset. Besides producing over 20,000 barrels per day (bbl/d), it generates significant free cash flow (FCF) for the company and supports reduced energy intensity. The ongoing expansion project should drive growth to 28,000 bbl/d by mid-2024 and increase margins by $5 per barrel due to the enhanced operating scale.
Athabasca, in partnership with Entropy, will also construct a carbon capture and storage site (CCSS) on the site as part of Leimer’s expansion. The completion of the new site could happen ahead of the Pathways Alliance projects. Athabasca is eyeing a 30% reduction in emissions intensity by 2025.
Commitment to shareholders
In Q1 2023, the net loss of $56.6 million was 71% lower compared to Q1 2022. Still, the low-leveraged company expects to generate significant FCF as the Leimer expansion positions Athabasca for continued margin growth in 2024. It should produce $1 billion in FCF within three years (2023 to 2025).
For 2023, management commits to allocating at least 75% of excess cash flow to shareholders through share buybacks (the program began in April 2023). Another competitive advantage is the excellent exposure to the upside in commodity prices. Around 25% of expected 2023 production volumes have hedges through collars (US$106 WTI).
Unique position and competitive advantage
Athabasca is an enticing option before oil prices and energy demand rebound soon. Apart from differentiated long-life reserves, Canada’s tenth-largest oil producer has a low sustaining capital advantage and a robust free cash flow profile. The strong stock performance amid heavy industry headwinds makes it a screaming buy.
