NuVista Energy Is Fighting the Oil Downturn, but Can It Turnaround?

Shares of NuVista Energy [stock_market_widget type="inline" template="generic" color="default" assets="NVA.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] have crashed big time in the past one month after beginning the year on a solid note, as the recent decline in oil prices has weighed on the stock. The company recently released solid results for the first quarter of fiscal 2019, but they weren’t enough to turn its fortunes around.

However, NuVista is well-placed to overcome the oil price weakness because of certain catalysts that are working in its favour. Let’s take a closer look at them.

Defying the Downturn to Some Extent

NuVista produced 43,840 barrels of oil equivalent per day (BOE/day) in the first quarter of 2019. This was within the company’s projected production range of 43,000-46,000 BOE/day, and was an increase of 21% over the year-ago period’s production.

The production would have been higher, but NuVista had to incur a downtime on account of planned maintenance at one of its assets. However, the positive impact of the increase in production was offset by a decline in the price of natural gas liquids and condensates.

More specifically, NuVista’s average selling price of NGLs dropped a massive 36% year over year, while that of condensate and oil dropped 18%. The saving grace for NuVista was that the price of natural gas increased 12% year over year.

Thanks to the higher production and an increase in the price of natural gas, NuVista was able to increase its revenue by 7% year over year. However, the drop in prices dented the company’s financial performance to some extent.

NuVista’s adjusted funds flow, for instance, dropped to $0.32 per share from $0.34 per share. Meanwhile, it swung to a net loss of $0.16 per share as compared to a profit of $0.13 per share in the year-ago period. Its operating netback also fell 10% to $21.04 per barrel of oil equivalent.

The reason why these metrics dropped was that condensate, oil, and NGLs account for 39% of the company’s production. So the massive decline in the price of those metrics was enough to dent the company’s financial performance.

What’s in the Cards?  

The good news for investors is that the company’s focus on efficiency is helping it fight the downturn.

So the decline in energy prices is turning out to be a headwind for NuVista. But the good news for investors is that the company’s focus on efficiency is helping it fight the downturn to some extent as the numbers above show us.

NuVista’s 2019 capital expenses will be in the range of $300 million to $325 million, which is expected to be equal to the adjusted funds flow that it generates. This will ensure that NuVista does not have to take on any new debt this year.

The company also expects that its overall production this year will range between 51,000-54,000 BOE/day. The mid-point of that guidance range indicates that NuVista’s production will increase around 30% year over year, and that will be achieved at a lower capital expense as the company had spent $340.8 million on this line item this year.

As such, NuVista needs an uptick in oil prices to ensure that its financial performance improves even though it is doing well to ward off the downturn with its operational efficiency.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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