Baytex Energy Corp (BTE.TO)

She is more constructive on crude oil than she was last year, but at $51-$52 it is probably range bound. She hadn’t increased her exposure in the energy sector last year, but is starting to add a bit more now. This particular company is not on her list.

Sort of a dual company ever since they bought Aurora a couple of years ago, so it has heavy oil assets in Western Canada, and really, really high quality Permian Basin assets in West Texas. It’s older legacy assets are higher cost and the Permian Basin are low cost. They went into this down cycle with too much debt, and got slammed. This is interesting here, because he is constructive on oil prices, and that oil will make its way higher up to the $60 range later this year. Even though that is only a 15%-20% move in oil, it has a much bigger impact on companies like this. He likes this here.

*Long* A pairs trade with CNQ-T. Over the next 6 months you could see oil prices drift up. Their balance sheet is possibly underestimated because their debt is all termed out. They are 80% down from their all time high. (Analysts’ Target: $7.97).

Historically, this has been a heavy oil producer. It has bought more heavy oil assets recently. Heavy oil trades at a discount to regular crude oil, because of processing. This is a call on if you think the price of oil is going higher. They still have some debt that they have to pay down. If oil goes to $70-$80, this company will do very well. In the $55-$60 range, there is not a lot of upside.

This was not considered to be one of the best, but does appear to be straightening out its finances. It is improving a little in the slightly better complexion of the oil/gas sector. He prefers others, such as Seven Generations (VII-T).

This week will really help us to figure oil out. Look at stop losses. Make sure you have it in place. He suggests $6.70. The down trend is over, however. ‘VSTOP’ is a calculated stop loss point that incorporates the volatility in the stock.

Oil prices have had quite a bit of drama over the last 24 months, and lately OPEC has pulled a surprise to the good, which has propped the price up. He thinks OPEC can largely stick to the deal and have the support of Russia. However, there is a cap to the upside on oil getting too high. At over a $60-$65 level, the US drillers will rush back in. This company was doing “just okay” in the $55 range. They are a big player in the US. If you believe oil prices will be in the mid-$50, this one will do just fine.

He has a very small position. Views this as torque to higher oil prices. He is comfortable with the credit profile, which has been an issue in the past. They ended up securitizing their credit facility against the assets, and pushing down the subordinate note holders. Doesn’t think the company has an issue with debt, but it has struggled in an environment of lower oil prices. Once we get to $55 oil, it becomes profitable again. Once it gets to $60 and beyond, this company looks a lot better than it does now.

Generally, energy looks like it is going to do better. We are probably at the bottom in energy. If they are okay on the balance sheet side, you are probably okay.

He has always liked it when he was looking for long oil exposure, but he is not looking for that right now. If you were bullish on oil, a $10 move will get you an outsized return.

Energy is a top sector on a short term basis. On a long term basis it is moving up towards the top five. We have a nice little base with a slow upwards trend in BTE-T. We are going have some resistance around $9. Now is probably a good point in terms of risk/reward as it is near the bottom of the trend line.

When he looked at the oil market he decided he wanted to own larger cap oil if he went into it. But he owns the debt of this one because it traded at 80 cents on the dollar. He feels the Eagleford assets were worth about $2 Million. If they had gone bankrupt he would have got his money back on the debt side. The debt is safer.

If you are trying to get exposure to energy, this is one to own. It can be a volatile stock as it has a fair amount of leverage on its balance sheet and a lot of sensitivity to moves in oil prices. It has a lot of torque to the upside if oil prices recover, but can have a lot of downside too. He is getting more positive on oil.

Short or Buy? Shorting is always difficult, because the window is quite small, especially for something that is as volatile as crude oil. If you are looking at a multiyear scenario for Holding it, then you are probably okay buying it now. Wait for the next week or so for it to fall. It has a relatively high debt load.

A very high beta name in terms of the potential for oil price increases. The balance sheet is not good. They have stretched out maturities which is at least encouraging. You need higher oil prices to make money in the stock. He has a $70 target for oil prices in the next couple of years.