Western Energy Services (WRG-T)

The company is very cheap in terms of price to book. Their book value was $4 at the end of June. However, they have a debt problem: $211 million of debt compared to an equity value of $369 million. He sees this as a takeover candidate especially now because he is seeing consolidation in the rig industry. When the industry turns around, this company will be very profitable. Utilizations rates go from 20% to 70% or 80% and much of the increased cash is profit. In addition, when rigs are busy, rig suppliers have pricing power. So, there can be an increase of 10x in profitability.

He would not own this company, because the market cap is too small for the liquidity. Their leverage is higher than their peers – 3.4 times EBITA.

(A Top Pick July 28, 2017. Down 23%). This is quiet money. It’s a driller. Its book value is $4.15, which is much higher than its trading price. This is a Canadian driller with only 3 rigs in the United States. Its price hasn’t improved because it is locked in Canada. The AECO price (http://www.gasalberta.com/gas-market/market-prices?p=pricing-market.htm) is about $2 but will be $2.75 to $3.00 by Q4. Similarly, the NYMEX price (https://www.eia.gov/dnav/ng/NG_PRI_FUT_S1_D.htm) was up a nickel today even as oil went down, could by $4 by Q4.

(A Top Pick June 12, 2017. Down 48.76%). This is a driller. Oil service stocks are always more volatile. The drillers are all cheap now. This is on his Action Alert buy list. The company’s book value is $4.19. He has a $2.50 one-year target. This stock traded at $11 in 2014. In bull markets these stocks have a high beta. Western doesn’t have a debt problem. It owes $265 debt compared to $386 in equity. This is lower than Calfrac and Precision. Western’s biggest lender is AIMCO, which knows the oil industry well. AIMCO is also an investor in Western.

(A Top Pick Jun 12/17, Down 32%) This was a top pick to buy some time after the show. It did quite well after the weakness he was looking for in order to buy. They are a Canadian driller.

Mostly in Canada, but trading significantly below $4, so it is a tax loss situation. It is cheap here. It is smaller cap than the others.

It is a very cheap driller. $5.53 book value at the end of last year. They are in a break even situation. He sees it doing much better. He likes the stock and covers it. There will be a great opportunity to buy it likely later in the year.

This is a driller. 51 rigs in Canada and 5 in the US. They also have 66 service rigs. A lot of ownership by management. This could potentially be a double-digit stock. If you are able to buy this at $1.40 or less, it is going to be a great one for the next cycle. (Analysts’ price target is $2.50.)

They did $18.6 million EBITDA in the 1^st quarter. They’re involved in contract drilling in Canada and the US, with 51 rigs in Canada and 5 in the US. They have 66 well servicing rigs. Under $2, this is a Buy, but under $1.90, it is a table pounding buy. He has a one-year target of $4.80. (Analysts’ price target is $3.50.)

(Top Pick Apr 6/15, Down 64.70%) Same as TDG-T. There won’t be any margin expansion going forward.

Typically service companies offer more upside than producers. If he is correct in his oil call of $55-$60, that will increase field activity because a lot of plays will work. He doesn’t see much upside above $60 in the next 1-2 years. In that environment there is still ample capacity in tier 1 drilling rigs, but companies will not have near the same pricing power as they would have coming out of a regular cycle. He is tempted on the valuation of this company, but it is not quite there for him. Liquidity can be a real issue on this one. The dividend is at risk of being cut if oil is anywhere remotely close to where we are now.

You want to buy the higher quality rigs. The crummiest rigs will probably not come back into service for a couple of years. The service sector does better as you come off a bottom and the best of those are the land drillers. These stocks do well several months ahead of the sector in general. 4.34% dividend.

He has his eye on a number of other energy service providers. This one is sort of in the middle of the pack for him. He is waiting for prices to stabilize before moving back into this area.

He has become fonder of this one over the last year. The drilling service business is in an abyss, but the market has already priced this in. It will find a new trading range between $6-$7.

In the drilling business with one of the better management teams and a pretty new drill fleet. If you are going to own any drillers in the Canadian space, this is one of the top 3 that you want to own. However, with the drop in oil and gas prices, it is difficult for them and you are looking at a few months of weakness. If you are not in a hurry, you can wait to accumulate. Thinks the dividend is sustainable.