#1: GREENFIRE RESOURCES LTD (TSX: GFR.TO / NYSE: GFR)
A Work-in-Progress SAGD Operation
Disclaimer: The author currently holds positions in Greenfire Resources ($GFR.TO/$GFR), Fairfax Financial ($FFH.TO/$FRFHF), and Strathcona Resources ($SCR.TO/$STHRF). These positions are subject to change without notice. Nothing on this blog constitutes investment or financial advice. Please see the full disclaimer here.
Stock Price (As of May 26 2026): $8 CAD
Market Capitalization: ~$1B CAD
Enterprise Value: ~$1B CAD
This post is the 1st in the series where I try to find companies that are trading at <6x earnings/FCF (my estimate).
SUMMARY:
Greenfire is a small-cap SAGD producer undergoing an operational reset under new management. The team has identified three main issues:
Undercapitalized assets
Legacy focus on refill producer wells instead of new well pairs
A high debt burden.
The debt issue has largely been addressed through the rights offering, and management is now focused on solving the remaining operational issues. The market is currently valuing Greenfire at a discount to both its 2P NAV and thermal-oil peers on EV/flowing barrel. That discount could narrow if new management improves operations, brings more production online, and moves the assets closer to capacity.
The new management team has deep SAGD operating experience through prior acquisitions, and it has significant skin in the game through its ~72% controlling stake in the company.
Greenfire is a steam-assisted gravity drainage, or SAGD, oil sands producer with low-decline thermal oil assets in Alberta’s Athabasca region.
The company’s principal assets are the Hangingstone facilities, which consist of:
Hangingstone Demo Asset (100% working interest)
Hangingstone Expansion Asset (75% working interest)
Located 50 km south of Fort McMurray, Alberta, these facilities are operated by Greenfire.
Source: 2026-05 Company Investor Presentation
Greenfire’s reserves at the Hangingstone Facilities are located in the McMurray Formation, a geological deposit from the Cretaceous period. This formation consists of sands and shales that were deposited in river and coastal environments. Where the sands are sufficiently thick, they form the reservoir and contain bitumen and water within the pore space.
Since ~80% of Alberta’s bitumen reserves are too deep to be mined, they must be extracted in place (or in-situ) using steam. SAGD uses a pair of horizontal wells drilled ~5 meters apart, one above the other. Well depth can vary anywhere from 150 to 450 meters and horizontal lengths can be over 1600 meters. High-pressure steam is injected into the top well, or the injection well, and the hot steam heats the surrounding bitumen. As the bitumen warms up, it liquefies and begins to gravity flow to the lower well, or the producing well.
In the case of Greenfire’s SAGD reservoir, the bitumen and condensed steam emulsion contained in the lower well flows to the surface naturally (vs using pumps). This emulsion is then sent to a processing plant, where the bitumen and water are separated. The recovered water is treated and recycled back into the process and the produced bitumen is typically diluted with condensate and sold to the market via pipelines (mostly).
Source: https://www.greenfireres.com/operations/thermal-oil-operations/
The video below explains the SAGD operation in detail, including the other method, CSS.
Link: https://www.youtube.com/watch?v=8qxfO3tg0b8&
HISTORY OF THE COMPANY:
Greenfire Resources Ltd. was built around the consolidation of the Hangingstone SAGD assets through two strategic acquisitions. In April 2021, Greenfire Acquisition Corporation acquired the Hangingstone Demo Asset out of GHOPCO’s insolvency proceedings for CAD$19.7 million. This was followed in September 2021 by predecessor entity HE Acquisition Corporation (HEAC) acquiring JACOS for approximately CAD$346.7 million, securing a 75% working interest and operatorship in the adjacent Hangingstone Expansion Asset.
The business was consolidated into Greenfire Resources Operating Corporation and later taken public through a De-SPAC transaction with M3-Brigade Acquisition III Corp. in Sep 2023. Greenfire listed on the NYSE and subsequently listed on the TSX in Feb 2024.
