Surge Energy Inc (SGY.TO)

Sees energy being very much range bound. OPEC and the major producers are pulling back in production, but there has been so much competition lately from shale drilling, and that has kept a limit on price. Sees more risk to the downside than to the upside.

(Top Pick Sep 6/16, Up 36.60%) They had wells that just came on and they have now revised their numbers upward. It seems fully valued to him right now. The fourth quarter results will be out in a number of months and if the price of crude backs off then he would be looking at this a lot more constructively.

This has taken a bit of a pounding over the last couple of years, but has been going up quite nicely this year. The main seasonal period where energy does well is from February 25 to May 9. That is because of supply imbalances that happen. He starts to look a month before hand, starting in January. The chart shows a bit of an ascending triangle, which is bullish.

(Market Call Minute.) Very little institutional following at this point, although recent results have been good.

(Market Call Minute.) Destroyed their balance sheet by paying out dividends for a long time when they couldn’t afford it. Stuck in the mud.

A name he would not own. You need to have confidence in the direction of the company and the management team. It has been a history where there has been some slight over promotion of certain assets. It does offer high product leverage to an increase in the oil price, because a degree of their oil production has medium gravity, so it would get extra juice from an increasing oil prices. Looking at some of its peers, he would rather pay a little bit more and be a little more comfortable in what he is owning.

She has other companies she prefers right now. However, they have done pretty well. Their drilling efficiencies have improved quite dramatically, so they have been able to put together a very sustainable model, and there is lots of upside to rising oil prices.

This has the Shaunavon play in Saskatchewan, and the Valhalla water flooding play in Alberta. The new royalty regime in Alberta is coming in, where companies pay 5% royalties for 9 years. They get a real benefit from water flooding, starting January 2017. He has a $3.70 target for Q4, 2017. If this came down below $2, it would be a fabulous Buy.

(Market Call Minute.) This would be a Hold, warming up potentially to be a Buy. Things are moving the right way for oil/gas, but he is a little bit cautious in the next month on oil.

Thinks they have not met expectations. There was a bit of a management change a couple of years ago. They went through a process of increasing the dividend every couple of months, and then the dividend kind of went the other way. They were very acquisitive and doing a deal every couple of months, and then selling the same assets months later. The payout ratio is still too high.

This has gone through some tough times. Management has not changed, but there has been a bit of flip flopping in terms of market perceptions of what management has been saying. Thinks they have reached a level of sustainability around spot prices today, where they can match their dividend and maintain CapX so that they can maintain production. Even if oil were to go up another 10%, they have started to talk about introducing growth back into the equation. He has been in and out of this. There are a few other juniors he prefers. (See Top Picks.)

A nice little oil/gas producer. Before investing in any commodity stock, make sure you have a view of where the commodity is going. The energy area has been a particularly brutal area in the last 1 ½ years. Right now you really have to pay attention to 1) where you think the oil prices are going and 2) look at the balance sheet and make sure it is at under 2X debt to EBITDA or cash flow. Hasn’t looked at their balance sheet recently.

You need a positive outlook on energy. Looking at the pricing curve, he is seeing $50 out in a year or 2. Some people are predicting production will have dropped enough that inventories will be down by the end of this year, leading to higher oil prices. Companies like this are already reflecting $50-$60 prices for oil. His concern is whether these companies will be around long enough. This company has more debt than he would like, so he is avoiding these companies. Too risky for him.

Chances of survival are very good, but thinks the stock is wildly overvalued. Expects a dividend cut next month of probably 50%. Blowing through their very best inventory in the very worst oil price environment. Trading at the same multiple as Raging River (RRX-T) which has the highest netback, pedigreed management team, strong balance sheet. For him to have an interest in the stock, it would have to get down to $1.50 or lower.

This is doing quite well right now. Had to cut the dividend and rationalize their CapX, but have been able to high grade their portfolio, which helps them in terms of their operations. You own this for a torque in oil prices, because in this environment they are not making any money. Sees better options elsewhere.