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(A Top Pick June 12/15. Up 1.54%.) Likes management and the quality of the assets. The balance sheet is good. Have done some exceptional things in getting their costs down and improving efficiencies in their drilling, and have done really well in consolidating their plays. This is still a Buy.
A great story. Right now there are some challenges. Debt is a lot higher than what she would expect from them. Spent a lot of capital building out Horizons, which is really going to provide a lot of free cash flow going forward. They’re in phase 2 now and phase 3 at the end of next year, and it will be really good. CapX spend on that project is going to come down significantly, which will help on the free cash flow side. In 2-3 years, this is going to be a great story. For now, be a little cautious because valuation has gotten ahead of itself. If you own, consider trimming, which is what she has done.
It is not time to own this yet. The stock is moving up because there are some big individual investors in Calgary that has helped move the stock. However, she feels the company is quite challenged until oil prices are much higher. There are so many names out there with good valuations that don’t have the same kind of challenges at these prices.
A lot of the oil/gas stocks in Canada are more correlated to oil than to natural gas. That gives you the opportunity to see mispricing in the market and to Buy or Sell. She likes this company a lot. They have some great assets. Have done really well in bringing costs down. However, doesn’t see much upside in natural gas prices in Canada for the time being. With all the debt they have and with gas prices where they are, she doesn’t feel the move they’ve had is justified at this time.
At the annual meeting in June, what should shareholders pay most attention to? Management is quite bullish on natural gas, so she would question them on that. Their cash flow projections are based on higher natural gas prices, so if they don’t get the higher prices, how do they close the funding gap between their funded CapX and the expected cash flow. She would also inquire about their Charlie Lake oil play, a very interesting play. They’ve just spent some capital there and can ramp up production quite quickly. She owns a little because of their gas liquid exposure.
If oil continues to go up like it has, she would expect this to do better than the energy index, because it is an excellent quality company. Has traded a little weaker than its peers, because she thinks people are looking at other names just to get exposure to oil, because this does have a lot of natural gas exposure in Europe, where gas prices have been quite soft because of the mild summer. Sees good visibility of growth in this name. This company has never cut its dividend.
If looking to increase your oil exposure, this is a name to go to. Feels they are doing all the right things. It had a bit of a challenge coming into this downturn, because their dividend was too high. They got rid of their DRIP plan which was a good thing, and are living within their means right now. The water flooding is doing very well, so they have to spend less capital to keep the production flat.
(A Top Pick June 12/15. Down 36.56%.) With oil prices below $50, it is very challenging. Have done really well with hedging last year, this year and next year, so are quite well protected. However, they do need to see higher oil prices in order to do well.