RE:RE:RE:I need a new nat gas company, Ideas?
Energy Summary for Aug. 10, 2020
2020-08-10 20:44 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added 72 cents to $41.94 on the New York Merc, while Brent for October added 59 cents to $44.99 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.79 to WTI, up from a discount of $11.80. Natural gas for September lost nine cents to $2.15. The TSX energy index added 2.35 points to close at 84.58.
Rumours of a near-term tidal wave of Canadian consolidations rumbled afresh as the B.C. Montney saw its second noteworthy acquisition in less than three weeks. This morning, Canadian Natural Resources Ltd. (CNQ), up 38 cents to $27.11 on 8.87 million shares, agreed to buy Painted Pony Energy Ltd. (PONY), up nine cents to 68 cents on 27.3 million shares. It will pay 69 cents for each of Painted Pony's shares. As well, it will also assume Painted Pony's debt of approximately $350-million, for a total transaction value of about $460-million.
The 69-cent-a-share offer is a 17-per-cent premium to Painted Pony's closing price on Friday and a 253-per-cent gain over its mid-March low of 19.5 cents. It is below its 52-week high of 90 cents, however, and a long way down from its 2014 peak of $14.75. The drop partly reflects a burdened balance sheet. Even before the 2020 downturn, Painted Pony had been taking steps to ease its debt load, including selling $45-million worth of assets to Tourmaline Oil Corp. (TOU: $16.27) last October. This reduced Painted Pony's net debt to $320-million as of Dec. 31. By March 31, however, net debt had climbed back up to $341-million. In April, Painted Pony's credit facilities were supposed to undergo a review, but its bankers agreed to postpone the review in exchange for an immediate $25-million chop to the credit availability (to $350-million from $375-million). The review was repeatedly extended to the current deadline of Aug. 31. Presumably the bankers' patience reflected the negotiations that Painted Pony would have started by this time with Canadian Natural. (A similar situation unfolded at Kelt Exploration Ltd. (KEL: $1.86), which was behind the other recent Montney deal of note. It agreed three weeks ago to sell $510-million worth of Montney assets to ConocoPhillips. Like Painted Pony, Kelt was scheduled to undergo a credit facility review in April, but repeatedly had the deadline extended to Aug. 31.)
Given its financial constraints, Painted Pony was struggling to develop the full potential of its assets, which are currently producing 49,600 barrels of oil equivalent a day (91 per cent gas). To see it become a takeover target is thus not surprising. The suitor, while perhaps surprising at first glance -- Canadian Natural being primarily known as an oil sands giant -- is in fact following an established gas-guzzling pattern. Long-term investors may recall that from 2013 through 2015, as many producers were selling off gas assets and switching to oil and liquids, Canadian Natural scooped up over 12,000 gas wells (for a 60-per-cent increase its gas well count), in the process overtaking EnCana as Canada's largest gas producer. (EnCana ultimately lost interest in both gas and Canada. It rebranded this year as Ovintiv Inc. (OVV: $16.14), a U.S. company that focuses on shale.) Canadian Natural held on to the "largest Canadian gas producer" title for years, until it was snatched away by the above-mentioned Tourmaline in 2019. The new Painted Pony deal will bring the crown back.
Analysts applauded the deal. "While investors were likely expecting another oil sands transaction [from Canadian Natural], the acquisition of PONY is consistent with the company's long-term strategy and track record of consolidating at the bottom of the cycle," opined Raymond James analyst Chris Cox. Other firms focused on the wider implications for the energy sector, with both Scotia Capital and Eight Capital saying the Canadian Natural-Painted Pony deal (as well as the Kelt-Conoco one noted above) prove that there is rising interest in the Montney. The Scotia analysts named Crew Energy Inc. (CR: $0.345) as a likely takeover candidate, while identifying Paramount Resources Ltd. (POU: $2.55) and NuVista Energy Inc. (NVA: $0.78) as companies likely to sell assets. Companies that are in sturdier financial positions and would not consider an offer without a hefty premium, according to the Scotia analysts, include the above-noted Kelt, Advantage Oil & Gas Ltd. (AAV: $1.90) and Birchcliff Energy Ltd. (BIR: $1.90).