Like a top-40 radio hit that’s right on the cusp of overstaying its welcome, the oft-cited adage about electric vehicles (EVs) is beginning to grate on investors’ ears. While the sector may very well represent the future of transportation, Wall Street presently has a strange way of showing it.
From industry pioneer Tesla Inc. (NASDAQ: TSLA) to freshly listed competitors like Rivian Automotive Inc. (NASDAQ: RIVN), EVs have gone from imposing an existential crisis among big oil firms to suddenly sputtering out. On a year-to-date basis, the former has dropped 29% while the latter hemorrhaged over 44% of market value, desperately clinging to relevance following a much-anticipated debut.
Adding insult to injury, the fossil-fuel industry has been one of the surprising winners of the new year, with the segment benchmark United States Oil ETF (NYSEARCA: USO) returning 13% YTD. In comparison, the broader S&P 500 index is down almost 8% as investors rotate out of risk-on assets.
Of course, the standard explanation for the sudden pivot back to carbon-based fuel is the brewing crisis in eastern Europe. Should tensions escalate into armed conflict, the action may spark severe disruptions in the global energy supply chain. While this circumstance cynically bodes well for the uplisting of Obsidian Energy Ltd. (NYSEAMERICAN: OBE), it’s not the only factor to watch.
- What is Obsidian Energy?
- When is the Obsidian Energy IPO Date?
- Obsidian Energy Financial History
- Obsidian Energy Potential
- How to Buy Obsidian Energy IPO (OBE) Stock
- OBE Restrictions for Retail Investors
- OBE Pre-IPO
- A Backlog-Fueled Resurgence
What is Obsidian Energy?
An intermediate-sized oil and gas producer, Obsidian Energy features a well-balanced portfolio that generates 25,000 barrels of oil equivalent (BOE) per day. Headquartered in Calgary, Canada, Obsidian formerly operated under the name Penn West Petroleum.
Currently, the company runs three projects in Canada: Alberta Viking (light oil development), Cardium (light-oil well development) and Peace River (base production asset). Though Obsidian once traded on the New York Stock Exchange, the initial devastation of the COVID-19 crisis forced the energy firm to delist on April 1, 2020. However, resurgent demand for “black gold” has now reignited an American sequel.
When is the Obsidian Energy IPO Date?
Although Obsidian Energy will once again draw interest from U.S.-based investors, the new listing — which will debut on the NYSE American exchange on Jan. 31, 2022 — is not technically an initial public offering (IPO). Under the strictest definition of the term, an IPO represents the very first time a private enterprise distributes its shares for public (retail) investment.
That description doesn’t fit Obsidian. While management suffered a delisting from the NYSE, shares of the energy firm continued to trade on the over-the-counter (OTC) market (colloquially known as the pink sheets), as well as its native Toronto Stock Exchange. However, one of the biggest issues with OTC stocks is a lack of visibility since trades occur through broker-dealer networks as opposed to intermediary market makers.
Furthermore, liquidity issues hamper public companies trading in the pink sheets since relatively little interest is available between counterparties to facilitate transactions. To compensate for the increased risk, investors participating in the OTC market may encounter steep bid-ask spreads, which in turn cut into profitability.
Upon encountering the difficulties associated with this decentralized form of investing, many participants simply give up. Therefore, an uplisting to an actual exchange represents a significant milestone for a public company; hence, in some respects, Obsidian enjoys a spiritual IPO.
Additionally, the energy firm benefits from excellent timing. For starters, its U.S. debut on the IPO calendar is fortuitously light on competition. Only two other corporations are listing on the same day and both happen to be special purpose acquisition companies (SPACs), which means participants won’t know their intended reverse-merger targets for some time.
Second, a unique set of catalysts has sparked significant upside in oil stocks. In addition to Ukraine-Russia tensions, Reuters reported that “threats to infrastructure in the United Arab Emirates and struggles by OPEC+ to hit its targeted monthly output increase” have bolstered substantial demand for fossil fuels.