WATEROUS ENERGY FUND OWNERSHIP:
Between November and December 2024, Waterous Energy Fund (WEF) rapidly acquired control of Greenfire through private transactions. On Dec 23, 2024, WEF and Greenfire entered into an Investor Agreement that reconstituted the Board, with three directors resigning and six WEF nominees appointed, including Adam Waterous as Chairman.
CHANGE IN LEADERSHIP AND STRATEGY:
In Feb 2025, Greenfire announced a major leadership transition: Adam Waterous was appointed Executive Chairman, Colin Germaniuk was appointed President, and former CEO Robert Logan, along with several senior executives, departed the company.
The new management under WEF ownership said they looked under the hood and it was clear to them that the previous stewards of the business were running the business for the short run, prioritizing near-term production adds at the expense of long-term asset value maximization.
3 main issues:
Undercapitalized assets
Refill producer wells (instead of drilling new well pairs)
High debt (US $237.5M 2028 notes @ 12% interest rate)
Source: 2025-05 Company Investor Presentation
Prior to the rights offering in late 2025, the company had a huge debt burden which was a drag on the company’s free cash flow and liquidity. The 2028 Notes had a balance of US$237.5M at 12% interest, these notes also had specific capital spending clause which limited capital expenditures needed to grow production. The new management used the proceeds from the rights offering to fully pay down the 2028 Notes. The rights offering did increase the shares outstanding (S/O) from ~70.25M to ~125.4M, a ~78.5% increase.
During 2025, WEF continued to consolidate its position, ultimately increasing its ownership to approximately 72%. I do not think WEF necessarily needs to increase its position further; rather, WEF appears to have a distinctive approach to providing liquidity to its Limited Partners (LPs). Unlike many traditional PE funds that seek liquidity primarily through a full exit, WEF has shown a willingness to hold public portfolio companies and gradually increase public float over time, potentially creating a path to distribute or monetize shares for its underlying LPs. Over time, this could improve stock liquidity. Strathcona Resources provides a useful precedent, where WEF reduced its ownership and increased the company’s public float while continuing to retain a large controlling stake.
ASSETS:
HANGINGSTONE DEMO ASSET [100% WI]
Source: https://www.greenfireres.com/operations/hangingstone/#demo
The company owns a 100% working interest in the Demo Asset, which is located ~5 km from the Expansion asset.
The Demo Asset (Demo), initially commissioned in 1999 by JACOS (Japan Canada Oil Sands Limited), was established as a demonstration project to validate the economic feasibility of enhanced thermal oil recovery. It operated successfully until 2016, when a massive wildfire in Northern Alberta forced temporary shutdown. Although the facility suffered no physical damage, JACOS elected not to restart it as they were focusing their capital on constructing the Expansion Asset.
In 2018, GHOPCO acquired Demo from JACOS and successfully restarted production. Covid hit in 2020 and GHOPCO shut down operations and filed under Canada’s Bankruptcy and Insolvency Act in Oct 2020. On April 5, 2021, Greenfire (specifically Greenfire Acquisition Corporation) acquired Demo out of bankruptcy for a total consideration of CAD $19.7 million.
In 2025, the annual average bitumen production from Demo was 5,429 bbl/d.
The primary destination for Demo’s bitumen is the truck offloading facility at the Expansion Asset (Expansion), where trucked volumes are blended with condensate and transported via pipeline through the WDB stream. Additionally, the diluent-free bitumen from Demo can be trucked to alternative sales points, such as other terminals or refineries in Alberta, and transported by rail to the United States for WTI-indexed pricing, when economically advantageous.
Greenfire holds an interest in 974 hectares of land at Demo. Demo’s 2P bitumen reserves at ~20 MMbbl as of year-end (YE) 2025 and the 2P Reserve Life Index (RLI) of Demo is estimated at ~10 years based on 2025 avg daily production volumes.
The production at Demo was lower in 2024 due to refill well drilling operations which affected producing wells and by the temporary shut-in of the disposal well. The disposal well was started back up in Q4 2024.
