MEG Energy Corp (MEG.TO)

Like all the big Canadian oil companies that are involved in heavy oil, this is not a Buy. Heavy oil is the most expensive oil on earth to produce. With shale oil coming out at $50-$60 a barrel, it will be a long time before the economies are there for the big oil sand producers to make money. Companies like this are impaired against Canadian Natural Resources (CNQ-T) and Suncor (SU-T) which have huge economies of scale.

He would rather go to a casino than put money into this company. This is like your super-duper high beta bet on oil. They just have far too much debt.

Look at a 5 year chart. It looks like there is some stability and that it is turning around, but there are still question marks in his mind. You need to take out the 2016 highs.

An oil sands producer that had a number of problems over the years with their main project. It seems things are starting to turn around on the operation side, but he doesn’t see a great upside. If he was looking for an oil sands producer, this would not be his 1^st choice.

He wouldn’t look at something like this. They have a significant debt burden. Based on where oil prices are, for an oil sands producer on a debt to cash flow basis, the numbers get huge. Doesn’t think that they have any near-term issues of being off-side on covenants or issues with refinancing their debt. This is not something he would be looking at.

(Market Call Minute.) Debt is simply too high. You have to be a believer in $70+ to think that this would be a going concern. Interest expense takes up so much of their cash flow, you are hampered by how much money has to go to the bank rather than going into the field.

They are well respected, but leveraged. Analysts are expecting oil and gas to go up in the future, which he does not agree with. They will have losses for the next couple of years. It looks like there is a base is forming.

It is off its lows. There is probably a lot of leverage.

Doesn’t like this. An oil sands player. Have about $5.3 billion worth of debt on the balance sheet. Their asset is quite good, but not in this oil price environment. Going through a process of trying to rationalize certain key strategic assets, namely a 50% stake in an access pipeline. Looking at it on a debt to cash flow ratio, it looks like 65X debt to cash flow with where oil prices are right now.

Of all of the most overleveraged companies that have no cash flow today, this would be at the top of the list. Have a negative netback of around $5 a barrel, so literally they burn $5 for every barrel they produce, but there are technical reasons why they would not want to slow down production. They are relying on the midstream sale of a pipeline that should be closing by the end of Q2. There is also an enormous Short position in the stock. This is beyond his comfort level, but if you own, he wouldn’t sell, based on his view of oil.

A challenge in that you have to have a significant bullish sentiment on oil/gas prices, especially oil, to be invested in it. Has significant debt. The maturity for the debt is pretty long dated, such as 2020-2021, however their interest payments per BOE is around $10. They are attempting to address this by potentially selling the access pipeline, but they didn’t talk about this very much in their quarter. She would stay on the sidelines until you know where oil prices are going to go and that management is able to address their debt burden.

They are leveraged to oil because all they do is oil sands. Prices could be under pressure all of next year. The turning point was when SU-T came in with a bid for COS-T. They will be volatile for the next little while. Bottoms are starting to develop for these.

Are having a strategic review to get rid of the debt. Good company.

Debt is extremely high. Unless there is a miraculous oil recovery, there can be serious repercussions. If he is right on oil, you could double your money, but if he is wrong, it would be a struggle.

The most attractive asset for takeouts is reserves. This one has been beaten up, but could be attractive to a company that wants to build reserves. Debt comes due in 2020. You can probably sit on this one and make a lot of money. It depends on whether oil retests $44. This one bounced back because it was over depressed. Short term, the rally in Penn West is more sustainable.