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He typically doesn’t own a lot of the large cap stocks in his portfolio. If you own smaller and mid-cap stocks, you have a better chance of getting higher rates of cash flow for growth on a per share basis. He likes the company and does own a small amount. The debt profile is going to be a little bit higher this year, until the next phase of Horizon comes on. The cash flow profile should look a lot better in 2017. Moody’s still has this as an investment grade rating.
Arc Resources (ARX-T) or Altagas (ALA-T)? 2 very different companies. With this, you get both gas and oil exposure with a 60/40 split of gas to oil. He likes this, and thinks it should be a core holding in any energy portfolio. Have some tremendous assets in the Montney with a lot of running room, particularly with Dawson and Attachie. They are spending most of their capital and growing those 2 plays, and easing up on their Saskatchewan Cardium assets. Recently cut the distribution, which he agrees with.
He knew this company when it transitioned into a dividend paying entity, back when that was in vogue to get a higher re-rate in terms of the valuation multiple. This is a higher cost heavy oil producer. In this downturn, it has exasperated a lot of problems in terms of the sustainability of the dividend, and put an enormous amount of balance sheet stress on the company. Their credit facility is around $275 million, and got cut back to around $225 million. There is apparently a non-revolving component of that of about $85 million that comes due at the end of April. They have about 6 weeks to figure out how they are going to pay back about $60-$70 million. They have to sell the company or sell assets.
One of his favourite companies. Feels it is a pretty sustainable model. The decline rate is only about 23%-24%, so it is in a kind of sweet spot to be able to pay a dividend. There is a lot of optionality in their Alberta Bakken and the 3 Forks play in Saskatchewan. That could be worth a tremendous amount more than what is reflected in the current share price. They also have the strong sponsorship of CPP, which he feels is probably underappreciated by the investment community. He is looking for them to continue to do smart acquisitions and emerge from the downturn stronger.
There are 3 pressure pumpers in Canada and are involved in the hydraulic fracturing of reservoirs as part of the completion process after the well has been drilled. This company has struggled with the debt and has been selling their US business. At this point in the cycle, he wouldn’t be too constructive on this type of a service name because he feels the pricing power is not going to come back. You do better on owning E&P stocks at this time.
Had been waiting for quite some time for some conclusion to the sale of their Musreau deep cut facility, and it was just announced that Pembina Pipelines would be picking up that asset. The $556 million was to the lower end of the range. This company has some great assets and long-term optionality.
Probably wouldn’t buy this at today’s price. The appeal of this company was that they struck a board of individuals that he had a lot of respect for. Their initial plan was to buy a bunch of Viking assets which he questioned, but they ended up switching strategies buying into the Belly River. Have had a real struggle raising capital all the way down.
Likes management, the company, what they have done and the philosophy on how they have conducted their business. They go into plays, dominate them, control all of the infrastructure and drive costs down, which is exactly what he likes. Their Glauconite play that they bought off Encana years ago turned out to be excellent for them. The problem was their exposure to weak natural gas liquids pricing, which has collapsed. Also, the balance sheet had more debt than what he is comfortable with. Dividend yield of 3.99%.
Has added to his portfolio recently. Had a management change with a new CEO, who has cleaned up and brought down G&A costs. They substantially reduced in-country drilling costs in Colombia. Made 2 acquisitions to solidify their position in a part of southern Colombia. There is also a pretty exciting end sands (?) play that they are chasing now. Has confidence that they are turning this company around.
Pretty much the gold standard for income paying energy equities. The only company that he can say has never cut their dividend. Have managed to sustain a sustainable model through some pretty big ups and downs in commodities. Likes their diversified exposure of Western Canada, France, Netherlands, Australia, etc. In December they started up a core of gas fields in offshore Ireland, which will be taking in cash flow for 2016. This is a stock that you hold for the long-term. Dividend yield of 6.1%.
Thinks the long range outlook for this is quite good. Had some problems recently. In the Foster Creek assets, the production levels quarter after quarter have disappointed a little. Cut the dividend almost 70%. Also, reining in a lot of head office spending. Could see them having a compound annual growth rate in production pushing 8% over 2018-2020. This would be a long term hold. Dividend yield of about 1%.
This stands out as a service company that you actually want to take a look at, particularly looking at the price decline. There is an interesting dynamic playing in Western Canada. They have 39 facilities that treat waste fluids from oil and gas. Inherently it should be a more stable cash flow stream, but does have a little bit of commodity price volatility. Recently got into drilling fluids as well. Just did a $130 million financing to pay down debt. With producers struggling, he thinks there is real opportunity for them to accretively buy assets and build out their footprint. There are 3 principal players, and he thinks this is the best of the 3. Dividend yield of 2.68%.
They spent the 1st couple of years building out an asset base, in preparation of converting to a dividend paying model. This company stands out as the one being the most successful in terms of executing that type of plan. Did a bit of financing of $95 million recently, and picked up an extra 15% working interest in the Boundary Lake asset, taking them from 75% to 90%. Has a 5% decline rate, so the sustaining capital to keep that production up is less because of that. Dividend yield of 5.25%.
(A Top Pick April 2/15. Down 6.12%.) A company that will be able to thrive in a low commodity environment. They have access to capital and have the support of capital markets, and will be able to pick away at assets that are getting shaken out of weak hands, and emerge from the downturn a stronger company. We are through reserve season, so everybody has a fresh report in hand, which will give would be buyers a bit more confidence in terms of looking at assets. Also, April is bank line redetermination season. These happen twice a year, and the last couple of times the banks may have been a little bit more lenient and willing to let some skate through, but now will be applying more pressure to sell assets.