Renegade Petroleum Ltd. (RPL.V)

(A Top Pick March 19/12. Down 69.15%.) Down 50% since converting to a disco and there are a lot of questions about the sustainability of the dividend. $34 million higher than what was expected by the Street. Thinks there was a significant overreaction by the market. Still likes.

Initiated a dividend late last year. When the company came out with most recent financial update, the debt was higher than analysts expected, but it was based on the arrangement to pay the dividend. He is comfortable that the distribution is sustainable down to $75. Their debt metrics are not out of whack. Don’t sell it.

Made a major acquisition of some of Penn West (PWT-T) assets in the Viking area of southeast Saskatchewan and some of the wells did not come out as had been expected. That, coupled with their debt level, seriously puts the 15% dividend at risk.

One of those oil/gas companies that have decided to change their model completely. It was a growth company, but everybody wanted dividends so they turned it into a dividend company. Slow growth dividend company with a massive yield right now. Their problem is they promised a lot when they did the restructuring last year but their most recent financials had debt much, much higher than people thought. 14% dividend. Far more risk than there was last year.

(Market Call Minute) Pays a healthy dividend of 13.5% but he wants to see some better efficiencies on the cost side. There is some risk of dividend downside.

Have been a few of these companies where they have switched from a growth model over to a dividend model. They reported and the numbers themselves where fine but the debt was a bit high so the market is worried a little that they don’t have as much room as they used to have. Even with their elevated debt, they are somewhere around 98%-100% so it looks the cheapest of all of these models and has been way oversold. Yield is 14%.

Their idea is that rather trying to pursue an unlimited growth model in oil and gas, to return some of the surplus margin generated to their shareholders. If the oil price holds together, which he thinks it will, the 11% dividend is sustainable. Likes the management team.

(Market Call Minute.) Thinks the company is going to execute this year and will nail their numbers.

In no man’s land now where you’ve had growth investors selling and dividend investors waiting for probably 2 quarters of payments and operational execution to ensure the dividend is sustainable. Feels the 10% is sustainable down to the mid-70s. 60% hedged this year at about $94 oil. Should be pretty good reserve growth.

(Market Call Minute) Major acquisition of Pen West lands.

9% yield. Story holds together pretty well. Made a large purchase of assets from PenWest that are low decline. A nice hold but now a low growth vehicle.

Likes this company. Took some flak for doing an acquisition last year, which diluted existing business down materially because they had to pay far higher than what they were trading at. Currently yielding just under 10% which he feels is sustainable down to about $77-$78. Will be paying their first dividend this month which will put them on the radar screen of dividend fund managers. Likes the assets.

Why do junior oil stocks seem to go down after they institute dividends? Because of suspicion about new dividend paying enterprises and the sustainability of the dividends. This is a good concern. You have to look into the dynamics of each enterprise to get comfortable with that, this one in particular. Recently made an acquisition on some Saskatchewan oil properties in an area that he would characterize as very robust. Metrics there are impressive. Drilling costs are low, reserve numbers are solid and the oil quality is light. At the end of the day the returns are very robust, north of 50% per well. Renegade is counting on the further development of these reserves to sustain the dividend. A “show me” story.

Junior oil producer in Western Canada and producing about 3600 barrels per day. Core assets in southeast Saskatchewan area. Recently bought some Penn West Petroleum (PWT-T) assets and with that they announced a dividend model. This will bring in a different group of investors (larger). 9.4% yield.

Planning on starting a monthly dividend in January. She is cautious on this because it is a junior oil/gas stock. Made an acquisition but before doing so, they were producing 2,000-3,000 barrels. With such a small base, she worries if the company can sustain production as well as a dividend. Would go with safer, senior names. If the wells are declining faster than anticipated, there is a risk of not generating enough cash flow to fund capital expenditure and dividends. Great land base.