Rock Energy Inc. (RE-T)

(Market Call Minute.) Recently acquired a $109 million acquisition. He likes it.

It has been a bit of a disaster. He liked it and owns a little bit. Production numbers are not as strong as people would have liked. He is not sure if they will get taken out. They are up for sale and there are activist investors in there. Don’t buy, but don’t rush to sell here.

Went through a strategic review, and the outcome was essentially no buyers. While they have an OK Viking asset, they have the heavy oil asset in Mantaro, which currently today would have negative netbacks, so being able to incorporate a corporate sale today is challenged.

He has recommended this one in the past. He likes it because of Saskatchewan exposure. They have done a pretty good job of executing. They have an activist shareholder that is causing management to make the right moves. They implemented a polymer flood so they can produce more oil and they get a reduction on royalties they owe. This gives them a pretty solid financial footing to keep growing this business. Maybe there is a merger in the future.

(Top Pick Nov 26/14, Down 64.09%) Low cost oil producer with a lot of leverage to oil price. Their decline rates are only about 15%, so eventually they will probably get taken out. They are cash flowing even at today’s oil prices.

(A Top Pick July 30/14. Down 47.69%.) Most energy stocks from July are down about 50%. He still likes the story. With oil prices coming off, the cash flow is not going to be quite there. They are still working on things and their cash flow has continued to grow. Have some catalysts in terms of drilling results that should come out over the next few months. Trades at a pretty big discount to others and have very good royalty rates in Saskatchewan. As more and more oil companies are looking outside of Alberta, this could possibly be a take out candidate. Likes the valuation.

Have done a really good job in their Saskatchewan oil assets. One of the neat things that happened at their Mantario project is an enhanced recovery program with a polymer flood. The royalty rate drop from 25% to 1% which gave an instant boost to cash flow. There breakeven point is $25 oil, so there is lots of running room there. At this price it is a screaming buy.

(A Top Pick March 6/14. Down 50.34%.) Sold his holdings at around $5.25, but has now gone back into it. Solid management team. They don’t spend $10 million to drill a well that is going to produce 2000 barrels. They spend $800-$900 thousand to drill a well that is going to produce 50-75 barrels a day giving them fairly steady production. When oil prices go higher, he expects this to go considerably higher.

(A Top Pick Feb 12/14. Down 21.01%.) Lightened up his position over the last summer, but still holds it as a core position because he likes what they have done in terms of the light asset base that they are developing. Also, likes their pioneering efforts in the “crude by rail”, which really served them well when they had a slightly heavier asset base. Thinks management has some spectacular plays in this business. This is a name he would consider adding to.

The whole sector has been creamed, but this is one of the cheapest. Did about 3500 BOE’s in 2013 and this year they are going to do about 4900 and expects them to do about 5500 next year. Even at today’s prices of around $80, their netbacks are around $40. Very high netbacks, so they can withstand the downturn here. They still have the growth in production and higher netbacks compared to most other companies. Very cheap.

One of the few that made a new high this year. There is no reason why it can’t go higher. You would want to know more about the story. It is one of the few that has broken out of the several year trading base.

Likes it. Phenomenal growth. Now it is a cleaner, more sustainable story. As they continue to drill wells they will bring decline rates lower. There is a potential of a takeover because they have the type of assets that are in vogue. They have enough inventory to keep going. He is nibbling at it.

Divested some of their higher cost assets. Cash flow growth goes from $0.76 to $1.85. $2.75 next year. Cheaper than the others. Would be a good acquisition.

He is kicking the tires. Still looks cheap. Wants to see another two to three quarters from this company to judge running room on the new play.

A great name. Made some acquisitions to lighten their production mix. Still sees this as a name, given the robustness of their plays, that could have the potential to be a $2 cash flow number, which would infer a $10-$12 stock. Very excited about their prospects.