Baytex Energy Corp (BTE.TO)

They had to suspend their dividend. They have been through this before. They have great assets, but bought at the top of the market and are struggling with the debt now.

Their leverage has to come down and that probably means asset sales. He is not comfortable holding it, although it will respond if oil prices to up.

There is the leverage and the low dividend score. It is a great company with a diversified portfolio, but the challenge has been the trailing effect of the pullback in commodity prices. It could be an interesting acquisition for a company. He prefers PEY-T, ARX-T.

CEO indicated he wished they had raised more equity when they did the Aurora transaction, which got them their move into the Eagleford in the US. This saddled them with above average debt to cash flow at a time when nobody anticipated oil did what it did. Although it is a great asset it is non-operated, so not as attractive.

Sold his holdings last October at about $37.50, and it is now down to $4.22. Did the Texas Eagleford acquisition at the wrong time, and had to borrow money and do an equity issue. The debt to cash flow is problematical. They suspended the dividend to save cash. This will stay in the doldrums as long as oil prices stay down. If there is a recovery, this could easily double to the $9 area. Purely speculative at this stage.

Debt levels are a little bit large and growing. This is quite accretive when oil prices are in your favour and you are able to grow production. It has a big exposure to the Seal project in Alberta as well as smaller exposure to the Viking in Saskatchewan and the Eagleford in Texas. Thinks this is a timing game. Expects they will survive. If oil prices were to drop-down even lower for a year, they might have some problems. Believes they are going to generate free cash flow next year, after cutting CapX and their dividend.

They are protecting their balance sheet through elimination of the dividend and he thinks they will survive. They have good assets in Western Canada, even if not at these oil prices. If oil prices increase, this will be a relative winner. It is too cheap to sell, so hold it.

They have 3 of the top 15 properties. High quality assets and debt structure they should be able to manage. It is positioned where they should be able to recover.

(A Top Pick Oct 10/14. Down 79.62%.) He sold out at around $21, but still holds some personally. Thinks they will survive.

Good company to be in, but depends on what you are looking for. Recently, suspended their dividend. Unlikely that the dividend will come back soon. Likes their assets in the Eagleford. Sees a lot of torc for this company, a lot of growth in terms of getting production back up once commodity prices go back. It is a safe place to be in this environment.

A very innovative company. They have the Eagleford shale play in Texas. He doesn’t know why they would have completely cut the dividend, other than they feel that they have a better place to put that money than to pay it back to shareholders. A great company.

The market cap is significantly lower than what they paid for Aurora Oil and Gas, which was their entry into the Eagleford. Stock fell from $23-$6 in roughly 2 months. Cut the dividend to zero. They still remain a highly leveraged oil company, so if he is right in his call on oil appreciating to $55-$60, this is a name that could easily go up 100%. The debt is a little concerning. At current oil prices he doesn’t think it is sustainable. If you are bullish on oil with a recovery coming within 6 months, you could do extraordinarily well. If he is wrong on his oil call and it stays around $40-$45 for the next 6-9 months, this is a name that could get into some trouble.

Recently did the right thing by eliminating the dividend. This gives it additional staying power. This is a stock that he likes. Before Buying he would want to see a bit more basing action.

SHORT. A good company and not a lot wrong with it, but it is just a macro trade. Oil is weak and is likely to get weaker. They had a misstep in buying Eagleford assets at the top of the market. They are also exposed to declining production, because they are cutting back on capital expenditure. There is also the issue of being heavy conventional oil in a very depressed market.

Punishing the Russians involved lowering the oil price. Now it is causing a problem for the fracking industry in the US. People are looking at rig counts. Probably oil stays low for another year or so. A lot of companies don’t make money at this price and eventually supply and demand will come back into balance.