Paramount Resources: Playing The Natural Gas Recovery

seekingalpha2024-09-25

Paramount Resources is decently profitable with natural gas prices at a cyclical bottom.The stock's current low price-earnings ratio signals a contrarian opportunity.Paramount Resources has a nearly ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nParamount Resources: Playing The Natural Gas Recovery\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-25 04:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4723073-paramount-resources-playing-the-natural-gas-recovery><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Paramount Resources is decently profitable with natural gas prices at a cyclical bottom.The stock's current low price-earnings ratio signals a contrarian opportunity.Paramount Resources has a nearly ...</p>\n\n<a href=\"https://seekingalpha.com/article/4723073-paramount-resources-playing-the-natural-gas-recovery\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":null,"symbol_name":null,"start_time":0,"source_url":"https://seekingalpha.com/article/4723073-paramount-resources-playing-the-natural-gas-recovery","article_id":"2470357423","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1327982065/image_1327982065.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2470357423","pubTimestamp":1727209342,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Paramount Resources is decently profitable with natural gas prices at a cyclical bottom.The stock's current low price-earnings ratio signals a contrarian opportunity.Paramount Resources has a nearly d","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{},"translate_title":"派拉蒙资源：发挥天然气回收作用","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"PRMRF":0.9},"content_text":"Paramount Resources is decently profitable with natural gas prices at a cyclical bottom.The stock's current low price-earnings ratio signals a contrarian opportunity.Paramount Resources has a nearly debt-free balance sheet.The wells pay back more times than is normally the case for the time periods shown.The high dividend yield combined with low natural gas prices limit the downside.   bjdlzxParamount Resources (OTCPK:PRMRF) is a company with considerable natural gas exposure that already makes good money and pays a dividend. If the natural gas anticipated recovery gets delayed, this company still has a lot of good ways to still bring in a decent return. Natural gas would make a profitable situation more profitable. But not making money on natural gas has little to do with the \"drill or not drill\" decision because the other products are profitable enough to drill for. Last Article The last article noted that the wells pay for themselves in the current environment with plenty to spare. However, the current stock market is more about momentum and less about profitability. Therefore, if growth appears to stop or slow, the stock gets punished as shown below:   Paramount Resources Common Stock Price And Key Valuation Measures (Seeking Alpha Website September 24, 2024)This Canadian producer (that reports in Canadian Dollars Unless Otherwise noted) now has a dividend yield that's almost as much as investors report for a long-term total return. That almost certainly points out a contrarian opportunity. The investor gets paid to wait, and the recovery turns this into an above-average return. But the key here is that despite the stock price decline that has investors worried, this company is in excellent financial health. Companies with minimal debt levels like this company rarely get into serious financial trouble. Therefore, those investors that wish to pursue a buy-and-hold strategy may be in for some pricing volatility. But a company like this will quickly recover from any cyclical downturn or stock price decline. Long term, the investment principal in a stock like this will rarely show a loss. Instead, this is likely the time to add. Meanwhile, the wells are profitable enough for the company to grow right through the natural gas downturn. That provides even more downside protection. There's some worry about liquids prices. But this company may well benefit from the continuing decline of natural gas production combined with the increasing ability of North America to export natural gas. That could offset any perceived liquids price weakness because natural gas prices are expected to recover soon. Additionally, the balance sheet is nearly debt free. So, there's really not a logical reason for the stock price decline shown above. Even though natural gas prices are declining and there are fears of a liquids pricing weakness in the near future, the stock price still trades at a very low price-earnings ratio for a market bottom. Cyclical stocks are supposed to have sky-high price-earnings ratios at market bottoms followed by lower ones when the profits roll in at cyclical tops. Clearly, Mr. Market is not looking at the profits. Paybacks The payback period is very low. In fact, these wells generally pay back several times. That's extremely atypical for the industry.   Paramount Resources Karr Acreage Well Performance Financial Summary (Paramount Resources September 2024, Corporate Presentation)Much of the industry is thrilled to get two payback periods in the production projection of most wells. As shown above, this company generally exceeds that to the points where profits get embarrassing. These liquids rich wells are producing liquids at a pace (compared to costs) that few in the industry can compare to. One can easily conclude that production costs of this production are very low. Therefore, in any downturn, the rest of the industry will suffer far more than this company will. Interestingly, the company has some new prospects that compete for capital despite the profitability shown above. Therefore, it will be a long time before profitability wanes at this company. Finances That explains how this company can grow, pay a dividend, and remain nearly debt free.   