Birchcliff Energy Ltd. (BIR.TO)

(Market Call Minute.) A solid, solid gas producer on the West Coast.

Best in class, smaller natural gas producer. Good management. Good at increasing their reserves and managing costs. It is just a play on gas prices.

A gas producer, but one of the better ones. Very rich liquids gas. They’ve also done a fair bit of hedging. Although the price of gas has fallen dramatically, companies are finding that development costs have also fallen dramatically. He likes the company.

Just released really, really strong results. Terrific operators and have great properties. He is a little concerned with the natural gas price not going up dramatically from here. Also, you should be a little cautious about the border adjustment tax Trump is floating and its impact on Canadian E & P companies.

Predominantly a gas producer. Trading at a material discount relative to its gassy peers on a production per share growth over the next couple of years. They’ve picked off a great asset from Encana (ECA-T), and part of it has exploration access in the D2 zone, a liquids rich oily zone. He expects results in mid-March and is optimistic they will be successful. They have an internally financed ability to grow production very meaningfully over the next 5 years. Trading at 5.2X, and he thinks it will be able to gain an 8 multiple over the next 18 months, a 65% upside from today’s level. Dividend yield of 1.24%. (Analysts’ price target is $12.70.)

He is a big fan. The stock did exceedingly well from the first quarter of last year. They are a modular growth player so there is growth built in every few years. The stock is backing off with the decline of natural gas. They are a very low cost operator. It is a core name for investors once we get through a little bit of a shakeup.

This has always been kind of a gas name, and gas is very difficult. The track record is pretty good, having earned as high as 9% return a couple of years ago. It is lower now though, just because the commodity price is lower. He would expect this to rebound, and if it can rebound to a 9% return internally, the stock is worth about $11.

The model price is $13.81, a 50% upside from here. The stock has been consolidating since July. He would hold on. Materials could outperform here. There are no transits on this stock.

All 3 picks have recently done fairly transformative acquisitions. He wants to own companies that have institutional following and access to capital markets and could do smart acquisitions at the bottom of the cycle. A natural gas producer and has a Pouce Coupe asset. His issue historically has been that they have always had too much debt, but they did a $625 million acquisition of a Gordondale asset that is contiguous to their Pouce Coupe asset. The 2 fit together really well. It has the effect of lowering the decline rate, and he thinks has increased the cash flow profile. They also brought down their balance sheet leverage. Has a five-year growth plan in place that is entirely funded by internally generated cash flow. He can see this being in the mid-teens by next year. Dividend yield of 1.04%. (Analysts’ price target is $12.35.)

He used to be short. It was a decent trade. Canadian natural gas producers are in a tough place given that they might be pushed out of their biggest end market, i.e. the US. If you need Nat gas exposure in Canada then this is not bad, but he does not think one needs Canadian gas exposure.

They made a transformation a couple of months ago to more Natural Gas. The Americans are looking at our Natural gas companies. If we have that colder winter we expect, it will do well.

His favourite Montney pick because it is trading at discount multiples because it is new. People still haven’t appreciated how much they’ve improved the balance sheet, how they’ve reduced Seymour Shulick’s ownership, liquidity has improved, overall asset quality has improved, inventory has improved, and most importantly leverage has come down. Trading at 6.2X next year and less than 5X 2 years out compared to the peers who are trading at 7 or 8. It could be a $16 or higher stock.

(A Top Pick April 22/16. Up 91.07%.) This got beat up because of the low oil prices. They’ve done a great job, and are really one of the lowest cost operators in natural gas, but the key is that they are going from 10% liquid to 23%-24% liquids with the acquisition of Gordendale. Has this as a Hold now, but if it fell below $6, he would be more constructive on it.

A natural gas name that has re-birthed from an acquisition with Encana (ECA-T) on the Gordon Dell property. It is still trading at a discount valuation. He thinks people will recognize how cheap this name is relative to its fundamentals. On a forward basis he would have it trading at about 7.2X cash flow. Its peers trade at 8X or 9X, and yet with this property acquisition, they’ve increased inventory to a highly perceptive liquids rich play. Most importantly, they have taken down their debt. He is looking at a $13 share price in 2 years, if using an 8X multiple.

A name he has always been on the fence with. A dry gas producer. A nice way to play a gas recovery with a torque. He likes the Gordondale acquisition, a gas asset that they got from Encana. Did a very successful $700 million equity offering to finance the purchase. This adds a significant component of liquids, so now it is a 24% liquids company, rather than 10%. That helps the margins.