When it comes to oil and gas stocks, a lot of attention is given to the larger, more glamorous companies that operate internationally. However, investors often forget that Canada and the U.S. hold some of the largest oil and natural gas deposits in the world. Smaller oil and gas companies that operate within Canadian or U.S. borders offer promise, stability and sustained returns.
These companies are not subjected to bizarre international laws that serve foreign governments’ ulterior motives, security threats and human resource issues. In particular, Canadian companies have the advantage of operating in an extremely business-friendly atmosphere. With this in mind, I will focus on Advantage Oil & Gas Ltd (USA) (NYSE:AAV), a company based in Calgary that is a great long term investment option.
Advantage Oil & Gas Ltd (USA) (NYSE:AAV) impresses long term investors
Advantage Oil & Gas Ltd (USA) (NYSE:AAV) owns and operates a number of wells and fields all across Canada in Saskatchewan, British Columbia, and Alberta. Even as early as 2007, it produced the equivalent of 35,000 barrels per day. With reserves that can last for almost 12 years at the current production rate, Advantage Oil & Gas Ltd (USA) (NYSE:AAV) is one of the most reliable and stable Canadian oil companies to invest in. Moreover, the company has been actively seeking to acquire new fields, wells and properties.
National Bank Financial increased Advantage Oil & Gas’ price target from $4.66 to $5.4. Analysts at RBC Capital increased their price target by a dollar too and have a Sector Perform rating on the stock. With its average rating of Hold, those who do not yet own Advantage Oil & Gas Ltd (USA) (NYSE:AAV) can go ahead and purchase the shares while they are still cheap. Back in May, the company announced that its Total Petroleum initially in place at Glacier was increased to 16.0 trillion cubic feet (Tcf).
The company’s Glacier property has enough reserves to support a production rate of 580 mmcf/d for as long as 18 years, making it a very lucrative long term investment option. Similarly, the Montney natural gas field is located at Glacier, Alberta. It’s one of the company’s largest assets.
Advantage Oil & Gas knows that staying trim and divesting helps
Despite being a small company itself, it has learned from larger companies to divest unnecessary and smaller assets in order to focus on its core business. Advantage Oil & Gas announced in March that it was getting rid of its non-core assets. It sold non-core assets of nearly 5,900 boe/d to Questfire Energy for $40 million in cash, $44 million Convertible Senior Secured Debenture and Class B shares worth a whopping $1.5 million. The company used that money to reduce its bank indebtedness. Moreover, hedge funds have been buying Advantage Oil & Gas, which again shows that this is one of the most stable and secure oil and gas companies to invest in.
Other Calgary-based competitors and rivals
Calgary-based Canadian oil and gas company Pengrowth Energy Corp (USA) (NYSE:PGH) pays a high dividend. It is known for paying an annual rate of 15.9% dividend back in 2008. Moreover, Pengrowth Energy Corp (USA) (NYSE:PGH) pays monthly, which is rare for a company listed on the New York Stock Exchange. Pengrowth has received a lot of good press lately because of the growth, valuation, opportunities and dividends it promises to investors. Penngrowth Energy also yielded above the 9% mark based on its monthly dividend. At $5.18, it is an affordable stock to purchase.
The other Calgary-based company that interests me and competes with Advantage Oil & Gas is Penn West Petroleum Ltd (USA) (NYSE:PWE). Formerly part of the Canadian royalty trust, Penn West Exploration had a market capitalization of $9.5 billion in January 2008. At $10.20, it is not exactly the cheapest Calgary oil and natural gas you can purchase. However, the company has seen a lot of shaky days lately. IT cut its dividends, staff and then replaced its CEO as well. Former Suncor CEO Rick George was appointed as the new CEO and he is expected to sort out many problems that the company currently has.
The bottom line
At $4.31, Advantage Oil & Gas is one of the cheapest Canadian oil and gas stocks to purchase. While its larger rivals have faced controversies, security issues and lawsuits, Advantage Oil & Gas provides a more secure and stable long term investment opportunity. It may not make news headlines often, but it certainly will keep you less worried and anxious as well.
Jaiyant Cavale has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Why Advantage Oil & Gas Is Increasingly Attractive originally appeared on Fool.com and is written by Jaiyant Cavale.
Jaiyant is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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