Baytex Energy Corp (BTE.TO)

(Market Call Minute) It could be a phenomenal return if oil normalizes at $55, but if it goes back to the $30s it will be tough.

This is one of those leveraged opportunities. If the price of oil was $70-$80, their stock could go a long way. BV is $11.46, so they are trading significantly below BV. It has had a very nice bounce from the lows. The big issue is their debt of $1.6 billion. Equity is $2.4 billion. Last year they produced 85,000 BOE’s a day. 2016 is going to be about 15%-17% less. The amount they have in the hedges is minuscule. Debt is a problem and their operating costs are a bit too high. If you own, he would recommend selling.

This stock has been devastated. It is purely leveraged to Alberta. Oil will be lower for longer.

He just started to pick some up today. Chart shows a little bit of support in early April. Chart also shows a big base forming in the last 4-5 months.

Canadian energy is really starting to get into gear. The seasonal period is from the end of January through until the middle of June. Technically the chart is showing that it is starting to get some support and is starting to go higher.

99.9% of investors have experienced that the risk/reward was not compelling, but the stocks have rallied well. He is not convinced there will be an epic pullback in oils because of the money on the sidelines waiting for a pullback. BTE-T has been holding up and he will make it a 10% holding in his fund. Stick with it, or buy it on weakness.

(Market Call Minute.) One of the torquiest names in oil. If oil prices go up, this name will react quite favourably.

The price of oil softens between now and August. Companies are trying to play catch up, dealing with cost overruns. It has a CAA1 credit rating. It is well down there.

(Market Call Minute.) Great company, but they took on too much leverage at the worst possible time. They have debt/cash flow at 7.4% 2016 estimates. If you don’t have oil going higher fast, this is going to be a tough one.

If you think oil has bottomed and that we are going to go higher, this is a good company, and he thinks you will make money. You are going to see this push up over the $5 range and into the high single digits, and maybe $10. However, it has had a heck of a ride and is very volatile. If you lose a little bit of money on the crude, you are going to see a disproportionate draw down on this name. Fundamentally it is fine.

(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.