Let’s start with the bad news.

The CE Portfolio Aggressive Holdings, including performance for closed positions as well as those added during the year, generated a loss of 12.7% in 2014.

The two worst performers were Baytex Energy Corp, which posted a loss in U.S. dollar terms of 60.3%, and PHX Energy Services Corp, which lost 54.9%.

“Regrets, I’ve had a few…” sings Frank Sinatra in his popular hit My Way, a regular on the SiriusXM “40s on 4” playlist that’s the soundtrack to my workday.

And that’s the tune playing in my head as I consider my decisions to re-introduce PHX to the Portfolio in June 2014 and to replace underperforming, dividend-cutting Lightstream Resources Ltd with Baytex in September 2014.

PHX (TSX: PHX, OTC: PHXHF), a horizontal and directional drilling specialist, has simply been caught up in the dramatic reversal for energy prices and associated questions about future exploration spending.

In Baytex (TSX: BTE, NYSE: BTE) it was a conscious decision to add a company that had used its balance sheet to make a big move into the prolific Eagle Ford Shale in Texas just ahead of crude’s collapse.

And on Dec. 8, shortly after the December issue of CE went to press, management announced a 58.3% dividend cut, along with a 2015 CAPEX budget of CAD575 million to CAD650 million that’s approximately 30% below the company’s original expectations for the year.

Production guidance for 2015 reflects an organic growth rate of approximately 4% versus the expected 2014 annual average rate.

Other lowlights include Noranda Income Fund, which posted a 2014 loss of 49.9%.

Enerplus Corp notched a loss of 44%, while Crescent Point Energy Corp was off 36.1%.

Top performers among Aggressive Holdings include Magna International Inc, which posted a 2014 total return of 34.4%.

Ag Growth International (21.8%), Acadian Timber Corp (19.9%) and Parkland Fuel Corp (13.3%) also posted double-digit gains.

Our Conservative Holdings posted an average gain of 4.5%, led by EnerCare Inc’s Portfolio-leading 41% total return.

Brookfield Renewable Energy Partners LP (23.9%), Keyera Corp (19.8%), DH Corp (17.1%), Shaw Communications Inc (15.4%) and Canadian Apartment Properties REIT (13.9%) also generated double-digit gains.

The biggest loser among Conservative Holdings was Dream Industrial REIT, which posted a loss of 17.1% following its September 2014 addition to the Portfolio.

Dream Industrial’s affiliate and the name it replaced in the Portfolio, Dream Office REIT, posted a loss of 11.1% from Dec. 31, 2013, through Dec. 5, 2014, and was down 16.5% from September 2014 through Dec. 31, 2014.

Northern Property REIT (-17%) also had a difficult year.

Bird Construction Inc was actually among the Conservative Holdings’ top performers until late summer. From Dec. 31, 2013, through Aug. 19, 2014, the general contractor posted a total return of 18.4%.

But the market perceives that Bird is leveraged to activity in the Canadian oil sands, and in the second half of the year its share price reflected collapsing crude prices, leading to an 11.2% loss for 2014.

Overall the CE Portfolio average return for 2014 was negative 3.9%. The S&P/Toronto Stock Exchange Composite Index was up 1.1% for the year. iShares MSCI Canada ETF also posted a gain of 1.1%.

Clearly, our overexposure to oil and gas hurt us in 2014. We’re not ready to capitulate, but we are taking steps to refine our lineup to better reflect the prevailing commodity environment.

A Little Less Oily

If you have new money to put to work and you have a long-term time horizon, right now is a good time to establish positions in high-quality, dividend-paying oil and gas companies.

That list includes ARC Resources Ltd, Crescent Point Energy Corp, Peyto Exploration and Development Corp and Vermilion Energy Inc.

ARC Resources’ (TSX: ARX, OTC: AETUF) highly regarded management team, strong financial position (including a strong hedge book), quality asset base and clarity on future growth have supported a relatively strong performance for its share price during the commodity collapse.

In early January ARC completed a bought-deal financing, issuing 15.5 million shares at CAD22.50 per to raise CAD350 million. Management emphasized that its priority is to reduce debt, but the equity raising, along with CAD1.1 billion in undrawn credit capacity and a hedge book that’s in the money by several hundred million dollars, positions it well to gobble up smaller, more vulnerable E&Ps.

ARC reduced its 2015 budget from CAD875 million to CAD750 million but a full-year production forecast of 120,000 to 125,000 barrels of oil equivalent per day (boe/d) implies 10% growth versus 2014.

ARC Resources remains a buy under $28.

Crescent Point (TSX: CPG, NYSE: CPG) hasn’t provided official guidance for 2015, but management will likely adjust its capital budget to fit the current environment.

Given its strong hedging position and solid balance sheet, Crescent Point is one of the better positioned companies in this weak commodity price environment.

Crescent Point, which successfully navigated the slide in oil prices in 2008, will remain on track to post 4% to 5% production-per-share growth in 2015.

Crescent Point, which is yielding 10.6% at current levels, is a buy for aggressive investors under $28.

