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Obsidian Energy: Low Priced Turnaround

07/09/2018 5:00 am EST

Focus: ENERGY

Benj Gallander

President, Contra the Heard

The situation at Obsidian Energy (OBE) continues to evolve in a positive way, asserts contrarian value investor Benj Gallander, editor Contra the Heard Investment Letter.

After much in the way of machinations, a treaty was arranged with activist investors FrontFour Capital. This spitting match was distracting from operations and burned a “few” dollars. Fortunately, clearer heads prevailed, and the parties seemingly aligned on a plan going forward as FrontFour placed two members on the board.

The proposed 1-3 stock consolidation that we vehemently opposed was kiboshed. The enterprise is looking to sell its Viking and Peace River operations. Additional focus has been placed on the Cardium development with another $50 million will be spent there. All directors will receive fees in shares instead of cash.

Evidently the market likes what it is seeing. After falling out of compliance with the NYSE’s continued listing standards, the stock price jumped after the various moves were announced and the firm is compliant once again. Double digit growth is forecast for production in 2018.

It would not surprise to see this stock that used to trade above $40, at least get to double digits, which would be a 10-bagger from the current level. It is also quite possible that before that might happen, a suitor might move forward and swallow Obsidian at a premium.

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