The company has guided Demo’s 2026 production at 5 - 6 Mbbl/d vs the 7.5 Mbbl/d nameplate capacity.
Source: 2026-05 Company Investor Presentation
HANGINGSTONE EXPANSION ASSET [75% WI]
Source: https://www.greenfireres.com/operations/hangingstone/#expansion
Source: 2026-05 Company Investor Presentation
The company owns a 75% working interest in the Expansion Asset (Expansion), with the remaining 25% being owned by CNOOC Petroleum North America ULC. The company operates Expansion pursuant to the joint operating and ownership agreement dated effective Oct. 16, 2012 between JACOS, as predecessor to the company, and Nexen, as predecessor to CNOOC Limited.
JACOS commenced Phase I construction of the Expansion Asset in 2013, investing approximately CAD$1.5 billion to build long-term infrastructure. First steam occurred in April 2017, and first production occurred in July 2017. On September 17, 2021, HEAC, a predecessor of Greenfire Resources Operating Corporation, acquired all of the issued and outstanding shares of JACOS for total cash consideration of approximately CAD$346.7 million. Through this corporate acquisition, Greenfire acquired JACOS’s primary asset: a 75% working interest and operatorship in the Expansion Asset.
Since commencement of production, 32 well pairs have been developed at the Expansion Asset, including 18 producer re-drills.
In 2025, the annual average bitumen production from Expansion was 14,320 bbl/d (~10,740 bbl/d net to Greenfire). Expansion produces bitumen that is blended with condensate to create Western Dilbit Blend, or WDB, which is a diluted bitumen that is widely accepted by refiners in Canada and the United States.
Greenfire has an interest in 17,330 gross hectares (13,298 net hectares) of land at Expansion. Expansion contained ~389 million barrels of gross 2P bitumen reserves as of YE 2025, which translates to a 2P RLI of ~99 years based on 2025 avg daily production volumes (Note: This is at the gross level).
Note:
The RLI of Expansion is artificially high as 2025 production was low, at full nameplate capacity of the plant/asset, RLI is ~35 years(Note: This is at the gross level).
Main reasons for lower production at the Expansion Asset in 2025:
Source: Q1 2025 earnings call
The company has guided to Expansion’s 2026 production (Net) at 8.5 - 9.5 Mbbl/d vs the 22.5 Mbbl/d nameplate capacity (Net).
Source: 2026-05 Company Investor Presentation
Greenfire plans to increase production at the Expansion asset beyond 2026.
Source: 2026-05 Company Investor Presentation
Once Pad 7, Pad 8 and the 3 well pairs at Pad 5SE are up and producing, which I expect to be towards the end of 2027, the expansion asset will be close to capacity. The gross capacity of the Expansion Asset is 30 Mbbl/d.
Reserves are a major driver of an oil and gas company’s value because they determine how long the company can sustain or grow production. Below is GFR’s reserve report.
Source: 2026-05 Company Investor Presentation
Keep in mind the RLI is based off 2025 production, so when the expansion asset is closer to its capacity the RLI would be lower, if reserves are not added.
My assumptions: (2028 Forecasted Production)
Expansion Asset: ~28,500 bbl/d (Gross; at 95% capacity)
Demo Asset: ~5,000 bbl/d (at ~67% capacity)
Total: ~33,500 bbl/d
2P RLI (@ 2028E production level) : 409000000 bbl/ (33500 bbl/d *365)
2P RLI : ~33 Years (Gross)
In terms of understanding the asset quality. A few good KPIs I found useful are:
SOR: Steam-Oil Ratio
Permeability
Reservoir thickness
SOR [Steam-Oil Ratio]:
One of the main input costs for a SAGD operation is natural gas. Natural gas is used to generate steam, so a more efficient operation uses less steam to produce more oil. Below, I show the SOR for the Demo and Expansion asset along with Athabasca’s Hangingstone project for comparison.
Source: Author’s graph with data from AER
We can see that Expansion’s SOR was much better when it started in 2017, at below 3.0x; however, it worsened over time. I think this supports the theory that the asset/resource is good but the prior strategy was likely not. I like the long-term strategy of the new management team and believe Expansion SOR will improve over time as production reaches capacity.
The SOR at Demo has improved in the recent quarters, and I expect it to remain around current levels. I have also included the SOR of Hangingstone Athabasca as a reference for SOR.
Source: ChatGPT
Permeability and Net Pay:
Permeability in a SAGD reservoir refers to how easily oil, water, and steam can flow through the rock. It is usually measured in darcies (D). In SAGD, permeability matters because injected steam must move through the reservoir to heat the bitumen, and let the mobilized oil drain by gravity to the producer well.
Source: ChatGPT
Net pay is the portion of the reservoir that has producible oil-bearing sand after excluding shale, lean zones, water zones etc.
Source: ChatGPT
The Demo Operating Area has Vertical Permeability of 5.1 D and Horizontal Permeability of 5.7 D, which are considered good.
Net Pay at 24.4m is also good.
Source: AER Demo Presentation
The Expansion Operating Area has Vertical Permeability of 4.0 D and Horizontal Permeability of 5.8 D , which is also considered good.
Net Pay at 22.7m is also good.
Source: AER Expansion Presentation
I think buying an asset at almost 50% discount to 2P NPV (After tax) and having an operator (WEF) who has a history of buying profitable SAGD assets is a positive and provides a needed margin of safety.
Source: 2026-05 Company Investor Presentation
VALUATION:
FREE CASH FLOW (FCF):
I estimate Greenfire could reach ~26,300 bbl/d of net production by 2028, assuming Expansion reaches ~28,500 bbl/d gross production, or 21,300 bbl/d net to Greenfire, and Demo remains ~5,000 bbl/d.
Based on my 2028 assumptions, Greenfire trades at approximately 4.6x 2028FCF at US$65 WTI and 2.6x 2028FCF at US$75 WTI, using a current share price of approximately C$8. These estimates are highly sensitive to production levels, WTI pricing, WCS differentials, FX, debt, interest expense, sustaining capex, and operating costs.
I have not attempted to model 2026 or 2027 FCF because those are expected to be heavy capex years as the company works to restore production. My base assumption is that 2026 FCF (incl growth capex) is negative and 2027 FCF turns positive as production begins to ramp.
Note:
The company has hedged a good portion (~66%) of 2026 production at much lower prices than current oil price, so there may not be much short-term upside to cash flow.
Company has tax pools of C$1.7B which should allow for little to no cash tax expense until sometime between 2030 and 2035 and GFR is pre-royalty on the expansion asset, so this should help with margins.
I am assuming the company has ~$100M of debt paying 6% interest rate in 2028, this is used to calculate interest expense.
The company could also grow production further at the Expansion Asset by installing additional steam generators, i.e., through brownfield expansion, however let’s chalk that up as incremental surprise and keep in mind this would result in incremental capex.
ENTERPRISE VALUE / FLOWING BARREL:
Source: Author’s calculation
This is not a perfect apples-to-apples comparison because most peers operate at a much larger production scale than Greenfire. Nonetheless, the Enterprise Value (EV)/Flowing Barrel gap is quite large and as the company improves production the multiple gap should contract (all else equal). Increasing production could improve Greenfire’s enterprise value in two ways:
The flowing barrel per day increases
The EV/Flowing Barrel multiple could increase
It costs Greenfire ~$15,000 CAD in capex to bring 1bbl/d of production vs its EV/Flowing Barrel valuation of ~$70,000 CAD, which is close to 5x implied value creation.
Source: 2026-05 Company Investor Presentation
Note: The GFR presentation trading multiple is different from my calculation due to fluctuation in share price.
The current price of stock is close to WEF’s cost basis on GFR shares i.e (CAD ~$8/share), getting shares close to their cost basis provides margin of safety.
