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Insider buying at Legacy

Also: Penn West unloads more assets, and why Stantec shares might be due for a breather

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at

Jan 23, 2014

by Max Fawcett

Shareholders of Legacy Oil and Gas (TSE:LEG) are almost certainly getting frustrated. Despite solid production growth, exposure to some of Canada’s best plays and a relatively unleveraged balance sheet, the company’s shares are stuck in the $6 range, down sharply from the $12 and change they were trading at two years ago. And while shareholders (and, indeed, some analysts) have been clamouring for the introduction of a dividend, the company’s management has stuck to its strategy of growing through the drill bit. They got a vote of confidence over the last few weeks from board chair Paul Colborne, the former Crescent Point Energy executive who’s currently the CEO of Surge Energy. He’s scooped up 35,000 shares this month at an average cost of $5.91 per share. FirstEnergy, for what it’s worth, has a $9 price target on Legacy’s shares.

Meanwhile, another underperforming oil and gas company continued to unload non-core assets in an ongoing effort to de-leverage its balance sheet. Penn West Petroleum (TSE:PWT) sold off $175 million worth of properties in southern and central Alberta that, according to a Canadian Press story, produce about 6,700 barrels of oil equivalent per day. That puts the total volume of funds raised through dispositions at over $650 million – a decent sum, but a long way from the $1.5 billion to $2 billion the company pledged to unload before the end of 2014 last November. And AltaCorp’s Jeremy McCrae remains non-plussed about the company or its prospects going forward. “Although we applaud the steps taken to improve Penn West’s balance sheet and disappointing growth performance over the past few years,” he wrote in a note, “we believe the company is only half way there. With the large employee layoffs/ and reassignment of duties late in 2013, we believe the risk that the company misses expected production rates and continue to improve well economics is heightened. With further asset sales pending (at an unknown price), we believe it is prudent that investors take a wait-and-see approach.”

Oh, and Stantec (TSE:STN)? It’s a great company, to be sure, but AltaCorp’s analysis suggests that its shares might have run a bit too far. “Historically Stantec has been trading at a 1.6x median valuation premium to its U.S. peers. Over the last twelve months, however, we have watched this gap get widen with the stock currently trading at a much higher valuation premium of 3.8x, which isn’t surprising given that the stock has rallied 70 per cent in the last 12 months (U.S. peers are up 17 per cent on average)….Although we do think that Stantec is a solid company with a strong organic growth profile and great exposure to the buoyant midstream oil & gas market, we believe that this dynamic is well understood by the market, making it much more difficult for the company to continue to generate superior returns on the risk-adjusted basis.”

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