Stockwatch Energy today
Energy Summary for April 5, 2021
2021-04-05 20:13 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost $2.80 to $58.65 on the New York Merc, while Brent for June lost $2.71 to $62.15 (all figures in this para U.S.). Western Canadian Select traded at a discount of $9.79 to WTI, up from a discount of $10.30. Natural gas for May lost 13 cents to $2.51. The TSX energy index lost 2.96 points to close at 117.52.
Oil prices plunged on spiking COVID-19 cases around the world, particularly India. India is the world's third-largest oil importer, but is now fuelling concerns about future demand levels. The country put its largest city, Mumbai, on lockdown today as nationwide COVID-19 infections hit a new daily record.
Consolidation in the U.S. shale industry is hitting new records as well. Late Thursday evening, just ahead of the long weekend, Pioneer Natural Resources announced its planned takeover of the private DoublePoint Energy for $6.4-billion (U.S.). This is the largest takeover of a private U.S. oil producer in a decade. Of course, once public targets are thrown into the mix, this is not even the highest price tag seen this year: ConocoPhillips bought Concho Resources in January for $9.7-billion (U.S.). This was one of several U.S. shale acquisitions recently, including Chevron's purchase of Noble Energy for $12.1-billion (U.S.) last October, Devon Energy's purchase of WPX Energy for $5.8-billion (U.S.) in early January and the above Pioneer's separate purchase of Parsley Energy for $4.5-billion (U.S.) in mid-January.
Given the lingering reputation of the U.S. shale industry for pursuing ambitious production boosts at the expense of healthy balance sheets, analysts are generally encouraged to see large, mature producers acquiring financially weaker ones and redirecting them toward profitability. DoublePoint is a good example, opined Enverus merger and acquisition analyst Andrew Dittmar. He noted that DoublePoint currently has seven active drill rigs. Pioneer will take two of them away and "transition DoublePoint to a moderate-growth, cash-flow-generating business," said the analyst. He added that the deal exemplifies "a maturing of the shale industry and its refocusing on financial discipline and capital returns through roll-ups." Moreover, said Mr. Dittmer, such deals should "allay concerns that U.S. shale could again oversupply the market and crash prices." (The theory here is that the recent rally in oil prices, which was largely made possible by OPEC+ and its production quotas, will be spoiled if the U.S. shale industry turns the taps back on as soon as prices get high enough to earn positive cash flow. Oil bulls are thus pleased when they see U.S. shale producers showing restraint.)
Here in Canada, the oil patch had some acquisition activity of its own. Grant Fagerheim's Alberta- and Saskatchewan-focused Whitecap Resources Inc. (WCP) lost 16 cents to $5.59 on 9.23 million shares, after agreeing to buy the private Kicking Horse Oil & Gas for $300-million. The purchase price comprises 34.5 million shares plus $56-million cash and $54-million in assumed debt.
This is Whitecap's third takeover this year. In January, it bought the private NAL Resources for $155-million in shares, and in February, it bought the public TORC Oil & Gas for $900-million in shares and assumed debt. Mr. Fagerheim, Whitecap's president and chief executive officer, subsequently hinted that further acquisitions could be on the way. He told BNN just last week, "We believe that consolidation in the energy space is going to be important."
Today Mr. Fagerheim said during a conference call that he is "extremely excited" to be adding Kicking Horse to the stable. Kicking Horse is producing about 8,000 barrels of oil equivalent a day, and Mr. Fagerheim reckoned that Whitecap can boost this figure to around 18,000 to 19,000 barrels a day in just 12 to 15 months. This production is also in a desirable area of the Alberta Montney, a region where Whitecap has been trying to expand since late 2019. (The neighbourhood and the ostensibly imminent production boost presumably explains why Kicking Horse's price tag of $300-million is nearly double NAL's price tag of $155-million. NAL was producing over 27,000 barrels a day at the time the takeover was announced, but its production is mostly in Saskatchewan and is expected to decline to about 22,000 barrels a day in 2021.)
This happens to be the second time in recent years that Steve Harding, Kicking Horse's CEO, has attracted a fairly impressive offer for one of his equine-themed juniors. Mr. Harding has been the CEO of Kicking Horse Oil since August, 2016. Before that, he was in charge of a public Montney junior called Kicking Horse Energy, which traded under the symbol KCK. Kicking Horse Energy accepted a $4.75-a-share takeover offer from Poland's PKN Orlen at the end of 2015. Its shares were trading at just $3.25 prior to the offer, so this was a sizable premium, made all the more impressive by the fact that vast swaths of the oil patch at the time were considered distressed sellers. (The year 2016 would end up being one of the worst years ever for oil patch bankruptcies, even worse than 2020.) Today Mr. Harding expressed his satisfaction with the Whitecap deal and said he expects Kicking Horse's assets to "benefit from the advantages of scale as part of a larger franchise." Whitecap did not say whether Mr. Harding will be joining the company.
Elsewhere in the Montney, Andy Mah's Advantage Oil & Gas Ltd. (AAV) edged up seven cents to $3.04 on 4.34 million shares, after providing an operational update for the first quarter. It patted itself on the back for achieving record quarterly production of 49,700 barrels of oil equivalent a day. This is up from 43,500 barrels a day in the fourth quarter, reflecting new wells that have "exceeded management's expectations." (Such expectations always seem easier to exceed when they are not advertised beforehand.) The first quarter figure was in line with the revised full-year guidance that Advantage touted in February. Although Advantage was originally expecting to produce 47,000 to 49,000 barrels a day, it announced in February that things were going so splendidly that it was boosting the range to 48,000 to 51,000 barrels a day, without increasing its budget. (In fact, it lowered the budget to about $125-million from about $138-million.)
Advantage also made some noises in February's update about "financial strength [that could] provide the basis to ... potentially return capital to shareholders." Today's news release contained the same comment, word for word. Although Advantage has still not specified whether it is talking about a share buyback, a dividend or some other option, investors do not seem to mind the teasing. At $3.04, the stock closed above $3 today for the first time since 2018, and is up sharply from $1.70 since the start of the year.
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