Baytex Energy Corp (BTE.TO)

(Market Call Minute) It has had a nice run, but buy it if oil gets over $50.

Has a very small position. Likes the company, management team and the assets. It has the hallmarks of a company that has a long-term resource. The problem is that it is very levered to heavy oil. Did an acquisition that diluted that down somewhat, by buying into the light oil play in the Eagleford. Spending 80%-90% of their CapX in that area, and doing virtually nothing in Canada. Have had to seek covenant relief a couple of times, but are not alone in doing that. Banks, so far, have been pretty willing to accommodate the companies at a price. Probably in the 2^nd quarter they will end up taking their credit facility and securitizing it against the asset, and probably push the subordinate debenture holders down the capital structure. Net/net that might actually be positive for equity holders.

The chart is not that helpful. It has a rounding bottom right now and the longer it bases the more it is a precursor to upside. It is currently trying to get through $5.12 and then it will have some room to run. The 200 day moving average is around $9. He owns no energy at this point in time, however. Some other names have much more upside. The target could change any time.

Owns their bonds, which almost fit into the category of non-investment grade high yield (junk bonds). They bought assets in the Eagleford, which is turning out to be one of the best assets in the US. It looks like they can make money even at $35US oil. If the oil industry comes back in a year’s time, this is an asset that will definitely get drilled, and thinks it gets bought by anybody in the industry. Doing 30,000 barrels a day. Prefers the bonds, and doesn’t know if he would be looking at the stocks.

The best opportunity today is in those names perceived to be overleveraged. If he is right in his call of oil going to $50, many of these stocks are going to do phenomenally well. This has a lot of debt, most of it in high yield notes, which don’t come due until 2021. Has bank debt today of about $300 million (on a $1.1 billion line). There are covenant challenges, and because the price of oil is low they are going to violate some of the terms. However, they are underway with discussions with the banks and pledging some assets against that line, which will eliminate the covenants. As people get more constructive on the price of oil in the next couple of months, this will be the “go to” high beta name for investors. It could be a $6-$7 stock by the end of the year if he is correct on his call of oil.

No money is being made on heavy oil. All the money is being made in the light oil Eagleford play, where they have partnered with Marathon in Texas. An excellent way to play a recovery if you believe in a recovery in oil prices. They have problems on the debt side. At risk of reaching covenants yet again, but thinks they have offense (?), so there is upside for equity holders. Without higher oil prices, this story is quite impaired. If looking for an opportunity on an upside in oil, a small position could be okay.

They are in the blue, meaning the market does not believe their balance sheet and the write downs are coming. They already cut their distribution. Stay away.

Hasn’t been attracted enough to Buy it. They have pretty well-managed in the current environment as well as any company could. He would look at this as a possible company to own. You don’t want to take a rifle approach to the energy sector by picking just one company. If you can diversify amongst the companies that have strong management, relatively good balance sheets, not a lot of debt that is immediately due, you are going to prosper.

Their debt is pretty well termed out to 2020. Likes the stock and would be one of the “go to” names he would buy. Excellent assets in Canada, as well as in the Eagleford in the US. Outstanding management. It will be volatile in the short term because it has a fair bit of debt, which concerns people, but will be one of the survivors.

A very inexpensive stock, but there is no reason to buy it. The stock could rally and be up 7%-8% in a day if there is a big up day in oil. This is a trading vehicle. It is a high beta, high risk, high volatility relative to the market.

Big leverage which is very bad for oil companies right now. At $50 oil, debt to cash flow is very high at 4.8% on 2016 estimates. Unless you believe that in the next 6-12 months that oil is going to go discernibly higher and stay there, this is a name he would not be picking away at.

They made a great acquisition, but it was at the top of the market. Their Canadian heavy oil assets are getting creamed because of low heavy oil prices. The success ratio and the amount of cash they are getting from the US is good, but unfortunately putting the 2 together is not a good recipe for success in the stock.

(Market Call Minute.) You have to steer clear of this. They have falling production and have a lot of debt.

One of the most levered to oil stocks companies that you can buy. Had a pretty big debt overhang as the commodity price turned lower. They raised equity but it didn’t help. If your view is longer-term, and you think commodity prices will come back over time, this stock will do quite well. However, you could see prices drift lower.

A well-managed company, but is largely exposed to natural gas assets, and as a result has been punished along with the rest of the energy companies. Their balance sheet is okay. He wouldn’t read it as top tier, but wouldn’t put them in the bottom tier either. There are better places to look.