Eric Nuttall’s Top Picks for April 15, 2025

Eric Nuttall, partner and senior portfolio manager, Ninepoint Partners

FOCUS: Energy stocks

Top Picks: Nuvista, ARC Resources, Athabasca

MARKET OUTLOOK:

Oil market participants are struggling to quantify the potential demand impact from U.S. tariffs. Approximately 100,000 barrels per day of demand gets impacted with every 0.1 per cent contraction in global gross domestic product (GDP), and with a possible U.S./global recession, meaningful demand growth looks challenged in the short-term. At the same time, OPEC+ has decided to accelerate the return of curtailed production, with a possible repeat of tripling the announced rate of return again in June should certain countries, namely Iraq and Kazakhstan, not improve their compliance to the voluntary deal. With the backdrop of challenged demand and an uncertain OPEC policy that has effectively removed the perception of an OPEC put, the oil price is exposed to changing daily sentiment and enormous volatility. With the biggest drop on record of weekly net speculative length last week and a total washout in oil market length, it feels like for at least now the worst is behind us.

Natural gas prices have firmed given inventory levels below average levels, at least in the U.S., and growing LNG demand both in Canada and the United States. We believe the marginal cost of supply is $5 per thousand cubic feet and given that the 2025 and 2026 strip remain below that level, that production growth will remain muted. Further, with the loss of shale production growth, associated gas volumes will fall, further tightening the market.

Canadian oil companies remain in good shape to weather the oil price storm, given extremely strong balance sheets (average 0.9 times debt: cashflow at US$60 West Texas Intermediate) and the need for only $51 WTI to both cover their dividends and keep production flat.

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TOP PICKS:

Nuvista Energy (NVA TSX)

Nuvista is a liquids rich natural gas producer who is growing production by 50 per cent over the next five years while also able to buy back 33-50 per cent of its stock ($60 WTI/ $70 WTI). At the end of the five years, the company will then be able to return $1.43/share (13 per cent yield) per year for 28 years. Recent Montney transactions would imply over $18/share.

ARC Resources (ARX TSX)

ARC Resources offers deep inventory depth with over 20 years of premium inventory depth and four to five equivalents of its now on-stream Attachie development area plus long-term leverage to a secular bull market in natural gas. Trading at 4.8 times enterprise value to free cashflow and nine per cent free cashflow yield ($60 WTI) whilst returning around 70 per cent of post-dividend free cashflow to returns, we see visibility for ongoing trading multiple compression from ongoing, meaningful share buybacks to get closer to a U.S. trading multiple of around eight times.

Athabasca Oil (ATH TSX)

Athabasca is a near pure play midcap oilsand company with no debt ($130 million of net cash) pursuing modest growth (funded down to $50 WTI) while returning 100 per cent of remaining free cashflow back to shareholders. With over 50 years of stay flat inventory, the company has the ability to buy back 33-60 per cent ($60 WTI / $70 WTI) of their shares over the next five years and offers meaningful price leverage to when the oil price storm passes.

PAST PICKS: APRIL 2, 2024

Veren (VRN TSX) (formerly Crescent Point Energy)

• Then: $11.52
• Now: $8.09
• Return: -30%
• Total Return: -26%

Baytex Energy (BTE TSX)

• Then: $5.30
• Now: $2.26
• Return: -57%
• Total Return: -56%

Precision Drilling (PD TSX)

• Then: $96.01
• Now: $57.98
• Return: -40%
• Total Return: -40%

Total Return Average: -41%