Paramount Resources Balance Sheet Strength And Shareholder Returns (Paramount Resources September 2024, Corporate Presentation)The net debt shown above is not significant compared to the size of the company. Current management is very likely to keep debt levels down for the foreseeable future. Dividends have been growing at a decent pace. That pace is likely to continue given the balance sheet strength. Note that while sales appear to be flat lately, the last fiscal year had a lot of interference from mother nature. There was the severe winter that shut things down and then the long fire season. This fiscal year, some natural gas production was shut-in to wait for better prices. That production will likely be back in the seasonally strong heating season. What the last 18 months or so have done is given the impression that the company is not growing. But nothing could be further from management's plans. It's just that Canada has its challenges besides the natural gas pricing cycle. Therefore, this company will grow when conditions are conducive to growth, and it will wait out hostile conditions. The difference here from much of the industry is that the cash rolls in no matter the industry conditions. New Area Management announced the acquisition of acreage that may well lead to a new core area.   Paramount Acquisition Of Acreage In The Sinclair Area Of the Montney And Two Test Wells (Paramount Resources September 3, 2024 Press Release)This is a future project that will have to go through some learning stages before full development can even be planned (let alone begin). It will be yet another area for the company to develop in the future. Projections Management has some ambitious plans for the fourth quarter. Now some of that is that the shut-in production will come back online during the seasonally stronger heating season.   Paramount Resources Business Overview (Paramount Resources September 3, 2024 Press Release)As shown on the bottom right-hand corner, there are some firm plans for growth in place. At least some of the growth plans were offset by other things like shut-in production for the first part of the fiscal year. However, management is anticipating the ability to make some production progress in the fourth quarter as shown above. Usually, all the challenges happen in January because that's when winter hits the Canadian industry \"full force.\" Second quarter always has Spring Breakup. Therefore, operational activity is usually at a minimum. But with no bank debt, this company can handle the upstream challenges without an issue. No debt to service generally means a lot of flexibility should that need to arise. Note that the company also has investments in other public companies. In the past, management has combined with some of those holdings. Summary Many companies wish that they could report the results of the first half of the fiscal year when natural gas prices are this low.   Paramount Resources Second Quarter 2024, Financial Summary (Paramount Resources Second Quarter 2024, Earnings Press Release)Clearly there is plenty of cash flow for the current stock price (and earnings too). The net debt is negligible. This company can handle some of the most hostile conditions that exist in the natural gas industry with really no financial stress. With growth plans underway and some expectations of a natural gas pricing recovery, these earnings really have a clear path to improve significantly for the rest of the fiscal year (and likely years ahead). Paramount Resources remains a strong buy. The dividend is well-supported at a natural gas pricing (likely) cyclical bottom. Growth plans are underway to increase production which provides upside potential in addition to the participation in the anticipated natural gas pricing recovery. This is one of the lowest cost producers I follow, and it has a balance sheet that's a rock for all intents and purposes. The dividend alone would provide a return that is nearly what many investors report for a long-term total return. Any participation in the anticipated cyclical recovery or the scheduled production growth should result in upside potential that far exceeds downside potential. Risks The costs are so low that the exposure to commodity price volatility and low visibility is just not as potentially damaging as it could be to many other producers in the industry. The virtually debt free balance sheet adds to the safety of this investment. Low debt companies that are this profitable rarely get into trouble. Normally, with upstream there can be a risky situation when commodity prices are weak. But here, there's no debt to service (in terms of materiality). Therefore, this company can shut-in production or choose to collect what money it can get while waiting for a cyclical recovery if that's indicated. That makes this a very rare upstream company that is generally decently profitable throughout the business cycle because it has extremely low production costs. This company would be hurt if oil prices, condensate prices, and natural gas prices all declined (at the same time) to low levels and sustained those low levels. But the combination of low costs and the diversification pretty much ensures that most of the industry would be hurt far worse before this company suffers. The loss of key personnel would set back the company in the future until a suitable replacement is found.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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