Baytex Energy Corp (BTE.TO)

(Top Pick Jul 05/12, Up 7.91%) Horizontal drilling has changed his energy outlook going forward, so he chose to cut this one.

(A Top Pick Oct 19/12. Down 4.04%.) Was selling some of his holdings at about $58, so when it came off, he stepped in and bought more. Subsequently, it went down to about $37. 6% dividend.

Looked at for a long time. Play on oil differential. A more recent acquisition into his portfolios. Good dividend. Growth potential if spreads narrow, which he sees happening.

Very well regarded company. Stumbled earlier in the year and then they put out a very good Q2. Transitioning more towards being a SAGD producer in the coming 2 years. Because it is so well regarded, it trades at around 10X cash flow. Quality of assets are stupendous, but there are other names that have a higher yield and as good a balance sheet and trading at a lower multiple.

(A Top Pick August 24/12. Down 3.79%.) Still likes. They have been quite good in terms of using rail shipment for their semi-heavy oil. Pays a reasonable dividend. Great drilling opportunities where they operate. Have a whole bunch of sections where they haven’t drilled but it is the same as the section next door.

Doesn’t follow. Oil. He is focused on gas at the moment. Oil is at high prices. A lot of people are positioned in oil. Net futures positions are the highest they have ever been. It’s a pretty crowded trade. He is moving towards gas – see Top Picks.

Price weakness comes back to the differential. BTX gets paid on the lower price. XL or rail gets the oil down there to capture the differential. Dividend is safe.

Correlation between the direction of oil/gas companies and the direction of energy prices is pretty good. This one is a well regarded company. Good management. Good dividend, which is sustainable for the time being. If oil prices go down and the differential widens out, this one has trouble with being a heavy oil producer and subject to transportation issues.

One thing that would be of concern is the distribution. Looking at the amount that takes, subtract out capital expenditures and with what the cash flow is, there is a bit of a deficit. The question is, how do companies finance that deficit. This one, compared to Crescent Point (CPG-T), their balance sheet is a little bit more levered, which would imply that they are using a little bit more debt to finance the differential. You should also look at their “finding development costs” and Crescent Point seems to be a little bit more efficient but this company does a little bit better on return of capital employed. Neither one of them is a bad place to be.

Thinks there could be some slight weakness in heavy oil prices over the next couple of months. There’s a key refinery that has been taking awhile to increase their demand for heavy oil. At the same time, Imperial Oil (IMO-T) Kearl project will be continuing to add more heavy oil into the market. This is just a short-term dynamic for him. Very well run company. Trading at a multiple that is too rich for him.

If these lows break then something has gone wrong in the stock and it could fall significantly. We made some support and it is starting to come back, but there is an awful lot of overhead resistance. Doesn’t think we will exceed 52 week highs in a year.

Oil Service Stocks. Jan to March and July until beginning of October seasonal strength.

6.3% yield. Stock price has not been doing particularly well. Energy is tricky right now. You have to pick your spots. You need to find those that have big rampups in production. Prefers things that use new technologies. Prefers resource growth producers, especially in the US.

The king among heavy oil companies. Assets have great depth to them. A great dividend player. A little better leverage in smaller names.

(Market Call Minute.) Trimmed his position recently. Over a long-term, it is a Buy but, given where oil prices are now, he has taken a little bit off the table.