The tape provides all the evidence you need. Blue-chip giants Chevron Corp. (NYSE: CVX) and Exxon Mobil Corp. (NYSE: XOM) are up 9.5% and 18.5% on a YTD basis, respectively, belying the negative implications of an otherwise downcast market. As well, renewed interest in everyday consumers reclaiming their lives has veritably catapulted vehicular travel since the doldrums of 2020, thus undergirding momentum for oil stocks.
Most shocking of all, OBE stock is an absolute rocket, generating a 65.5% YTD return and graduating from the list of best penny stocks in the most dramatic way imaginable.
Obsidian Energy Financial History
Among the most alarming headlines during the new normal, few can compete with the sheer audacity of oil prices falling below zero for the first time in history. Essentially, during that fateful period in April 2020, traders were paying people to accept oil, not the other way around.
In that month as well, vehicle miles traveled slipped 42% below levels seen during February 2020, while air revenue passenger miles cratered by an incredulous 96% over the same period. To put it bluntly, crude oil represented the least desirable asset class, inevitably crimping carbon-based energy firms’ financials.
Obsidian Energy was no exception, with 2020’s full-year revenue of $223.7 million dropping nearly 30% from the prior year’s tally. However, the resurgence of personal and commercial activity presented a comeback narrative for speculators, with Obsidian generating $271.7 million in the first three quarters of 2021. As such, the company only needs a modest sales haul in the fourth quarter to beat out results in both 2018 and 2019.
Even more encouraging, on a trailing-12-month (TTM) basis, Obsidian has posted a net income of $319.3 million, reversing a consecutive string of losses dating back to 2013. Further, during the most recent two quarters, the company has become free cash flow positive.
Despite a reassuring trajectory for a turnaround initiative, Obsidian didn’t emerge from the flames of COVID-19 completely unscathed. Following a two-year effort to whittle long-term debt to zero, management has now accrued over $313 million worth of this particular liability item.
To be fair, the company tacked on this burden during a period of staggeringly low interest rates. Still, with comparatively very limited cash on hand ($3.2 million), management cannot afford too many missteps (or even unlucky circumstances) moving forward.
Obsidian Energy Potential
As a natural segue, one of the biggest concerns for OBE stock is that the conditions favoring the oil and gas industry flicker out. For instance, western nations and Russia could possibly negotiate a workable solution, thus resuming normal energy supply chain flows. In addition, the Federal Reserve’s signaled hawkish monetary policies could tamp down inflation fears, thus dragging the fossil fuel industry.
While you shouldn’t ignore the steep risks facing OBE stock, the adage about EVs being the future has likely been put on hold. Specifically, the average age of vehicles on U.S. roadways increased to a record 12.1 years according to The Wall Street Journal. This statistic implies that drivers are holding onto their cars for longer, meaning that when they do finally give out, owners may have little choice but to replace their ride.
Combine this catalyst, though, with soaring prices for used vehicles, and you have a situation where many consumers have been forced to pay a hefty premium. Thus, in order for such purchases to make financial sense, drivers must extend the life of their newly acquired cars beyond what is normal.
Translation? Demand that would have transitioned to EVs is now probably backlogged multiple years, which may cynically buttress OBE stock and its ilk.
How to Buy Obsidian Energy IPO (OBE) Stock
Those interested in OBE must acquire shares at the open, necessitating knowing how to buy stocks. Below is a quick guide.
Step 1: Pick a brokerage.
With the best brokers vying for your business on similar terms, go with the platform that ideally suits your needs.
Step 2: Decide how many shares you want.
IPOs are risky, including uplistings. Therefore, if you engage, do so with a balanced share count.
Step 3: Choose your order type.
Before trading, learn these market concepts.
- Bid: The buyer’s best offer for a stock.
- Ask: The seller’s lowest acceptable price.
- Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
- Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
- Market order: Market orders guarantee fulfillment but only at the current rate.
- Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.
Step 4: Execute your trade.
Follow these steps to execute a market order:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (but include your execution price).
OBE Restrictions for Retail Investors
Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.
Unfortunately, no pre-IPO opportunity is available for OBE stock.
A Backlog-Fueled Resurgence
Although the oil industry is making a comeback, critics may point to the ephemeral nature of its upside catalysts. However, the appreciation of used cars combined with a consumer base held hostage by aging rides could translate to an EV rollout delay, thus potentially benefiting OBE stock.