Bonavista Energy Corp (BNP.TO)

Have made a lot of use of their hedge book and have done quite well. Trading at a discount to BV. Production is down, as it is for most players. Their hedge book is now gone. In Q3, their numbers are going to come down. He likes that operating costs are pretty low at $5.58 BOE. The balance sheet is in good shape. They have $1 billion in debt, and against that they have $1 billion of equity. They are becoming more of a lower cost operator. He is bearish on oil prices for the next quarter. If the stock got down to under the $2 area, this would be a great Buy.

Has a lot of respect for management. They execute a great strategy of assembling assets, dominating in certain core areas and driving operating costs down. Thinks they have 75 facilities that they own and operate. A very well-run company. Also, has a very good hedge book. They have a bit more debt on the balance sheet than what he is comfortable with. A name he might always consider if looking to put something new into his portfolio.

This is a company that is slowly going through a turnaround. Management has always been well regarded. He doesn’t consider the asset base to be top tier. High quality management team and the balance sheet is in better shape. He’s been in and out of this, but is not currently in it. This is a name you could take some profits on, because if you bought it in the last 5-6 months, you are very happy. You don’t want to be exposed to this kind of leverage if oil goes sideways or has a little bit of a bounce down.

His only hang-up is that they have $1.2 billion in debt and just raised $100 million. They still have $1.1 billion of debt, and relating that to the amount of cash flow they’ve been generating, it is still about 3.5X, which is too high. He would rather buy names that have way less debt, which means that as oil prices recover they will be generating more free cash flow than they can deploy into the field, and can compress their multiples.

(Market Call Minute.) A company he is really taking a liking to. They do about 80,000 BOE’s a day. Very low cost, $5.85 operating expenses. BV is $7.23. There is no goodwill on the balance sheet. If it backs off half of the gain that it has had or below, buy it.

Likes management, the company, what they have done and the philosophy on how they have conducted their business. They go into plays, dominate them, control all of the infrastructure and drive costs down, which is exactly what he likes. Their Glauconite play that they bought off Encana years ago turned out to be excellent for them. The problem was their exposure to weak natural gas liquids pricing, which has collapsed. Also, the balance sheet had more debt than what he is comfortable with. Dividend yield of 3.99%.

One of the more financially levered names. Valuation is at a point where it is almost cheaper for them to buy their own shares than it is to drill. Have put up several assets for sale, with the big one being their Montney BC acreage, which is hoping to come to fruition sometime in January. Proceeds could be upwards of $150-$200 million applied to their net debt. They have a very good hedge position for next year. A good way to play a leveraged increase in the price of oil.

The company is doing the right things. Their assets are good. They are just caught in this malaise of the price of gas. The longer that goes on, the more difficult it is for them to survive. Doesn’t see any immediate threat, but is now focusing on what he considers to be safer bets.

Have some really good hedging in place for the next year or 2. Dividend yield of 13% is screaming that it wants to be cut. Their effective payout ratio is 113% this year. Next year, when some of their hedges start to fall off, it is at 155%. Dividend will get paid for 2015. Debt to cash flow is 3.8X this year and 4.6X next year. A risky name. Only Buy at these levels if you think oil is going higher into the next 2 years.

(Market Call Minute.) Natural gas is down significantly. He would not own this. There’s too much leverage on the balance sheet. Dividend yield of 14% suggests that it may have to be cut.

A natural gas oriented company as opposed to oil. Have had a checkered career in terms of misleading the street by saying they were not going to cut the dividend back a year or 2. They then cut the dividend a month later. He is not doing anything in energy right now, so wouldn’t touch this or other gas stocks.

It has fallen off as production has come off. Is there hope? There is a glimmer because recent results started to show the changes they have been making. They have a high debt load.

(A Top Pick Sept 23/14. Down 65.56%.) Got stopped out in January. If you are in it, just wait it out. These things will come back. It is more natural gas than anything else. (Has a small bit in his own account.)

Energy companies in general are very poor performers. We are ending a seasonal weak period and entering a favourable period. The 1^st period of seasonal strength for energy stocks runs from about January all the way through to May. This is now charting new lows. From about mid Aug. to about mid Sept., and possibly into Oct., you can see energy stocks do quite well. Perhaps stay away from this one.

50/50 gas and oil. Has been hit hard recently. Their production areas will be affected by TRP-T outages. Their production areas will be affected by that. He owns a little. It is not one of his favourite picks.