Unusual Call Accumulation in Small-Cap Canadian E&P
Obsidian Energy (OBE) strong name recently that has pulled back to its rising 21-EMA this week and has seen unusual accumulation in the January $12.50 calls since 6/8 with more than 3,350 bought around $1.95 to $2. OBE has just 5,000 calls in open interest altogether, so the strike is notable. OBE broke out of a multi-week bull flag in late May and now re-testing that range at $9.65. A larger run to the upside targets $13. The $1.11B company trades 5.2X earnings, 2X sales, and 6.15X FCF with minimal short interest. OBE is focused primarily on E&P of natural gas and oil properties in Western Canada and specifically the Sedimentary Basin. The former Penn West has a sizable oil-weighted asset base and large acreage in some key resource-laden zones within Canada with infrastructure advantages that help them keep costs low. The company has upside from emerging discoveries around Clearwater and other EOR projects which are ongoing. The former is a large area of land that has remained largely un-explored and they expect further appraisal in 2022 will be positive for drilling activities in the future. Stifel started coverage at Buy in February noting that OBE is a strong way to gain leverage to a constructive oil quote in the Canadian E&P sector and Obsidian could be one of the biggest turnaround stories emerging from the COVID-19 lows with a myriad of operational catalysts.