Pengrowth Energy (PGF.TO)

He is torn on this. Had owned it in the past for a long, long time. Lately he thinks this has matured way too much, so it is not one of his top picks on the energy front.

It is not time to own this yet. The stock is moving up because there are some big individual investors in Calgary that has helped move the stock. However, she feels the company is quite challenged until oil prices are much higher. There are so many names out there with good valuations that don’t have the same kind of challenges at these prices.

Management has done a great job. Have very big strong supportive shareholders. Probably going to do $.70 in cash flow this year. The big problem is the debt, and they are working to sell assets. Will probably do about $300 million in asset sales this year to pay down debt. A very good balance sheet with almost $600 million of hedge gains, which they can use to pay down debt.

What he likes about this is Seymour Shulick, a great investor, who has just bought 14% of the company. The Lindberg play has been coming on stream and costs are fairly low. They also have hedges in play through this year and into 2017. An interesting pick, but not without risks.

This had the benefit of some spectacular hedges. In 2016 they have roughly 59% of their oil production hedged at $88.57, which doesn’t come off for a couple of years. If you remove the benefit of the hedges, the valuation of the actual company is not that low. Trading at a premium multiple if you take off the hedges, and at the same time once you remove the hedge book, even at a $55-$60 oil price his debt estimate is materially higher than most people believe, ballooning to 6X in 2017. If looking for a way to play an increase in oil, there are other names he is more comfortable with.

This has had some challenges because of their debt levels and because oil prices corrected just as they were about to bring on the Lindberg project, which she thinks is a huge win for them. Thinks they will do well in the future, however they do need higher oil prices to help them manage their balance sheet and for future phases of growth on their Lindberg project.

(A Top Pick Dec 23/14. Down 65.57%.) Didn’t buy this one for the Contra portfolio because the risk was so high. He is way down on this and had paid over $4. When this kind of thing happens, what do you do? You want to get out with a maximum amount of money. He is content to Hold. Had bought it because they had hedged over 80% of their oil at over $90. Have also hedged a lot of their oil at $80 for 2016. That gives him some comfort. Have Lindberg on now and that can be profitable at $30 oil. The dividend has been cut and they are looking to sell $600 million of assets. So far it has been about $150 million.

New management is going through a transition of long life and very low decline assets. That, coupled with some recent asset sales, has allowed them to get the balance sheet in good shape. Balance sheet concerns are probably going to go away over a period of time. It’s just a matter of patience.

In the short to medium term, they are in a position to survive this low price in oil. Have one of the best hedged positions of any oil company. When the hedges roll off at anywhere close to today’s oil price, they would be in a much more challenged position from a debt perspective. Even if oil rallies to $55-$60 there are some names where the debt to cash flow are no longer punitive. This is not one of those companies. They will be relying on asset sales, which they have been successful at so far this year. It is believed they have more assets that they are trying to sell today. If successful, that could deliver the company and get a multiple bump. He wouldn’t own this name right now.

A company that is very, very levered with the potential of having significant problems going forward, should the price of energy continue to go down. Recently cut their dividend to essentially zero to maintain capital, but still have a debt to cash flow of about 5 times. Way too much debt on the balance sheet. If you are very positive on energy prices recovering, this will give you the most return, but at the same time will give you the most downside if energy continues to fall. If you own, consider moving your capital to someplace else.

Doesn't think it's a sinking ship, they have put a lot of money into the oil sands and are there now, however with the oil prices it's not paying off as much. They need to pay for the project somehow which is why the dividend was cut. She would wait before getting involved in, but it's one worth watching.

Technically it was a weak rally after the financial crisis, and then we started making new lows. There was no reason to buy this thing. The question now is whether they will survive or be taken out. If you own it you will probably hang in there. It is too late to throw in the towel.

If you have gainer to write it off against, you might think about taking a tax loss. Thinks it has a good chance of going up. They have hedges on a lot of their oil/gas. A lot of them ran out last year. Their oil is hedged at over $90, but that will continue. They are looking to sell some of their properties. He likes management, but they really have not done well over the last number of years. He is not going to sell his holdings, but he can understand why somebody would, and perhaps buy back later in the year.

They are transitioning their assets into low decline long life. They can now go ahead and think of some more asset sales. These will be transitioned into the next phase. The debt is a little high but they are doing a good job of transitioning to the new model. He is bullish on oil prices and he is bullish on them.

Averaging down? He won’t average down more than once. Averaging down once makes sense. He bought this last November-December at $4.01 a share. They have had a lot of problems in the past. Hedged a lot of their upcoming oil/gas, and a lot of it is going to run through 2016. He is happy to hold.