This Canadian energy stock raised its output 12% in the latest quarter while it stays on track to bring 11 new wells into production this year.
Additionally, the company has commissioned a new processing facility and taken strategic steps to manage pricing risk. It has also confirmed its production forecast for the full year, while the stock currently trades at just 2.5 times the projected cash flow for the year.
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DELPHI ENERGY (Toronto symbol DEE; www.delphienergy.ca) explores for, develops and produces oil and natural gas. The company operates in the Bigstone region of Alberta, with two main properties, one in the Montney shale formation and the other in the Cretaceous Cardium Foundation. About 59% of its output is gas; the remaining 41% is oil.
For the quarter ended June 30, 2018, Delphi estimates its production rose to an average 10,600 barrels of oil equivalent per day. That’s an increase of 12% from 9,515 barrels in the first quarter of this year. The company confirmed its full year production guidance of 10,000 to 12,000 barrels of oil equivalent per day.
Delphi spent $117.3 million on exploration and development in 2017. Its plan is to spend between $75 million and $80 million this year. The company spent $44 million of that total in the first six months of the year. During the second quarter, that included three new wells at Montney. Overall, Delphi has put seven new wells into production in the first half of 2018 and plans four more for the second half of the year.
Penny Stocks: 90% of gas volume sold into Chicago market for 2019
The company will also benefit from a new processing facility, which converts raw natural gas to sweet natural gas (partially processed by the removal of hydrogen sulfide. That gas is then shipped to the Bigstone natural gas plant for final processing. Delphi has 25% interest in the plant, and the new facility will cut the company’s operating costs.
Delphi’s $154.2 million in long-term debt is a high but manageable 90% of its currently depressed market cap.
The company has also taken two strategic steps to lower risk. It uses the Alliance pipeline to sell a large portion of its natural gas volume directly into the Chicago market; in 2019, the total will amount to 90% of its volume. This permits Delphi to realize higher gas prices and increase its cash flow. It has also hedged a portion of its natural gas output through 2018 and into 2019.
The company expects cash flow of $0.29 a share for 2018. The stock trades at just 2.5 times that estimate.
Recommendation in Stock Pickers Digest: Delphi Energy is a buy for aggressive investors.
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