Eric Nuttall Spartan Energy Corp SPE-T DON'T BUY Mar 15, 2018

A light oil company that trades cheaply. Management continues to under promise and over deliver. (Analysts’ target: $9.87).

Very limited appetite for the mid-caps in Canada. Trading at 4.1 cash flow. They 5 years’ worth of proven reserves. Effectively paying below the value of the production and getting their unbook inventory for free. They shouldn’t spend any money on waterflooding. The stock market doesn’t give a darn about it.

He holds this company and sees a target of $10 in the next 12 months. In Q4 production came in below his target of 23,000 boed, but the cash flow was very good. Debt is not a problem. Management has a good record. You may be able to buy it sub-$5. (Analysts’ price target is $9.68 )

Has owned it for a long time, but it has disappointed because of oil prices, not the company itself. Balance sheet is pristine. Will grow production per share at 10% this year. A disciplined, well-run company, but it's out of favour. Company has announced a share buyback. A wonderful investment.

The company has done very well. Balance sheet $180 million against $1.3 billion of debt. Book value is $7.53 so it is trading (at $5.68 on the day of the interview) at a significant discount to book. He expects this company to see $5, though. This company is 90% oil. He expects cash flow this year of about $1 per share. He thinks it will be a good buy when it gets close to $5. This is a good name to own for the cycle. Management is well liked in Calgary.

It is one of the better oil stocks. As a global investor he needs to know what is the best opportunities. Oil in Canada was a thing of the past. But they have oil that is nearer to where it is needed in Canada. They have some of the best light oil resource in Canada; have a strong management team and low debt. The end game for a mid-cap has to be acquisition. We used to sell everything we had to the US but now they have enough. Politicians should have had the foresight 10 years ago.

He bought Spartan a few days ago, just before Vermillion made its offer for Spartan. He thought he was buying an undervalued company with meaningful leverage to the oil price and was surprised to see the takeout offer by Vermillion. He sold the company at a loss. A few points to consider: 1. The company has been shopped a few times over the past couple of years. The management team was looking for an exit. So the metrics for this deal should not be taken as reflecting the broader market of Canadian mid-cap light oil companies. There are other factors, such as performance warranties, motivating management to sell. These were all disclosed, but they are significant. There is such a lack of interest, in this market, in small and midcap energy stocks that it is understandable why a management team would just say “Screw it” and sell the company.

(A Top Pick April 12/17 - Down 15%.) Really disappointed with it. They owned it since it went public. He overestimated management. Good example of why people don’t want to invest in the Canadian oil patch.

If you are bullish oil, you may want to look for others companies rather than waiting for the conversion to Vermilion. He would favour other names, like Baytex.