Legacy Oil and Gas Inc. (LEG-T)

The kind of stock you would buy if you were really bullish on oil right. Has good production and strong management. The current debt/cash flow ratio is huge at something like 5 or 7 times. This is why the stock has been pummelled so badly. If oil prices do another downturn or stay down for a period of time, companies like this are at a financial risk. He thinks oil will check back into the $50 range.

Great assets. Unfortunately a little bit of mismanagement has caused the debt to be too high for investors’ appetites. There has been a lot of shareholder value destroyed by the company. Thinks the company is worth in the $4 range, but to get there it has to do some real strategic reshuffling of the deck. Management has been talking about doing something for 6 months now, but nothing has happened. Prefers others.

If you believe the price of oil is falling there are some companies you don’t hold. This one has a stretched balance sheet. They need $53 oil for them not to trip their covenants. If they recover, will investors go back to them? He is not going to bottom feed.

Legacy (LEG-T) or Surge (SGY-T)? Hands down, he would own Surge. This one is in trouble right now. Balance sheet debt is very high; possibly 7 or 8 times cash flow. Their CFO just left. They are looking at any and all options to right side the balance sheet and just get through this trough period.

They are in a difficult debt situation. They are really hoping they can go in and affect an asset sale.

They are down and badly slammed and their earnings are way down, so the recovery potential is not visible and that is a problem for him as a value investor. You can put them away and look at them in 3 to 4 years or you could take a tax loss if it is beneficial.

He did a lot of trimming of oil in Oct/Nov, including this one. It has a levered balance sheet, but has really good assets. Probably a trading vehicle now. If you think oil is going to $65-$70 by the end of the year, the stock will be up, but if oil goes to $40 and stays there, they would be in financial difficulty. If you Buy, don’t stay in it for very long.

Balance sheet was a little too high at $60 oil, and now we are in $48 oil for the time being, so leverage is becoming more and more of an issue. Thankfully they don’t have dividend stress on their balance sheet, but at the current oil price, their debt to cash flow is an excess of 6 times. They will be in a stressed environment and may have to explore non-core asset sales.

Has some concerns relating to their balance sheet. The issue is debt leverage and he thinks they are going to have to address that issue in some way. However, the assets they have are spectacular.

He recently covered his Short on this, because he was expecting this bounce. However, the stock has not bounced a lot. They recently cut their dividend. He would stay away from this. He will re-short if there is any bounce heading into January. Fundamentals are deteriorating. Other companies that you might consider are Mart Resources (MMT-T) and ??? (See Top Picks.)

In his system, the last EBV line was -3. Any stock that goes below that, he calls it “going into the blue”. In the 2^nd quarter of this year it came out of the blue and traded up to $15. He got out around $9 when it had an EBV -2. When it goes below -3, that tells you write offs are coming. There are going to be a lot of write offs with this and other companies. He would be a buyer when it is “coming out of the blue”.

He would not buy it today. He does not like companies with 3 times debt to cash flow. You get into a debt spiral. But he can see the temptation to buy it.

This is starting to get back into the post-recession levels at the $3 range. A lot of the indicators are very oversold. When you have something that is oversold, it doesn’t mean that it can’t continue to be oversold. Looks like it is going to probe some of the low levels in 2008-2009 and the high $1’s and the low $2’s. Anything in that area is good if you are a long-term investor.

This has been hit unusually hard compared to the sector. First of all, they don’t pay a dividend. Oil has come down a lot more than anybody had expected and companies like this have been hurt the most. We have to be concerned if there will be any dividend cuts. He is very comfortable right now with oil companies that do not pay a dividend. If you own, continue to Hold. They have some fantastic properties.

Just over 20,000 barrel a day light oil producer. The knock for him has been that the debt levels are just a little bit higher than what he would like to see them. However, a lot of that debt is termed out, not short-term debt. Well results in a lot of their key assets have been exceeding expectations, especially at their Turner Valley and some of their assets in Saskatchewan. Thinks he can achieve greater rates of production per share growth elsewhere.