Surge Energy Inc (SGY.TO)

A good company. Got into some trouble with the balance sheet because of some acquisitions. She likes the efforts they have gone through to rectify that problem. This has a pretty good payout ratio right now, so she thinks the dividend is safe. A good place to stay and wait for this environment to turn itself around. 8% dividend.

Sold $430 million Bakken assets to Torc (TOG-T), and now have the best balance sheet among their peer group. This allows them to refocus around Southwest Saskatchewan, improve the efficiencies and spend the capital to prove the growth is there. He likes that it is in the rebuilding mode. Dividend yield of 7.83%.

(Top Pick May 8/14, Down 36.83%) He was concerned about their debt situation. He changed his viewpoint and started to caution people to stay away. They sold assets and completely changed their debt profile. He likes it better now. It is a well managed company that got into trouble and got themselves out of it. He likes companies that control their own destiny.

Did a transaction a couple of months ago, which tended to fix the balance sheet and make the dividend look a little better. Well-managed. The metrics got a little bit out of control because of the lower oil price. Thinks you could buy better quality in the same kind of area with a similar dividend such as Whitecap (WCP-T), Cardinal (CJ-T) or Freehold Royalties (FRU-T) that have better balance sheets and better growth outlooks.

This is a name that he has loved in the past. He still has a warm feeling towards it, but they got their balance sheet a little too stretched. The story on this company will revert to their Western Saskatchewan Shaunavon play, and he thinks the market is going to have to have proof that that play is going to work. There might be better places to go with less risk.

This still has a tremendous dividend flow coming off of it. He would think it is possibly out of the woods, in so far as oil and gas are out of the woods, which he thinks it is. Dividend yield of over 7%.

It really comes down to what you think is going to happen to oil. He is of the view that oil takes a bit of a break. He doesn’t see anything that is backstopping the current rise in oil. This is an acquisition driven model, which is fine except that there is a dearth of available properties. He would use this opportunity to lighten up. If he is right, you will be able to buy this again at a much cheaper valuation.

Did a Valhalla acquisition which looks pretty accretive. He models a 91% payout ratio for 2015 and 96% for 2016. Your dividend of 6%-7% is safe for at least a couple of years. It is priced cheaper than its peers at around 8.4X 2015. The bad news is that even though its debt is similar to the group, debt to cash flow is still 3.8X, and the cash flow per share still declines about 25% over the next couple of years. Unless you really believe oil prices are going to $75-$80, you don’t want to be chasing this.

(A Top Pick May 8/14. Down 39.3%.) This was recommended in a much different environment. He really likes the management team, but they do have a big debt situation. When oil went to $45, he decided there was too much risk if oil keeps going down, so he kicked it out of the portfolio.

Has corrected a lot since last summer, but has started to level off in the last month or 2. He has a very low weighting in oil and gas. The stuff you do own, you want to make sure that they have a very, very clean balance sheet. He expects oil prices to go lower in the next 3 months. This is a decent company, but he is concerned about the level of debt on their balance sheet.

Don’t hold it just for the 9.4% yield. At $50 oil there is perhaps two companies that can sustain their dividend. SGY-T has higher debt than most people are comfortable with. They are at around 100% payout ratio. There are other names he would prefer.

Debt is part of the issue. They may do $110-$120 million in cash flow this year but they have $564 million in debt as of Dec/31, $3.94 a share. BV is $4.89 as of Dec/14. They took an impairment on some of the assets because they made acquisitions which they bought during the lofty times. They finished the year at over 20,000 barrels a day, mostly of oil. The question is about servicing the debt until things get better. Good management. People are worried that if the cash flow gets hurt in the next couple of quarters, they are paying $0.025 a month, $.30 a share per year in dividends and will it be cut. His guess is that the next quarter will be a tough decision for management. This is one that you may want to own later on.

Legacy (LEG-T) or Surge (SGY-T)? Hands down, he would own this one. Its financial leverage is a little bit higher than what he likes to see, but he likes the assets that the company is based around. He is comfortable with management and with their strategy going forward.

With $50 WTI and $2.75 for Nat Gas, their payout ratio can’t be allowed to get over 100%. They made a lot of acquisition over the last few years and they have to be careful about capital expenditures.

A lot of refiners are going to off line in the spring. They take a look at their facilities and do clean up. That should affect the price of oil. It is moving within a pretty good range. He is not sure where it is going to go. He still thinks it will go over $65 before year-end.