Raging River Exploration (RRX-T)

Raging River had good light oil assets but issues with decline rates. Baytex shareholders were comfortable with the debt, given the torque to heavy oil differentials. Mashed together, it has allowed the concerns over BTE-T debt levels to be abated and is opening doors for new opportunities.

Part of Baytex, good way to get exposure to Eagleford as well as Canada. Bought Raging River, multiple is in line, and they have decent growth. Hold your shares if they get rolled into Baytex. Market thinks they overpaid, but if you buy good rocks, you’re going to get a good result.

BTE-T vs. RRX-T. RRX-T has been taken out by BTE-T. One analyst says you will now own a company with a much higher debt. BTE-T is a zombie company because of debt. 78% debt to equity last time he talked about it. After the deal RRX-T will have a huge increase in production. If you believe in $80 oil by year end then this a good leveraged play on oil. He thinks we will below $60, the problem is that this stock is too levered. It will be at 75% debt to equity. The market is voting negatively on the deal.

This is a bit of a different story because they announced strategic alternatives. It helps when a management team owns so much of the stock. The process should be completed within a month. They will probably find a buyer for one of their assets. He sold this name a month ago. As it sells off it is getting increasingly compelling.

There is a positive trend for the energy sector. There should be some sort of digestion from here. Geopolitical risk. The pick seasonal strength for the sector is really coming to an end now. Over the short term expect some consolidation. Technically shows that $7.16 is a better price to buy this.

This offers the highest torque of any energy stock to rising oil prices, so he likes owning this one. The one knock is that they have been a one trick pony in the Viking area with a decline rate of 40%. They acquired a lot of cheap acreage in the Duvernay region to help diversify. The question is, is the new play going to do well? The CEO has $120 million of his own money in this and the balance sheet is squeaky clean. He could see a 78% upside in value from here.

This offers the highest torque of any energy stock to rising oil prices, so he likes owning this one. The one knock is that they have been a one trick pony in the Viking area with a decline rate of 40%. They acquired a lot of cheap acreage in the Duvernay region to help diversify. The question is, is the new play going to do well? The CEO has $120 million of his own money in this and the balance sheet is squeaky clean. He could see a 78% upside in value from here.

This is one of the few remaining growth companies left. It doesn’t pay a dividend. It’s price dropped sharply after the Spartan acquisition because people thought that deal was horrible and it’s in the same space. It sells at 3.2x Enterprise value to cash flow, has 4 years of PDP reserves. Very inexpensive relative to its asset value. Problems: A high decline rate, and they are focused on the Viking, which doesn’t have a lot of running room left in the Viking. They recently acquired new property, which should be a source of news soon. They have also announced a strategic review.

The first CEO to announce (this week) that the existing model is broken (divergence of company's value and its stock price), so he announced strategic alternatives. Should be applauded for this leadership. Used to be the premium stock in this space. What may happen is they merge with a similar company or spin-off an asset. Trades at 4.3X cash flow (formerly 8x). (Analysts' target of $10.04)

Canadian light oil producer. Light oil differentials have become less recently. This we can get out of Canada more so than heavy oil. They recently announced a discovery in Alberta. They have a huge amount of land for this new oil play. It trades at a relatively low multiple. No issues at all on the debt. (Analysts’ target: $10.87).

This has been a great company. What is really astounding is their profit margins. They did extremely well in the Viking. It is always curtailed by size, and now they’ve made a big jump into another area. The market is in a “wait and see” mode to see if they can execute the way they have historically. It has gone sideways for 4 years and they are now in the process of reinventing themselves and will probably come firing from a profitability point of view.

The chart shows a pretty choppy uptrend from the beginning of 2015, and suddenly at the beginning of this year, that uptrend was trashed. Just recently a support level of about $8.50, has been broken. It could go down to the $6.75-$6.80 area. If that doesn’t hold, then it could possibly go as low as $5.50-$6. It also had a rounded top which is another negative.

(A Top Pick Feb 10/17. Down 12.18%.) They were thinking of selling themselves, but that didn’t work out. They have great assets, and this is one of the better management teams in finding and developing assets at a low cost.