Athabasca Oil Sands Corp (ATH.TO)

There is a concern that they have too much debt. However, they have been reducing it and are now down to 275 million debt, which is about 2x cash flow. They could be debt free in the next 3-to-4 months because they are going to be monetizing some of their infrastructure assets. This offers the highest leverage to a change in oil price. This is where money will flow when there is a change in sentiment. They have 55% exposure to light oil, a long reserve life, with a clean balance sheet. (Analysts’ price target is 1.70$)

The company hit the marketplace with a flurry of deals 10 years ago. For the most part, hey executed on those deals. More like a macro call on oil.

He would be concerned, not because of the oil price, but because of oil differentials. Historically the “heavy oil” differential was about $15. This company is not integrated, so doesn't have refinery capabilities, so are exposed to a raw bitumen price. Canada is out of pipe, and as a result has to ship barrels by rail. There’ve been some challenges for rail companies to scale up, and at the same time oil is now competing with grains and products to get rail capacity. The differential should settle at about $20 in the next month, but looming ahead of us is a change from the International Maritime Association, where they have mandated all ships globally to not be able to burn fuel with a sulphur content in excess of 0.5% or 1.5%. In Canada, the average is closer to 4.5%, so demand for Canadian heavy could be reduced, or the differential will need to maintain a wider than historical average, to compensate refiners from having to add additional complexity.

A "wait and see" story. It has done very, very little in the last 2.5 years. If you own this and you believe in the energy sector, he would continue to hold. It will probably be at the same price next year.

A heavy oil producer, primarily in the oil sands. Their leverage to the oil price is higher than others. It’s one of the high beta names that people typically trade around, as opposed to investing in.

If you want to be in Canada, and want a very small cap and uber leverage to the oil price, this is a pretty good pick. They did a royalty deal on their oil sands project, which was nothing short of genius. Payments don’t start until oil exceed something like $70-$75. Their total cash/cost break-evens are around $44. If you are a believer in $65-$70 oil, this stock could really, really work. If you are a believer that we are stuck in a $50-$60 range for the next year, there are better areas to be in.

One of the best beta picks you can select in Canada today. They have a high quality asset. They have an increase in free cash flow, which they can now deploy. They have extraordinary leverage to an increase in oil price. It is probably not the best investment unless you believe in oil higher than $50. It could double if you are bullish on oil.

About 10 years ago, they had a number of oil sand leases they sold off to Japanese partners. As they developed those, they collected the money and bought other assets and started drilling them. Recently bought a big oil sands operating project off of Statoil (STO-N). A good asset at a bargain price. The stock is fairly cheap. You could buy this one here and just hold onto it.

(Market Call Minute.) Keeping an eye on this because they’ve had a changeover of management and board. They seem to be doing the right things, but just not quite there yet for him.

An interesting one, and she is warming up to the story. It has lots of opportunities in terms of a shale play called the Duvernay. They are trying to maintain cash flow with a SAGD heavy oil project that they are doing quite well with. Thinks there is a future with this company. If oil prices go to $32, this will be hit because it is a heavy oil story.

Usually, in resources, if you have a lot of land or a lot of cash, time is your friend. This is the only one in Canada that had a lot of land and a lot of cash, and time was their enemy. What they had promised to investors was taking their conventional oil sands business, using the excess cash it had generated, and investing in a bunch of unconventional opportunities. What they ran out of was time and money.

Not a name he would own. They did a highly admirable job of deleveraging and doing a streaming deal on their oil. Everyone knows the catalysts that have come and gone and now no one cares. Everyone knows it is cheap and yet nothing is happening. He would look to others.

Has a joint venture with Murphy Oil, where they are basically being carried for the next few years on a Duvernay play. They also have their thermal project, which will be pretty steady and generate a nominal amount of cash flow. Has a much healthier balance sheet now, and expects they will look for other opportunities while Murphy is busy drilling out this project.

7.5% bond maturing Nov 19/17. Probably one of the only exploration/production companies on the continent that is in a net cash position. It will have about $900 million in cash when they do the Murphy Oil joint venture, and have about $800 million of debt. The bond is worth $550 million. More senior to it is a bank debt of about $250 million. The $250 million debt matures after the bond in 2019, which is not a position that bankers usually like. The loan has a “springing” maturity, which means if any of the bonds are outstanding 6 months before they are due, the bank debt becomes due immediately. The company likes the bank debt which has a very attractive terms. Thinks the company is going to do a combination of paying down all this bond and maybe refinance with the new bond for $150 million.

To him, this has always been one of those stocks that is an “over the horizon” situation. Although he is moderately optimistic about the oil sector, the oil sands have a new future ahead of them. $50 oil is pretty skinny for the oil sands, and a lot of projects are probably going to go by the boards.