The recent weakness in oil prices has knocked the wind out of Tamarack Valley Energy [stock_market_widget type="inline" template="generic" color="default" assets="TVE.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] 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:
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.
