Obsidian Energy (OBE.TO)

With a dividend play the key is sustainability. It can’t take too much money. Decline rate can’t b high, and the net back has to be high enough. This one does not have that. It has been range bound. Production is expected to be flat next year. Until 2015, given decline rates you are looking at flat to no production.

If you are a long term investor, this is a good buy. Enormous optionality to many light oil plays. A major knock is their previous inability to grow. If they focus on it they should be able to improve capital efficiency. Over the next 3-6 months he sees no upside except for dividend.

It is clear it is a major underperformer. Recent cleanup of senior managers leaves it with a very capable CEO. He is left to see who he will bring in. It is a case of getting the right efficiencies out of the asset base, which is good. Payout ratio is about 150%, not sustainable. Good thing is that they have been able to do some asset sales, which clean up the balance sheet. Sell until the transition period is over. It is dead money. It could take a year.

Big miss. Announcing future guidance of less production and cash flow per share and much higher CapX. They announced their CapX rises 14% for the back half of 2012. Not showing the right discipline right now and the street is extremely angry. Just had a big management shakeup. Effective payout ratio is 183%, getting into alarm bell territory. This might be at least a trade. It has probably had an overreaction to the point where you can hold your nose, try to buy it and you’ve got at least a trade out of it.

(Market Call Minute) They are trying to figure out their assets.

Their business model is not particularly attractive. This is not one he is enamoured with. There are better names in the oil/gas sector. (See Top Picks.)

As much as they want to keep the dividend high, he feels they should probably cut it a bit to make the business more sustainable. Stocks typically act negative when there is a dividend cut. If you’re looking for a stable dividend in an oil play in Canada, he would prefer a Crescent Point (CPG-T) or a Baytex (BTE-T) where there is a lower likelihood of a dividend cut over the next couple of years. They are in the process of selling some assets which will help the pressure on their balance sheet. Have a little more debt than he likes but this is probably priced into the stock.

Owns only half the position that he used to own. Dividend is probably safe for this year. Have great assets but the execution of bringing the assets on stream or finding joint venture partners have been fairly lacking. However, he loves the assets. Decent yield.

(Market Call Minute.) Cheap but he has other favourites elsewhere.

There are better things to own, but we have stopped bottoming. Risk reward is better now. If you are willing to take the risk, it is time to start accumulating. Oil will be range bound next year $80-$100.

From a land and a long-term perspective, there is opportunity but from a near-term in operations, growth in cash flow, production growth and their dependence on natural gas, this is why people don’t like this right now. Gas prices have to stay fairly high for their dividends to be safe. There are better near-term operators at the moment. 8.2% dividend.

A big lumbering company that struggles to replace production every year. However, some of the things they are doing in terms of enhanced oil recovery are going to benefit them down the road but at the same time he thinks the company is struggling with a debt level that is higher than he likes, at about 3.5X cash flow. Also, believes they have an internal mandate to sell assets to the tune of $1.5 billion, which he thinks has a lot to do with fixing up the balance sheet.

This is a company that had been paying out a dividend that was way too high to support its growth. Had some great assets. Should have made a business decision quite some time ago about either being an exploration/development company or an income vehicle. Didn’t have resources to be both.

Getting a bit toppy. People have some concerns around it and some have concerns around the dividend. They are looking to pare back the CAP-X. Riskier from the balance sheet perspective. There are better options.

Stock has been under pressure because they have an extended exposure to debt. This leads to a fear of a distribution cut. He doesn’t think it will. They have about 170,000 BOE’s per day. He thinks it is attractive but it is not his favourite. Very good long-term hold.