Birchcliff Energy Ltd. (BIR.TO)

A name he has always been on the fence with. A dry gas producer. A nice way to play a gas recovery with a torque. He likes the Gordondale acquisition, a gas asset that they got from Encana. Did a very successful $700 million equity offering to finance the purchase. This adds a significant component of liquids, so now it is a 24% liquids company, rather than 10%. That helps the margins.

They did an asset acquisition off ECA-T. They de-levered their balance sheet. They diluted a major shareholder. They extended their inventory by many years. He estimates it is trading at a PE of 6 and should get re-rated to 7.

They had a very large Montney asset. He thinks the company has always executed very well in terms of delivering consistent growth, and delivering plant expansions on time and on budget. He took issue with them being fairly dry gas, so very exposed to the ups and downs of gas pricing in Western Canada. They also had more debt than he was comfortable with. Recently acquired some property from Encana (ECA-T), which moderates the decline. They have assets that he feels has considerable running room. It also makes them a little oilier, which he likes. This is one where you pick your spot and buy it on a pullback.

His view just changed recently when they made an acquisition that very much changed the story. Had been Short, because it always represented unhedged Canadian natural gas exposure, which he thinks an investor should not be in right now. Their acquisition shifted them more towards oil. This is too much of a levered name for him, with gas exposure.

(Market Call Minute.) Have improved their balance sheet. Made a massive acquisition. This is a brand-new start for this company. It will be a play on natural gas, but also on oil. A name to watch.

(Market Call Minute.) A pure dry gas player so has significant leverage to gas.

The vast majority of production is dry natural gas, and has rallied along with the whole group. As people get more optimistic on oil prices, he can feel an undercurrent of euphoria on natural gas. This is on his radar screen. Thinks gas is going to get pretty damn ugly in the next couple of months. He would like a better entry point. This is probably the best way to play the natural gas leverage.

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.

Super low cost gas producer. $.31 off costs and $.31 processing costs. $.10 for royalties. $.70-$.80 total costs. At $1.50 gas, they make money. They have a massive reserve life, 24 years of proven reserves, 39 years of 2P reserves. They are going to produce about 40,000 BOE’s a day this year. Net CapX will be less than cash flow, $1.28 versus $1.43. Last year they did a cash flow of $1.06 and thinks they will do under $1 this year. This is a Buy on any weakness.

She really likes this company and management a lot. Their opportunities are really great. They have done a lot of amazing things like driving down costs. One of the low cost producers in the Montney. The only thing that makes her hesitant is their debt level. If you are looking for gas plays with less debt, she would point you to Advantage (AAV-T).

Like a lot of other companies in this environment, the balance sheet is not that great. Historically they have had a balance sheet issue, in that their debt to cash was never as good as its peers. This is why it has traded at a discount. Operationally, one of the best companies in the Montney with one of the lowest cost operations. If you are looking for gas exposure, this is a great way to get that. However, since we are coming out of the winter season, this is probably not the best time to get into gas names. She would prefer Arc Resources (ARX-T).

(Market Call Minute.) Valuation has always been high. Stock has run a lot here and he would classify this as a Hold to a Sell. Feels there is risk to Canadian realized gas prices and this company is very exposed to that.

Very low cost, built their own gas plant to service it. Scale to attract a potential sovereign or foreign bidder. The balance sheet can be supported by the business even if it is not the most attractive.

Excellent natural gas opportunity. Criticism has been the stock value relative to the amount of capital they need to spend on the assets to realize that value. Have tremendous support from an eastern shareholder which serves the stock price very well. Really likes the stock on any kind of weakness. Feels there are more interesting opportunities.

The trouble with natural gas is that there is a lot of it around. The amount in storage in the US is actually over the chart. Doesn’t feel there will be a price increase for natural gas.