3 Contrarian Canadian Oil Stocks on Sale to Buy Today

Canadian oil stocks are extremely attractively valued, making now the time to buy Surge Energy Inc. (TSX:SGY), Whitecap Resources Inc. (TSX:WCP), and Frontera Energy Corp. (TSX:FEC).

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Many TSX-listed Canadian oil stocks appear extremely attractively valued after the latest oil price collapse. Their market value plunged sharply after oil prices dropped into negative territory last week. Even after recovering, the North American West Texas Intermediate (WTI) benchmark price is trading at around US$13 per barrel.

While the outlook for oil prices remains poor, it has created an opportunity to acquire Canadian oil stocks with solid fundamentals that are trading at deep discounts to their indicative fair value. Here are three contrarian, speculative, deep-value opportunities to profit from oil’s eventual rebound.

Conventional oil producer

Intermediate oil producer Surge Energy (TSX:SGY) has done a solid job of surviving the prolonged oil slump, which truly began in 2015. Since the start of 2020, Surge is down a whopping 78%, indicating that it is attractively valued. It was one of the few Canadian upstream oil producers to retain its dividend, despite oil prices collapsing, although it finally suspended the payment in response to the latest oil crisis.

The quality of Surge’s oil acreage and the fact that it targets conventional oil reservoirs means it a has low corporate decline rate of 23%. This is significantly lower than U.S. shale oil drillers. It means that Surge’s capital spending, notably that required to maintain production, is significantly less than many of its peers focused on unconventional oil.

Surge has proven and probable oil reserves of 117 million barrels with an after-tax net present value of $1.5 billion. After subtracting long-term debt, decommissioning, and other non-current liabilities, Surge has an after-tax net asset value of $2.36 per share. This is more than nine times greater than its current price of $0.25 per share, highlighting that Surge is on sale and that there are considerable capital gains ahead once oil rebounds.

Surge has moved to shutter uneconomic production and cut spending to survive the oil price collapse. The driller’s oil price hedges will help to shield its earnings from sharply lower oil.

Leading upstream oil company

Whitecap Resources (TSX:WCP) was forced to cut its dividend in half in response to the latest oil price collapse. The driller has lost 77% for the year to date, leaving it very attractively valued. While Whitecap is still paying a dividend yielding 13%, there is every likelihood that the payment will be suspended because of sharply weaker oil with WTI trading at around US$13 per barrel.

Whitecap also slashed its 2020 capital-spending program by 44% and is focused on introducing further cost reductions. The driller’s commodity hedging program will shield it from the worst of the latest oil price collapse.

Whitecap’s debt is a manageable 1.6 times its 2019 EBITDA. That, along with recent cost-cutting measures, will allow it to survive the current harsh operating environment.

The driller has 507 million barrels or proven and probable oil reserves. Those oil reserves, after deducting long-term debt, decommissioning costs, and other non-current financial obligations, have an after-tax net asset value of around $4.78 per share. This is almost four times greater than Whitecap’s market value, underscoring why now is the time to buy.

Colombian driller

Frontera Energy (TSX:FEC) has not been as roughly handled by the market compared to many other Canadian upstream oil stocks. This is primarily because of its superior financial position. Frontera finished 2019 with US$331 million of long-term debt, which was a manageable 0.6 times 2019 EBITDA.

Importantly, Frontera ended last year with US$328 million. This, along with it cutting capital spending by 60% in response to sharply weaker oil prices, gives it considerable financial flexibility. Frontera can access international Brent pricing. This gives it a handy financial advantage over those drillers operating solely in North America. Brent trades at an US$8-per-barrel premium to WTI and has proven to be far less volatile.

Frontera is trading at a deep 231% discount to the after-tax net asset value of its oil reserves, underscoring the considerable potential upside available, highlighting why now is the time to buy.

Should you invest $1,000 in Frontera Energy Corporation right now?

Before you buy stock in Frontera Energy Corporation, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Frontera Energy Corporation wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

A meter measures energy use.
Dividend Stocks

Where I’d Invest $15,000 in Top Utilities Stocks for Steady Income

These utility stocks are some of the top choices, but they aren't the usual group of investments.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

How I’d Allocate $1,000 in Energy Stocks in Today’s Market

Discover why energy stocks are crucial for Canadian investors as the election approaches amidst tariff challenges.

Read more »

oil and natural gas
Energy Stocks

3 Canadian Energy Stocks to Buy and Hold for Decades of Passive Income

Energy stocks can be some of the best choices for consistent income, and these three remain top performers.

Read more »

oil and gas pipeline
Energy Stocks

Why Billionaires Are Pulling Cash Out of U.S. Stocks and Buying Canadian Energy

This analyst-recommended energy stock could be one to watch in 2025.

Read more »

oil pump jack under night sky
Energy Stocks

Top Energy Stocks to Invest in 2025

Most investors are avoiding energy stocks over fears that Trump tariffs could bring a structural change in the energy supply…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Why I’d Include These 3 Essential Dividend Stocks in My TFSA

Here are three dividend stocks I’d include in my TFSA today.

Read more »

Asset Management
Energy Stocks

Why I’d Consider These 3 Small Caps for a $5,000 Investment With Long-Term Horizons

Investing in small-cap stocks such as Vecima and Total Energy should help you deliver outsized gains over the next 12…

Read more »

canadian energy oil
Dividend Stocks

How I’d Invest $4,000 in Canadian Small-Cap Stocks to Potentially Double My Money

This year I'm buying energy stocks like Suncor Energy Inc (TSX:SU).

Read more »