Without a visible end to the pandemic, it is possible that oil prices will fall again. At the time of writing, the Canadian crude oil index has been down 56.21% since the start of 2020. Over the same period, Parex Resources has declined 36.39%. In the event that oil prices fall again, Parex Resources Inc. (TSX: PXT) could be a great asset to consider adding to your portfolio.
Today I’m going to discuss the Parex Resources stock so you can understand why it could be a great addition to your investment portfolio.
Ideal price for TSX oil stock
Parex Resources benefits from the most competitive market prices for the oil it produces. The oil producer has a small operation compared to the major players in the industry. It produces lighter crude oil that sells to Brent Crude Pricing. At the time of writing, Brent Crude is trading at around US $ 27 / barrel, while Western Canadian Select is trading at US $ 22 / barrel.
It is relatively easier and more affordable to transport Brent crude oil. Oil refining is also more profitable than heavy crude oil, which is why it has wider demand in world markets. While most North American heavy oil producers sold at a loss, Parex continued to sell at attractive prices.
Profitable oil producer
Parex doesn’t just get better prices – it is also more efficient at producing oil than most of its larger market capitalized peers. It has a low production cost and flexibility in terms of the quantity it can produce.
Depending on the price of oil at the time, Parex can produce a barrel of oil for $ 25 to $ 35. During the fall in prices due to the oil price war, Parex still managed to generate neutral or positive cash flows while other manufacturers suffered constant losses.
Parex’s net backs are also among the best TSX. It takes a slight appreciation in oil prices to increase Parex’s profits.
Parex is a producer of rare petroleum listed on the TSX. In recent years, Canadian oil producers have not experienced significant operational growth or financial returns. Parex, on the other hand, has successfully increased financial returns and operations.
It has doubled its production in the past five years and its cash flow per share has increased by more than 300% during this period.
At the time of writing, Parex Resources is trading at $ 15.33 per share. Although it is unable to replicate its growth over the past five years in 2020, it nevertheless shows that prices can return to their pre-recession levels. The stock also ended 2019 with $ 390 million in cash on its balance sheet to finish strong.
If a oil price crash happens again, it would be best to cover your bets with safer stocks. Although I’m not saying that Parex is immune to commodity price fluctuations, among its peers, this security is better equipped to handle the situation.
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Crazy contributor Adam Othman has no position on any of the titles mentioned.