Pacific Exploration & Production. (PRE-T)

(A Top Pick March 23/15. Up 78.95%.) *A Short* Overall this was a good short at the time. He closed it off when oil rebounded. With Shorts you have to have a much narrower window because things can turn around.

It is in a terribly financial situation. They were deploying capital into several countries and now debt to cash flow is very high.

Short. They were not able to extend the life of the rubiales field, which drives 40% of their value in production, a balance sheet that is getting worse, there is a lot of insider selling, their reserves are grossly overstated, and they are giving to a charity they control. It is likely to face a reserve write down and then eventual extinction.

Got out of this some time ago. Feels it has some detrimental aspects that you have to recognize. Some of their major fields will revert back to the Colombian government in a relatively short time. Haven’t been that good in terms of their ability to produce some of the fields. Discoveries have not kept up in terms of the quality and size.

Doesn’t follow this one that closely, but the dividend is definitely in danger. It is over 20% right now. They are paying a dividend based on an asset that they literally have to turn over to Ecopetrol next year. They haven’t enough current cash flow for that asset.

You have to play the safer names in energy. He would not roll the dice on this one. Play a little more safe, better balance sheet, etc. Prefers RRX-T.

Would recommend you sell this, because the biggest risk is that their licenses in Columbia are coming due and they will lose a lot of their properties. If you want to hold oil, switch to another company.

He got out about 6 months ago. Management kept missing their objectives. There were questions about leases reverting back to the Columbian government. He feels the risks are still there. Take your losses and move on.

This or an oil sands play? You want to be in a large cap company rather than a smaller one, particularly when the commodity price is not hitting new highs. If you look at some of the oil Sands plays, particularly Suncor (SU-T), it has some very attractive properties, where the breakeven cost for them is in the high $20. Thinks the internationals, such as this one, are deeply oversold. Until you see that commodity move up substantially, $100 and above, he doesn't think you get a catalyst for these names.

Closed at $21.18 and his model price is $34.34, a 62% upside. However, he doesn’t think the stock will trade above $23. That has been the ceiling of the stock in terms of his valuation. Nice yield of 3.4%.

Just came into existence about 10 years ago and today it is a very big oil/gas producer. Primarily in Colombia but has operations in other parts of South America also. Got a great deal to operate the Rubiales field, but only until 2016 so the expiry date is only 2 years away. In the last year or 2, they have been making a lot of acquisitions to try and diversify away from that. In negotiations to try to extend their contract, but if they get it, it probably won’t be as good in terms as what they had. A lot of uncertainty so people on margin have been selling.

Problem with Columbian plays is the shorter reserve life indexes so you have to develop properties faster. Political risk is not higher than in the past. The assets in Canada are cheaper than Columbian ones.

Likes the assets in Columbia but there are some issues. They have diversified very well. He would not be adding and would prefer Canadian oil companies. He can’t sell because of being in a tax account.

(Top Pick Feb 27/13, Down 33.47%) There is concern over decline rates being high, but they have a new discovery in Peru. Someone has been selling it like there is no tomorrow. He is going to hang in because analysts are saying it is a $20 or $30 stock. Someone in Columbia knows something we don’t know and is selling the stock. Yield is 3.5%. It is cheap right now. He is going to wait them out.

Likes that they are consolidating a lot of oil production out of Colombia. Well managed company. Wait to see how the integration of all the companies comes through. An issue that some of the companies have is that their licenses are coming due, which might cause some issues on production going forward.