Tamarack Valley Energy Stock Faces Oil Price Headwinds

The recent weakness in oil prices has knocked the wind out of Tamarack Valley Energy stock, which was flying high towards the end of April. Shares of the oil company were up significantly just a few weeks ago, but they have fallen off a cliff as oil prices have retreated.

This is not surprising as Tamarack investors were counting on an oil price recovery to drive results, and since that doesn’t seem to be happening they have decided to sell the stock.

Latest Results Indicate Weak Oil Prices Were a Negative Impact

Tamarack Valley’s first-quarter 2019 production came in at 23,149 barrels of oil equivalent per day, which was a 2% decline over the prior-year period’s output. Oil and natural gas liquids accounted for 64% of its production during the quarter.

Tamarack blamed the lower quarterly production on the curtailment order by the Alberta government, which forced it to adjust the timing of drilling activity for the first half of the calendar year.

Meanwhile, Tamarack witnessed revenue of $45.62 per barrel of oil equivalent during the quarter, down 2% from the year-ago period. The company was helped by an increase in the price of heavy crude oil at Hardisty, which allowed it to mitigate the overall weakness in crude oil prices.

But the combination of lower production and weaker pricing negatively impacted Tamarack’s financial performance during the quarter.

Its total revenue fell 4% annually to just over $95 million. Moreover, the company slipped to a loss of $4.8 million as compared to a profit of $3.3 million a year ago. The bad news for Tamarack Valley investors is that the downtrend looks all set to continue in the coming months because of the challenges that the Canadian oil industry faces.

More Challenges Ahead

The scenario for Canadian oil producers is not conducive. In fact, prices of crude oil in Canada are falling at a faster pace than other crude oil benchmarks globally. According to a report in the Financial Post on May 24:

U.S. West Texas Intermediate crude was largely unchanged Friday at US$57.91 a barrel — a weekly drop of nearly 8 per cent — its biggest weekly decline since December. In contrast, the WCS fell 16.7 per cent during the week, and has descended into bear market territory after falling more than 26 per cent from its year-to-date peak of US$56.30 on April 8, Bloomberg data shows.

Looking ahead, crude oil inventories in Canada could build up further because of pipeline-related bottlenecks. On the other hand, the U.S.-China/Mexico trade war could reduce crude oil demand from the U.S. because of a build-up of inventories in that country.

For these reasons, Canadian crude oil could drop further, hurting Tamarack Valley’s financial performance. Not surprisingly, analysts expect its top line to fall slightly this year, while earnings will also go down to $0.08 per share as compared to $0.12 a year ago. So, if you’re looking to take advantage of the recent drop in Tamarack Valley stock, wait until there is a turnaround in Canadian oil prices.

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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
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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