Crew Energy (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”CR.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) has been absolutely decimated over the past year. The Calgary-based company’s share price has dropped nearly 60% in the last year thanks to a string of bad results. The company has missed analysts’ earnings expectations in three of the last four quarters. Not surprisingly, investors have jumped ship and sent Crew’s stock price packing.
The company is yet to release its fourth quarter and full-year results for fiscal 2018, but it has provided a hint of how it might do this year based on its 2019 capital plan and production guidance.
Q4 2018 Results Could be Positive for Crew’s Stock
Though Crew hasn’t reported its 2018 results yet, its top line is expected to drop around 7% for the full year to $212 million. But it won’t be surprising to see the company beating that target as its revenue increased by nearly 9% in the first nine months of the fiscal year. Crew benefited from a slight increase in production and a bump in prices during the first three quarters of the year.
According to the company’s third-quarter report, the price of “light crude oil was 49% higher, heavy crude oil increased 16%, condensate rose 55% and other natural gas liquids (ngl) was 19% higher” during that period. However, the company saw weakness in natural gas prices thanks to pipeline challenges in the western Canadian market.
Encouraged by higher pricing, Crew boosted its 2018 capital expenditure budget to a range of $90-95 million as compared to the prior estimate of $80-85 million. Additionally, the company’s 2019 budget plan calls for spending between $95-105 million as it looks to maintain average production of 22,000-23,000 barrels of oil equivalent (boe) per day.
However, that would be below the 24,393 boe/day of production that Crew has averaged in the first nine months of 2018. But that isn’t the only challenge that Crew faces.
Natural Gas Prices Are Applying Downward Pressure on CR.TO Stock
Crew Energy’s 2019 budget plan assumes a West Texas Intermediate (WTI) oil price of $52 per barrel and NYMEX natural gas price of $3.30/MMBTU. But the problem is that the price of the two commodities could easily fall below the budgeted levels.
For instance, WTI crude is trading just a hair above the $52 mark, while NYMEX natural gas is currently at $2.57/MMBTU. The bad news for Crew is that the prices are unlikely to recover much despite pledges of supply cuts, as a macroeconomic slowdown could negatively impact demand and send prices lower. Additionally, oversupply conditions in the North American natural gas market mean that there isn’t much upside to be had on this front either.
The Energy Information Administration predicts that natural gas prices will average $2.89/MMBTU in 2019, down from 2018’s average price of $3.15/MMBTU. Now, Crew estimates that natural gas will account for 73% of its 2019 production, so it could be in trouble as it looks like prices won’t be at the levels that it anticipates.
Moreover, the company doesn’t have a strong balance sheet, which is probably why investors have been wary of its prospects in an uncertain energy pricing environment. It has a net debt of $332 million, a current ratio of just 0.95, and a very thin cash position. So any drop in oil and gas prices will force the company to undertake drastic measures to control spending if it wants to avoid taking on more debt.
Such a move will affect production and eventually hurt its finances going forward. As such, a turnaround at Crew Energy looks quite unlikely given the challenges it is facing.
