Best Oil Stock to buy-- Enerplus (ERF) or Crescent Point (CPG)

 Dale Mcintyre M.S.Sc is a freelance writer that works primarily with Zacks Research but also with 2 or 3 other brokers.

   Oil prices have been moving up for the entire year of 2021.But which oil stocks have performed better?And which will outperform in Q3 and Q4? For an investor that doesn't want to spend thousands and thousands of dollars, Tier2 stocks may give the most leverage.It is considered that Tier 2 stocks have a market cap of less than $20 billion.Tier 1 stocks include Canadian Natural Resources,Cenovus and Imperial Oil.Junior oil stocks are those with a market cap of less than $2 billion.The potential gain on junior oil stocks is high but so are the losses.Generally speaking they have no dividend or yield and a high beta.

     Two of these Tier 2 stocks are Enerplus (ERF) and Crscent Point Energy (CPG).This blog does not consider them as junior oil stocks because their market cap is greater than $2 billion.Enerplus has a market cap of $3 billion and Crescent Point has a market cap of $3.6 billion.In addition, a further rise in oil prices could easily send both stocks up to a market cap of $5 billion quickly.           

    Basic Investment Facts   

      Statistically speaking these two stocks look quite different.Although the yield is almost equal at 1.3-1.9% and the beta factor (volatility) similar. Both the revenues and earnings for CPG are greater than for ERF.Crescent Point is a more mature company with mature properties.Many of their wells are older and in decline but they have used enhanced recovery to increase production.However this year it divested several older properties in Saskatchewan and bought a new property called Kaybob in the Duvernay region.That aside 2020 revenues were $1.68 billion. Kaybob production added to it's 2021 production as well as reduced it's debt/equity ratio.

     Crescent Point makes it's capital expenditures and production decisions based on an oil price of $65-$75 a barrel.So the present price of $80-$85 a barrel gives an excess cash flow (above budget).This cash flow will be used to reduce debt and decline mitigation and a possible new acquisition.It should be pointed out that CPG's operating margin is at 55% and above most producers in the oil patch.

  Enerplus had considerably less Q2 revenues at $846 million.But most investors realize that ERF made in  2 major property acquisitions in the Williston basin in North Dakota in 2020-2021.This not only increased it's production but it sells it's product at discounted W.T.I. prices,not WCS prices.However Enerplus only produced 112,000 boe/day in Q2 and gives guidance of 112,000-115,000 boe/day for 2021.Enerplus also budgets on $65-$75 a barrel for oil.And the extra cash flow has been used to reduce debt so that the debt/equity ratio is a modest 48%.                                  

       The Mature Producer or the New Producer  

      Crescent Point is no doubt the more profitable firm;it earned $3.80 per share in 2020 (according to Scotiaitrade).This blog believes that present oil prices could generate e.p.s of $4.50-$4.75 in 2021. It's P/E ratio now is perhaps the lowest in the oil patch at 1.65.Whereas the P/E for the oil industry is about 15-20.That means that CPG is the best buy in the Canadian oil patch right now. In addition, since CPG uses an oil price of $65-$75 a barrel to budget,the present oil price produces excess cash flow with which to reduce further it's debt.Also it will soon have the necessary funds to make another astute property purchase.No doubt CPG feels that purchasing a company is more expensive than buying property because by buying a company you pay for "goodwill".  

     Enerplus is a relative newcomer to Tier2 producers.Although it traded at around $17 a share in 2018 it also traded at around $3 in early 2020.It has made significant purchases of property in 2020 and has increased production to about 115,000 boe/day for 2021.Although not perfectly clear it may have options to buy more land in the Williston basin.This could be quite valuable if the options were struck in early 2020 when the  price of oil was much lower.Several analysts forecast e.p.s. of a loss of (.20) in 2021.This blog believes this is a little low as it more likely will show a small profit this year.Either way as the price of oil stays in the $80-$85 a barrel region ERF will continue to pay down debt.It will also likely  try to develop further existingWilliston Basin properties and make further acquisitions in North Dakota and Montana.It appears that ERF has considetrably more land in North Dakota that has not been developped yet and will be perhaps in 2022.There is no doubt that this is a growth stock with excellent potential. 

        Which is the Better Buy?  

      Crescent Point should earn $4.50-$4.75 in 2021 but it has two outstanding problems before it can raise it's P/E ratio. Namely, it's decline rate on it's older wells and the amount of debt.Using enhanced recovery methods will enable it to meet and sustain production guidance of  131,000-135,000 boe/day.And the price of oil at $80-$85 a barrel will help eliminate debt.So even if it's P/E ratio only climbs to the 1.9-2.0 range CPG will likely move to the $8.60- $9.50 price range.This is a good buy for a stock that trades at $6.25 now.

          Enerplus carries more risk than CPG and it only had negative earnings in Q1 and Q2.But it is improving earnings every quarter and may show a small profit for 2021.ERF made several profitable land purchases in North Dakota and Montana when the oil price was much lower and the oil wells are now producing as predicted.ERF sold 2 small chunks of land here to pay down debt but it has considerable more almost virgin land in both North Dakota and Montana.This blog believes that the oil price will stay in the $83-$85 price range for the rest of 2021.But may move into the $90 price range in 2022.At this price Enerplus has tremenduous potential and will likely be trading around $14 a share.                                            https://www.zacks.com/ https://www.investing.com/