Obsidian Energy (OBE.TO)

Got propelled from investor activism. Middle of the pack for him. He sees moderate leverage. He has been hung up on the nature of their assets, they are longer in the tooth. Higher cost operations. Sees 46% upside at $80 oil and a 27% upside at $70 oil.

He is not attracted that much to it because of disgruntled shareholders. The company has shrunk itself since last year. Their focus is to spend less than cash flow. They have other assets they might sell. The balance sheet is in good shape. But he thinks there are more attractive names out there even though this stock seems cheap. This stock needs something to wake it up.

(A Top Pick June 8, 2017. Down 13%). Activist investors have gained seats on the board and are having a significant influence on management decisions. He thinks it is likely that the company will sell itself by the Fall, at a significant premium, therefore it looks like a promising short-term play. If that doesn’t happen, he is happy to still hold the stock because he thinks the company is now heading in the right direction.

They have gone through a lot of stress at the Board level but that seems to have cleared up. They have a strong balance sheet, with $328 million in debt compared to $2.17 billion of equity. Their production this year will be about the same as last year. He thinks this stock is cheap, like many of its peers, a humbler reflection of what it was in 2008.

After their recent conference call, he spoke with management and learned the activist investors have come to an agreement and will defer a 1-for-3 stock consolidation. He thinks they may sell the whole company and hopefully at a large premium. Yield 0%. (Analysts’ price target is $1.77 )

It hit upon hard times with an extremely highly leveraged balance sheet, but management has kept the company alive. They have significantly de-risked the company but it has shrunk. The balance sheet is very much improved. This is a very high risk/high reward kind of play.

This has been in the news over the last week because a disgruntled shareholder group wants it to do different things. This is the old Penn-West, which was $36 in 2008 and is now $1.33. The company announced that they are putting assets up for sale and looking at otherwise to maximize shareholder value. Their long-term debt at the end of 2017 was 328 million, equity is $2.17 billion with a book value of $4.29. They have a Cardium asset play, which people like. The company is cheap, but there are lots of cheap energy stocks. Do you want to own this particular one? They could potentially be a $4 or $5 stock in the next cycle.

(A Top Pick June 8, 2017. Down 30.16%). This has continued to turn against him, but he doubled down on it recently. He has confidence in the CEO David French. He will see results tomorrow. This is a smaller company than it was with reduced debt. They are looking to grow 20% per year. Tremendous upside but a lot of risk.

This is the former Penn West, which he bought and lost money on. They have relatively new management (16 months ago). The former Bankers’ Petroleum boss is running it. He thinks a takeover is possible here. This company has knocked out a lot of debt, which involved selling down assets and because of that revenues went down. However, the company has recently replaced 126% of their resource base. He expects it to grow 5 to 10% (Analysts’ price target is 1.80$)

When you see little companies trading at these levels, the temptation is to buy them thinking they can turn into something really good. Their balance sheet has greatly improved. He models the 2018-2019 debt to cash flow as 2.3% and 2.2%. Not expensive, and he sees some production growth, 3% over the next couple of years. If he were going into one of the small guys, he would go into Enerplus (ERF-T) which has an incredible balance sheet.

(A Top Pick Feb 7/17. Down 27%.) Just came out with results yesterday, and had some good results in the Cardium, one of their 3 areas. Have had difficulties in the past with the SEC, and settled a while ago for $48.6 million. If this gets put in play. He thinks they are looking at double digit growth in terms of output. Still has a big debt load relative to revenues. A good turnaround opportunity, and could end up doing very well.

He would not own this, despite his admiration for the CEO. The CEO inherited a hodgepodge of old, mature, tired assets with a couple of exceptions. The trouble is that he is exposed to liabilities, higher operating costs and leverage is at the upper end.

He’s lost a fair bit of money on this, but is happy to hold. The major problem they are facing is with the SEC. They thought they had settled and it appeared everything was good, but now the SEC has come back after them. That is ultimately going to cost them time and money. It is the kind of a distraction that a company really doesn’t need. Expects there will be some tax loss selling towards the end of the year, so you may be able to get in at a better price.

The former Penn West. This is a company he has lost money on. They sold off an incredible amount of their assets. The CEO used to be the CEO of another company that had properties in Albania and was taken over. It would not surprise him if they sell this company, too. He is still happy to hold it though.

They had to bring their debt down. It was one of two blow outs he had in the last while. He had faith in management. They turned it around. They are going to change the name. (Analysts' target: $2.50).