Looking for a Top Oil Stock? Look North to Canada's Crescent Point Energy

By Sean O'Reilly Markets Fool.com

Image source: Getty Images.

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Oil has been on a wild, mostly upward, ride over the past few months. Now that OPEC has cut production alongside Russia and other major producers, there is genuine hope that brighter days lie ahead for oil and gas producers. However, many have been badly bruised over the past two years, ever since OPEC first refused to cut production just after Thanksgiving 2014. Enter Crescent Point Energy (TSX: CPG) (NYSE: CPG), a Canadian oil producer based primarily in Western Canada as well as the northern U.S. states of North Dakota and Montana. As we shall soon see, Crescent Point Energy deserves strong consideration in any energy-focused portfolio. Here's why.

Background

The company has a history of being a strong operator throughout the downturn. In fact, while the rest of the industry is struggling, Crescent Point Energy has announced a 1.45 billion (Canadian dollar) capital expenditure budget for fiscal year 2017. It will likely lead to a 10% increase in production growth. Others in the industry have only recently begun to talk about such things. In the first six months of fiscal year 2016, Crescent actually drilled 228 wells, all while living within its cash flow by focusing on improving labor and service costs to its operations.

Also, while the company has not been profitable on a GAAP basis, it has maintained its dividend in some capacity. It recently reiterated its dividend for November of CA$0.03 per share, further signifying that the company is doing just fine. This conclusion is further reinforced by the fact that Crescent Point was free-cash-flow positive last year to the tune of some CA$300 million. Not bad for an oil producer during a monumental downturn.

Valuation

Not only is Crescent Point a fantastic operator, but it is currently trading at a discount relative to its larger Canadian oil-producing peers:

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CPG Price to Book Value data by YCharts.

If a reasonable valuation compared to its book value isn't good enough for you, perhaps the fact that the company is consistently free-cash-flow positive might win you over:

Metric 12 Months ended
Dec. 31, 2011
12 Months ended
Dec. 31, 2012
12 Months ended
Dec. 31, 2013
Restated
12 Months ended
Dec. 31, 2014
12 Months ended
Dec. 31, 2015
LTM ended
Sept. 30, 2016
Cash from operations 1,323.0 1,543.9 1,973.3 2,455.6 1,956.9 1,605.3
Capital expenditure (1,252.5) (1,509.0) (1,746.9) (2,168.7) (1,628.3) (1,364.9)
Free cash flow 70.47 34.94 226.43 286.90 328.60 240.40

Data source: S&P Global Market Intelligence. All figures in millions of Canadian dollars. LTM = last 12 months.

It bears repeating that companies such as Crescent Point, which generate cash consistently, possess strong management, and trade at a reasonable valuation when compared to peers, do not come along every day.

Foolish bottom line

Crescent Point Energy trades at its book value, implying that no value should be assigned to its solid ability to generate cash nor its strong management team, and it has demonstrated an ability to live within its means throughout this downturn while gearing up production growth for an inevitable rebound in commodity prices. Foolish investors looking to get in on the oil and gas game could do a lot worse than Crescent Point Energy.

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Sean O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.