Tourmaline Oil Corp (TOU.TO)

The second largest natural gas producer in Canada. Half of its value is in the infrastructure it owns. It has been a laggard in the market, but its stock is highly correlated to natural gas prices, which is not representative of the fact only 24% of their production is sold into the depressed AECO market. Their liquids cut is up to 20%. A good candidate to benefit from a LNG project announcement. Yield 1.7%. (Analysts’ price target is $29.44)

He thinks high quality producers are going to do well, but he is more bullish on oil than natural gas – TOU-T is 70% natural gas. He would look to others like Surge, Baytex or Vermilion. You want a company that can increase monthly production and monthly profits and this one has failed to demonstrate that.

Tourmaline versus Painted Pony. TOU-T is a $5.8 billion company with 22% liquids, moving towards 40% liquids production soon. PONY-T market cap is $438 million. These are apples to oranges. He lies both companies, however, and both are on his recommended list. If we see a further market erosion with tax loss season approaching in November or December, both will likely become a strong buy.

He sees a better opportunity in heavy oil producers at this point – although he is bullish oil in general. He would not own this stock today.

It has been a great success story for shareholders. You want to buy it when it dips. It has a very clean balance sheet. They are raising their percentage of liquids. Below $20 it is a buy.

Tourmaline vs. Whitecap ( WCP-T ) Weighting in gas is weighing it down, you’re stuck competing against all the other gas producers. Whitecap is a more interesting name because of oil weighting, so they’d choose that one.

He's owned this since the 2011 IPO. Nat gas stocks have struggled over the past year. They've curtailed their growth in nat gas and re-focussed to the liquid side which grew 50% over the past 18 months. It's trading at 4x next year's cash flow. They're starting to pay a dividend. Buy it for the long run with growth in the next three or so years. The commodity price has hit a bottom.

Similar to WCP-T, it is more of a bread and butter drilling story. It is trying to be consistent and manage the balance sheet.

TOU-T vs. VET-T. He owns neither. If he had VET-T he would ask himself if he liked the dividend or would prefer more capital appreciation. If the latter, then there are better names. If you are bullish on oil, TOU-T it trying to increase their liquids rating with a token of a dividend and modest growth levels going forward. He does not get excited about it. He would own it if he was bullish on gas. He does not expect a pop.

He thinks this is a high quality hold, but does not have enough of a high enough beta to oil. Good assets and management team, but won’t be able to really crush it in the next year.

Very well run Natural Gas producer in Alberta. Good balance sheet. They are not big fans of the natural gas market now. The look more at the liquidy names.

He is light on the energy side. With $70 crude the energy sector will get better. As a sector these stocks are pretty cheap if we knew where crude and gas are going to be. There could be money flow into the sector if we knew where crude could move to. We need the infrastructure to come into place.

It went public in 2010 with 1 barrel per day per 1000 shares – now it is 30 barrels. They have become more focused on oil recognizing the difficulties in natural gas. They now have a modest dividend and he likes management. Differentials on oil have narrowed as well.

He thinks the resource space is being completely ignored. Their production growth has been amazing. A fantastic company. He wants to own this one if they would own 2-3 companies, but has selected Cenovus instead. He only has one bullet for this space.

They are the cheapest producer and worry about the product further through delivery. They have a diversity of market. He is sticking with it.