Gerald Allaye-Chan
Obsidian Energy
OBE-T
DON'T BUY
May 29, 2009
In the past 5 years they have been a very active acquirer. His concern is their fairly high debt level. Depleting reserves by about 40,000 barrels per day and to replace will be expensive.
He is watching it but it is not on his list right now. They are not experiencing very good growth right now. Their debt keeps going up. There are better names with more upside of growth.
A takeover candidate? He was wrong with this. He recently moved it from a buy to a hold. It's high-risk and high-reward, has "danger" written across it. He likes the idea of a takeover, but doesn't know if it'll happen. This could be a good play in oil/gas with a lot of potential. He hasn't sold it, but at the same bankruptcy remains a real possibility.
He is watching it. The company is not going to keep their volumes flat. The CEO changed. They are guiding down on production while spending on CAP-X. He is keeping an eye on them.
New interim president and CEO. Pretty good numbers on cardium wells. Issue is the debt. Debt is 22% of equity, but it's going the wrong way. Declining production and volumes. Not as attractive as the others. Need to show they can grow core numbers of the cardium. Guidance is negative. Capex is about equal to cash flow.
They have put themselves up for sale. They are a Cardium player with quite a bit of debt. They have a lot of non-producing wells. People are worried about how much value there really is in the company after debts are paid off.
(A Top Pick Oct 22/18, Down 88%) He sold at $3.22, taking a big loss. They have a lot of worries. They are looking to sell the company. They might just liquidate the company, but clean up could be very expensive. He does not like stock consolidations and used that as a trigger to get out. He would not buy this now. He made a mistake -- when debt came down, so too did revenues.
Did a buyout that diluted their stock materially. There is pure inventory but with Clearwater optionality. Need a new Board, new CEO and not a name he would own now.