Pine Cliff Energy (PNE-T)

He's bullish on natural gas for next year, though not now because of bloated storage and too-high US production. Suffers from challenges of a smaller company, just not hitting the radar screens. See his Top Picks.

Does not believe dividend us sustainable given current strip price.
Could take on debt to sustain dividend.
Challenges ahead for the company.
Depends on outlook for natural gas.

In tough shape. They made the wrong bet on natural gas. Sell it and buy elsewhere. But it will pay off over five years.

It is about as leveraged to depressed energy and gas outlook as you could be. They run unhedged. It is the worst position to be in when the prices are weak. They have relatively low margin. People like that it is unhedged and gives direct exposure to ACO pricing.

(Market Call Minute.) Complete unhedged exposure to gas. Very low decline rate. Competent management and he thinks very highly of them. Cash flow positive down to $1.75 of MCF. If you are constructive on gas, it may be interesting.

What makes this different is that it is the gas version of Bonterra (BNE-T). An unhedged company. Their track record has been built upon acquisitions. In a way with assets others don’t want. The issue is very low declines. The margin quality is not what you would like. Balance sheet is a little stretched because of a weakness in prices. (This was a very lengthy explanation which I could not follow. You might want to check BNN’s tape to hear it word for word. - Bill.)

It is hard to sell a stock that has fallen as much as this. They bought a lot of gas assets and drove down costs. They are one of the lowest cost producers. They are still losing money, however.

(Top Pick Oct 3/14, Down 31.74%) They have done a great job. Their business plan is to take advantage of low gas prices, which they still are.

(A Top Pick Aug 27/14. Down 50.75%.) Believe it or not, this is the best environment for this company. If you look at what they did with Bonterra (BNE-T) where they were buying oil assets when no one wanted oil. Now it is buying dry natural gas assets when no one wants natural gas. They are probably going to end up getting some really good deals. For a longer-term thesis, this is a great managed company and they have a great idea in being contrarian in their space.

At some point in time it might become a take over candidate. Very well-run. Thinks they will continue to do what they did with Bonterra (BNE-T) in oil, building and buying production in natural gas when it was out of favour. If you are a long-term player, you want the natural gas price to stay low, allowing them to make all kinds of acquisitions. When the natural gas price goes up, that may be when we get a couple of LNG projects or a pipeline, and at that point in time you will really start to see the value in the company. In the meantime they have a low decline rate and are generating a nice cash flow.

(A Top Pick March 13/14. Up 11.63%.) This is a low cost, i.e. it drills wells that are not $3-$10 million, but are like $400,000. Dull and boring gas assets that no one really wants. However, this management team knows that there is a lot of value in them and it doesn’t cost much to run this company. Good management.

Loves this one. They made their mark through the acquisition strategy that they have executed very well. They like to buy gas assets when gas looks like it is horrible. He can see possibly 40% production growth in 2015, which is spectacular in the context of this market. Low gas prices are going to create more acquisition opportunity for them. They have lots of strength in their balance sheet to execute. Their break even production costs are in the $2.25-$2.50 range.

They buy the assets that are completely out of favour. They buy dry gas. Decent balance sheet and it is on his watch list.

A very well run Nat Gas company that goes after dry natural gas. He is not bullish on Nat Gas so would not own it. He doesn’t see much downside.

Great company. Thinks they have the balance sheet to do significant acquisitions going forward. Have been very disciplined at what they do. These are the same people that started Bonterra (BNE-T), which has probably had one of the best long-term returns of any stock on the TSX. He thinks this company is doing the same thing. Low production costs and they are buying assets with low decline rates and they don't have much debt. With commodity prices being very cheap here, they probably can step in and buy some natural gas assets, which have more of an oil bent to them, and get them at discount prices. Thinks it goes significantly higher.