Sustainability is a critical consideration for dividend-paying E&Ps given the steep slide in commodity prices. Peyto Exploration and Development (TSX: PEY, OTC: PEYUF) is one of the best positioned companies to weather the volatile environment due to a rock-solid balance sheet and a good hedge book.

Management set its 2015 CAPEX budget at CAD700 million to CAD750 million, which is expected to grow production by 15% to between 96,000 and 100,000 boe/d.

Peyto is a buy under $38.

Vermilion Energy’s (TSX: VET, NYSE: VET) operations in Europe, North America and Australia give it exposure to global commodity prices, it has an impressive track record of dividend growth—with no cuts—and steady increases to production and reserves.

Vermilion will also hit a major milestone with first gas production from its Corrib gas project in mid-2015. Corrib should drive strong production and cash flow growth through 2016.

On track for 12% year-over-year production growth in 2015, Vermilion, is a buy under $54.

Fellow Aggressive Holdings Baytex Energy and Enerplus remain in the Portfolio, but we’ve cut our advice on both stocks to “hold.”

Baytex’s dividend cut is pretty painful considering that management had just raised the dividend from CAD0.22 to CAD0.24 in June 2014.

Baytex shifted toward U.S.-based shale production in early 2014 via the USD2.6 billion acquisition of Aurora Oil & Gas Ltd.

This transaction was very much accretive with oil at over USD100, the economics are much more questionable with oil near USD50. Baytex’ initial projections had assumed West Texas Intermediate at $90 per barrel.

Baytex isn’t helped by a relative lack of hedges. Baytex is a hold.

Enerplus, which in mid-2012 was forced to cut its dividend by 50% in order to shore up its balance sheet and rationalize its asset base, took on new debt in this low-interest-rate environment to drive production in recent years.

Enerplus has already announced a 23% reduction to its 2015 CAPEX budget to CAD635 million.

Enerplus has hedged production, though not to the extent of some of its peers.

More ominously, Enerplus made the following statement regarding its dividend policy:

The dividend is an important part of our strategy to create shareholder value. We have no plans to change the dividend. However, we will be monitoring commodity prices and economic conditions going forward. We are prepared to make adjustments as necessary to the dividend depending on the severity and duration of the downturn.

Enerplus is a hold.

We’re also cutting PHX Energy Services Corp to “hold” amid increasing uncertainty about CAPEX budgets in the North American E&P space.

Conservative investors should strongly consider midstream energy companies such as Pembina Pipeline Corp and Keyera Corp, whose revenues and cash flows are supported by fee-based activities such as transportation and storage of crude oil, natural gas and petroleum products.

At the same time, we’re cutting Northern Property REIT, which has substantial residential exposure in key oil and gas producing regions in Alberta and the Northern Territories, to a “hold.”

Northern Property’s (TSX: NPR-U, OTC: NPRUF) unit price was dragged down by questions about the potential impact of reduced exploration activity on occupancy rates at its properties.

Northern Property REIT is a hold.

And note that we’re moving Bird Construction (TSX: BDT, OTC: BIRDF) from the Conservative Holdings to the Aggressive Holdings to reflect the market’s perception that its fortunes are essentially tied to new exploration activity in the Canadian oil sands.

We continue to like Bird Construction for the long term and rate it a buy under $14.50.

Aggressive Update

Extendicare Inc (TSX: EXE, OTC: EXETF) has suffered following announcement of deal to sell US assets, as short-term investors along for a hoped-for upside surge after consummation of a long-simmering transaction exited the stock, disappointed with its terms.

Indeed, the USD870 million sale price valued Extendicare’s US business on less favorable terms than comparable assets. And Extendicare will only net USD220 million from the sale, which it will reinvest in its Canadian business.

Dividends for the first nine months of 2014 equaled 58% of adjusted funds from operations (AFFO), including the U.S. business.

Backing out U.S. AFFO leaves a payout ratio of 115% of Extendicare’s Canadian AFFO.

Extendicare expects to use cash on hand to supplement its AFFO and maintain the existing dividend level, in the hopes of growing EBITDA over time to support the dividend level solely from operations.

That’s the plan. We’d like to see whether Extendicare can replace the lost EBITDA quickly enough before it runs out of cash and is forced to reduce the dividend or issue additional equity. Extendicare is now a hold.

Conservative Update

We’ll close with a positive development: Longtime Conservative Holding TransForce Inc announced a 17.2% dividend increase to CAD0.17 per share per quarter.

The move reflects TransForce’s (TSX: TFI, OTC: TFIFF) ability to generate free cash flow in current and projected market conditions.

Management has guided to 2015 revenue of CAD4.4 billion to CAD4.5 billion versus approximately CAD3.67 billion for 2014. EBITDA are forecast at CAD540 million to CAD560 million, growth of approximately 35.1% at the midpoint versus expected 2014 EBITDA.

Earnings per share will be CAD1.85 to CAD2 compared to CAD1.61 for 2014.

TransForce, which is yielding 2.3%, is now a buy under $27.