Source: Author’s calculation
MANAGEMENT:
Management plays a very important role in ensuring that the full value of the assets is realized for shareholders. Sometimes it is necessary to endure short-term pain for long-term gain, most management teams do the opposite!
The WEF team are excellent operators in my opinion, who have chosen to reset strategy (new well pairs vs refill wells), eliminate debt (via rights offering), and taking short-term pain to ensure the assets are optimized for the longer term. Reading the quarterly transcripts since WEF took over shows how consistent the team has been. The WEF team also manages Strathcona Resources ($SCR.TO) and I found reading Adam Waterous’ Investor letter helpful in better understanding the management team. Link to the latest letter here.
I expect the WEF team to be rational capital allocators and allocate capital to the highest return opportunities in the long run. They are great at finding opportunities in both private and public markets. A fantastic example is the WEF team via Strathcona Resources buying MEG energy shares when they were low in 2025 and then selling them to Cenvous for profit (Note: Strathcona did make an unsuccessful bid for MEG). Strathcona Resources also paid a huge special dividend ($10 cad/share, ~30% yield) out to its shareholders funded by the proceeds from the sale of its Montney business unit.
The management compensation at Greenfire doesn’t seem egregious. New management does not like share-based awards and they do not have share-based awards.
Source: Greenfire Management Information Circular 2026
I believe management is focused on the right metrics to improve the operations of the company.
Source: Greenfire Management Information Circular 2026
I am looking forward to the WEF team writing a shareholder letter for GFR 0.00%↑ owners. I guess they need a bit more time under their ownership before writing a letter, otherwise, the letter would likely be more forward-looking than a balanced mix of self-evaluation and outlook.
RISKS:
WTI Price: A significant portion of the thesis depends on oil prices. Even using conservative US$65–75 WTI assumptions, realized free cash flow could be materially lower if WTI weakens or WCS differentials widen. I expect the price of oil to fluctuate but for an asset with a 2P RLI of ~33 years (or more), the long term matters and I expect the company to be satisfactorily profitable over its reserve life.
Demo/Expansion Asset: The resource/production might not be as good as management expects. However, the WEF team has acquired five SAGD assets over the last 6 years and they are specialists in SAGD assets. I do not know enough about SAGD assets to independently underwrite every technical detail, so I am relying on WEF’s expertise in this area.
WEF: Having a majority shareholder is a strength and a potential risk. WEF’s SAGD operating experience reduces execution risk, but their control position may also limit minority shareholder influence.
The majority of the GFR ownership is under WEF III fund. The fund probably has ~8 year fund life left, so I don’t expect the WEF team to take this company private or sell it or merge it with one of their other public companies anytime soon. Also, why would they if they didn’t do it when the stock was dirt cheap less than a year ago (remember the 2025 rights offering!).
Fairfax Financial: Fairfax Financial (FFH) owns ~76% of the WEF III fund and WEF III owns 72% of GFR. So there could be a risk that FFH eventually takes the company private at an opportunistic price. However, that transaction would need the majority of the minority shareholders’ approval, and there are a couple of non WEF funds which own a good chunk of GFR, which should reduce this risk.
FURTHER LEARNING LIST:
Riley Waterous’ talk at Peter’s conference:
VIC writeup on GFR 0.00%↑ here.
Disclaimer: The author currently holds positions in Greenfire Resources ($GFR.TO/$GFR), Fairfax Financial ($FFH.TO/$FRFHF), and Strathcona Resources ($SCR.TO/$STHRF). These positions are subject to change without notice. Nothing on this blog constitutes investment or financial advice. Please see the full disclaimer here
Edit: I updated the post as I previously had "Fairfax Financial (FFH) owns ~75% of the WEF III fund and WEF III owns 50.9% of GFR".
From Greenfire's Management Information Circular, they mention all the various WEF III funds as WEF shareholders who collectively own ~72% of shares outstanding. Fairfax Financial's Q1 report mentions their WEF III ownership at 75.7%.