Athabasca - Exactly What We Wanted

For long-time readers of HFI Research, you know we don't trade often. We don't write up ideas because we prefer the path of sitting still and doing nothing. But in this case, Baytex's acquisition of ROCC forced our hands. We did not like the deal and as we discussed in the write-up, the heavy oil segment, which we especially liked about Baytex, has now been diluted with Eagle Ford assets.

For most investors, that will appear contradictory to the norm. Why would we like heavy oil assets more? Because as we explained in part 1 and part 2 of the "Buy Canadian Heavy Oil Producer" write-ups, the stars are all aligning this year.

And as we were looking around, Athabasca Oil Corporation (ATH.TO) (OTCPK:ATHOF) kept popping up. We've long known ATH. The overleveraged balance sheet and high operational breakeven have always made ATH a tricky name to own during the oil downturn. Nonetheless, the company has survived and managed to bring down the net debt to C$35 million, no easy feat.

There are a few characteristics of ATH that we particularly like: