Shares in Canadian energy stock Tenaz Energy TSX:TNZ are on the move. The Armchair Trader tipped the stock as a Canadian small cap to watch in Q2, and shares are already up 12% since we wrote it up for our subscribers on 26 March. Tenaz Energy was selected as one of five Canadian listed companies with a market cap of less than CAD 1bn that looked poised to do well in Q2.
Usually these small cap stories can take a while to play out, but we were aware that the energy company had important numbers coming out on 28 March and shares seemed to be gathering momentum before Easter.
Tenaz Energy said last week that production volumes averaged a record level of 3,135 boe/d in Q4 2023. Canadian production of 2,028 boe/d reflected contributions from the new wells brought on-line from the 2023 campaign at its Leduc Woodbend field in Canada.
Tenaz Energy stock has traded as high as CAD 4.61 in the last six months. It currently trades on a PE of 4.87x. The stock has already been very rewarding for investors who got in last summer, up over 83% in the last year in a tough market for Canadian small caps. The energy company has a market cap of CAD 105m.
Important contribution from Dutch North Sea operations
Production in the Dutch North Sea component of the company’s portfolio contributed 1,107 boe/d and was consistent with the third quarter, despite unplanned facility downtime.
At mid-year, Tenaz Energy made its second non-operated Netherlands acquisition when the company added XTO Netherlands to the Dutch North Sea portfolio. The Netherlands production averaged 1,107 boe/d during Q4 2023, up 1% over Q3 2023. For full year 2023, the Netherlands ventures contributed 892 boe/d (99% TTF gas) at an average realized price of $16.65/Mcf.
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Capital investment in the Netherlands upstream assets in 2023 totalled $4.4 million for well workover and facilities projects, with Tenaz Energy managing to maintain flat production over the second half of 2023. Tenaz said it would expect to have roughly similar activity for 2024, yielding production levels slightly below those in the second half of 2023.
Tenaz has also increased its stake in the NGT midstream system by 10.1%, giving it a stake now of 21.4%. Tenaz estimated that full year 2023 NGT net income was approximately $27m.
“In addition to its desirable attributes as a natural gas gathering and processing business, NGT also represents critical infrastructure that may also have a key long-term role in the energy transition in Europe,” said Anthony Morino, President and CEO of Tenaz Energy. “The NGT system is a hard-to-replicate pipeline network that is certified to transport hydrogen and may provide a cost-effective and environmentally-benign way to connect future offshore hydrogen production with onshore users.”
Significantly, Tenaz said production volumes averaged 2,439 boe/d for full year 2023, more than double full year 2022 levels. Production was higher due to the acquisition of Netherlands assets and continued organic growth at LWB in Canada. Production from LWB was 30% higher year-over-year.
All four wells in the 2023 program at LWB have been successfully put on production. Gross production rates during the fourth quarter averaged 225 boe/d (89% oil) per well. Funds flow from operations for the fourth quarter was $13.4 million ($0.50/share, 178% higher than Q3 2023 and a staggering 315% higher than Q4 2022. Higher quarter-over-quarter FFO resulted from higher production in Canada and higher prices for TTF natural gas.
Tenaz sees significant increase in funds flow from operations in 2023
Tenaz said that FFO for full year 2023 was $28.9 million ($1.05/share), 236% higher than in 2022. Increased annual FFO primarily resulted from contributions from the new Netherlands assets and higher production in Canada, partially offset by higher transaction costs.
Proved Developed Producing reserves increased 22%, including a 17% increase in Canada through organic activities, reflecting a corporate reserve replacement ratio of 161%. PDP reserves at year-end totalled 3.7 million boe. Total Proved reserves increased 6%, reflecting a reserve replacement ratio of 144%. 1P reserves at year-end totaled 9.3 million boe.
“We believe there is a great value opportunity in overseas acquisitions,” Morino told shareholders last month. “In the Netherlands, we have executed two small but highly-accretive transactions in a high-value commodity market. We hope that these transactions will prove to be forerunners of larger future acquisitions from our transaction pipeline.”
