nergy Summary for July 22, 2022
2022-07-22 20:38 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost $1.65 to $94.70 on the New York Merc, while Brent for September lost 66 cents to $103.20, with both benchmarks notching their third weekly decline in a row (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.75 to WTI, unchanged. Natural gas for August added 37 cents to $8.30. The TSX energy index lost 2.91 points to close at 214.09.
A long-time chief executive officer in the oil patch is stepping down. Alberta Cardium producer Bonterra Energy Corp. (BNE), down three cents to $8.55 on 397,700 shares, announced this morning that its founder, George Fink, will retire as president and CEO on Sept. 6. He will remain on the board and says he has no current plans to trim his 14-per-cent equity ownership (4.6 million of Bonterra's 36 million shares).
The 82-year-old Mr. Fink founded Bonterra in 1998, as a spinout of his Comaplex Resources (a gold miner that he ultimately sold for $10.32 a share to Agnico-Eagle in 2010). Bonterra did its IPO in mid-1988 at 20 cents. It converted to an income trust in 2001 -- one of the first oil and gas companies in Canada to do so -- and converted back to a corporation in 2008. The stock peaked at $65.99 in 2014. If an investor did nothing over this time but sit on a $20,000 investment from the IPO, his position would have then been worth over $6.5-million and he would have received over $3-million in dividends. (As an aside, such calculations used to show up frequently on the website not of Bonterra, but rather of Pine Cliff Energy Inc. (PNE: $1.59). Mr. Fink is Pine Cliff's long-time chairman.)
The prolonged downturn took a toll on Bonterra's stock, which is now worth $8.55, and on the dividend, which was suspended in 2020. Mr. Fink has made no secret of wanting to revive the dividend once the company pares down its debt. To investors' frustration, he has not set a desired debt target. Today's update reiterated vaguely that "once Bonterra's debt and leverage objectives have been met, Bonterra intends to return to a 'sustainable growth/return of capital to shareholders' strategy." If investors thought a triumphant return of the dividend would be Mr. Fink's swan song before retirement, they are apparently wrong (barring an announcement between now and Sept. 6). Perhaps his successor will have more to say.
The incoming president and CEO, who will also join Bonterra's board of directors, is Pat Oliver. Bonterra is bringing him in from outside. Mr. Oliver has spent the last two decades helping to build and sell four companies within the private Birchill chain, backed by the New York-based private equity firm Bregal Investments. He was chief financial officer of Birchill Energy and Birchcliff Resources and then CEO of Birchill Exploration and Birchill Canada. Bonterra's chairman, Michael Stewart, dubbed himself "delighted" to welcome Mr. Oliver to the company. Mr. Stewart also gave a fond farewell to Mr. Fink, the oil patch "visionary" and "very gentle and generous individual."
Further afield, Gabriel de Alba and Dr. Suresh Narine's Guyanese oil explorer, CGX Energy Inc. (OYL), lost five cents to $1.07 on 353,400 shares. Today it trumpeted a transaction that will "strengthen its balance sheet and secure funding for the Wei-1 exploration well." In translation, it is turning for help from its joint venturer and majority shareholder, Mr. de Alba's Frontera Energy Corp. (FEC), up 13 cents to $12.32 on 284,900 shares. They are amending their joint venture to give Frontera a greater interest in the offshore Corentyne block.
Investors do not seem surprised. Frontera has regularly opened its wallet for CGX over the past decade, lending it money, participating in its financings and (in 2019) becoming its official joint venturer in Guyana. The money tends to come with plenty of strings attached, however, and today is no exception. CGX will go from being the majority owner of the Corentyne block to the minority partner. Frontera's interest in Corentyne will double to 68 per cent from one-third, in exchange for an agreement to pay for CGX's costs of one well (the Wei-1 well) and some past loan forgiveness.
To the cash-strapped CGX, this is a grand deal. CGX had nowhere near the money required to pay for its share of Wei-1, with its estimated gross cost of $93-million (U.S.). Another weight on its mind was undoubtedly the fact that the joint venturers' previous well, Kawa-1, also had a budget of about $90-million (U.S.), only for the actual cost to balloon past $140-million (U.S.). Considering that the rig for Wei-1 is already under contract and will arrive at the block before the end of September, CGX found itself quickly running out of time to figure out a solution. It opted for today's deal, with some loan forgiveness thrown in. (Frontera will, however, leave CGX on the hook if the cost overruns become too unwieldy. It will pay CGX's way only to a maximum of $130-million (U.S.).)
A relieved Dr. Narine, CGX's executive co-chairman, said the company can now focus on the "transformational potential" of Corentyne and the Wei-1 well. Frontera CEO Orlando Cabrales seemed equally pleased that his company now has an "increased participating interest ... [in] one of the most exciting exploration areas in the world." They are hoping to spud the well in October.
Back in North America, Art Millholland's Canadian Overseas Petroleum Ltd. (XOP) lost 5.5 cents to 26.5 cents on 37,200 shares, on an update from assets that are neither Canadian nor overseas. The company (which goes by the initialism COPL) is gathering up the money to close a planned asset acquisition in Wyoming. The seller is Cuda Oil, a U.S. junior that used to trade on the TSX until falling into bankruptcy last year. COPL agreed to buy Cuda's assets in April. To help finance the deal, it signed a term sheet for a $20-million (U.S.) bridge loan. Today, it said it will no longer complete the bridge loan and will instead close a $25.2-million (U.S.) convertible bond financing.
Investors seemed uneasy. The bonds will have longer maturity dates than the bridge loan -- two years and three years, rather than 12 months -- but they have a complicated, sliding-scale interest rate and could ultimately cause considerably greater dilution. The proposed conversion price is 26 cents a share and could fall to just 20 cents a share if COPL fails to secure a reserve-based lending facility within a year. As well, the bondholders will receive over 54 million warrants exercisable at 26 cents.
Management remained unfazed. President and CEO Mr. Millholland said the financing will allow COPL to close the acquisition of the Cuda assets as early as Monday. CFO Ryan Gaffney added that the COPL will then be in "a prime position to progress term sheet negotiations with banks" and work out a more desirable debt situation. Both promised to provide updates, on everything from drilling at the new assets to the design of a large-scale refinancing, before the end of the year.
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