Surge Energy Inc (SGY.TO)

You need a positive outlook on energy. Looking at the pricing curve, he is seeing $50 out in a year or 2. Some people are predicting production will have dropped enough that inventories will be down by the end of this year, leading to higher oil prices. Companies like this are already reflecting $50-$60 prices for oil. His concern is whether these companies will be around long enough. This company has more debt than he would like, so he is avoiding these companies. Too risky for him.

Chances of survival are very good, but thinks the stock is wildly overvalued. Expects a dividend cut next month of probably 50%. Blowing through their very best inventory in the very worst oil price environment. Trading at the same multiple as Raging River (RRX-T) which has the highest netback, pedigreed management team, strong balance sheet. For him to have an interest in the stock, it would have to get down to $1.50 or lower.

This is doing quite well right now. Had to cut the dividend and rationalize their CapX, but have been able to high grade their portfolio, which helps them in terms of their operations. You own this for a torque in oil prices, because in this environment they are not making any money. Sees better options elsewhere.

This should make it through the energy situation, but they have some debt on the balance sheet and they are a small company, relatively levered. Sit back, wait and watch for 6 months, before jumping in.

Surge Energy (SGY-T) or Whitecap (WCP-T)? Both are decent names, but Whitecap is the higher-quality of the 2, so that is the one he would pick, but with the caveat that they are both smaller energy companies in a very brutal tape for energy.

One of the few energy names that is cheap relative to its 5 year average. Trading at 6.2X EV discounted adjusted cash flow on a 2015 level versus 10.5X its five-year average. That is kind of impressive. Their balance sheet is good for 2015. It does start to get a little bit more impaired in 2016 at 2.7X, which is still good relative to the group. If you are constructive on $48 oil going forward, then this is a name that you can buy, but you have to be constructive on oil.

Along with many companies, they cut their dividends. Not a business model he is personally comfortable in. Finds valuation very stretched. In his math, it would be trading 8.8-8.9 times next year’s cash flow and that is using $55 oil. In next year’s analysis he is trying to be conservative with oil rallying to $60, but with an average of around $55. On that basis it is trading at a 2 point multiple premium to other names where he feels the business model is slightly better. Potentially at risk of another dividend cut if oil doesn’t rally to $55 next year. Dividend yield of 9.8%.

10.8% dividend. They are talking about buying back shares. It is cheap. You actually CAN own this one in the energy space. He is not buying yet because the numbers could deteriorate. It is certainly one of the good names at these levels. He got out of every oil company last fall. He would buy it if he thought oil prices were starting to firm.

Any time you see double-digit yield, you have to be concerned that the market is indicating things. At today’s strip price, nobody is safe. This company made the dividend cut and felt it was right sized for at least the next couple of quarters to see where prices go. They probably have to look at their dividend again in mid-2016 if we are still sub-$50 oil.

She owns it and likes it. They have done some things that have helped them prepare for this environment. They sold some assets to Torc Energy(which she owns and likes). This helped their balance sheet. They have cut costs. Their pay out ratio looks good right now even though their yield is high. It is one that has a safe dividend.

He got concerned about their dividend and about their debt, so he took it out of his portfolio, and then the next day they made a big asset sale to reduce their debt by $400 million. The debt situation cleared up dramatically. $40 oil would be tough for everyone, including this one, because they are not debt free. He still likes the company. Still high risk, but thinks they will survive.

He likes the dividend. Recently sold assets to TOG-T. Their balance sheet is good. He would pick this because it is less risky than others.

His company has a $4.50 target on this and as a sector perform. This is mostly oil weighted.

This was an old favourite of his. He is thinking about buying this, but it may be a little early given oil prices. A very solid company with great assets, but not sure if it can sustain its dividend through another 6 months of low oil prices. If you have the patience for a 3 year commitment to a small-cap energy stock, this and Kelt Exploration (KEL-T) would be at the top of his list. Between now and the end of 3 years, you might face a dividend cut and a lower stock price.

A quality name, but really depends on your time horizon. He is painting a more bearish picture for energy prices over the next 6 months. Thinks this is going to be under pressure for some time. He would suggest looking for something in another sub sector of the market rather than energy or materials.