Stockwatch Energy for yesterday
Energy Summary for April 16, 2021
2021-04-16 20:26 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery edged down 33 cents to $63.13 on the New York Merc, while Brent for June lost 17 cents to $66.77 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.34 to WTI, down from a discount of $10.25. Natural gas for May added two cents to $2.68. The TSX energy index lost a fraction to close at 118.08.
Despite today's drop, oil prices closed out the week with a noteworthy overall gain of 6 per cent, or about $4 (U.S.). The rise reflects improving outlooks for oil demand, particularly in the world's largest economy. Bullish new driving data showed that miles driven on U.S. highways are now up for the first time since the start of the pandemic. "We are well on the way to a bountiful U.S. summer driving season," opined AxiCorp chief market strategist Stephen Innes in a research note. He added that this season "could come close to matching the summer of 2019."
Even further south, Colombian oil producer Parex Resources Inc. (PXT) added 23 cents to $22.69 on 409,700 shares, after it too put on a display of optimism. It has hiked its 2021 budget by no less than $85-million (U.S.). The new range is $250-million (U.S.) to $270-million (U.S.), compared with the $164-million (U.S.) to $185-million (U.S.) that Parex announced in November. Despite the higher budget, the production guidance remains unchanged at 47,000 to 49,000 barrels a day. This indicates that the bulk of the budget boost is for exploration.
More generally, the boost provides clues about the ambitions of Parex's new president and chief executive officer, Imad Mohsen. Investors have been wondering about these ambitions. For years, Parex has been rumoured to be mulling a massive overhaul of its business -- it even started a "strategic positioning review" in 2018, with the idea of potentially selling its most productive assets in Colombia (notably its LLA-34 block) and starting over as a junior explorer. Investors loathed the review and sent Parex's stock to $14 from $25 over the following five months. Parex changed tack, cancelled the review, and for two years stuck to cautious spending plans that emphasized free cash flow. Its share price recovered, but its broader ambitions remained inscrutable, leading to rampant speculation and uncertainty about its plans. The speculation increased last December after president and CEO David Taylor announced his retirement, with a newcomer taking the job effective Feb. 1.
The newcomer is former Shell executive Mr. Mohsen. Although he started the job in February, he has been in a transition period with Mr. Taylor, and investors have only just started to see more of him. Mr. Mohsen presented earlier this month at the Scotiabank CAPP Energy Symposium and hinted that he sees acquisitions and "possibly" even dividends in Parex's future. Now, the updated budget indicates that he also wants to boost Parex's focus on its less developed assets. The above-noted LLA-34 block has been doing the heavy promotional lifting for years and represents nearly three-quarters of Parex's output. Of the newly announced $85-million (U.S.) budget boost, a full $70-million (U.S.) is being spread among five earlier-stage blocks. Parex said it expects its cash flow to fully cover this increase. Given that it had $320-million (U.S.) in working capital as of Dec. 31, it is likely not overly worried about a little exploration risk.
Here in Canada, Rick McHardy's Alberta-focused Spartan Delta Corp. (SDE) added 25 cents to $4.30 on 969,600 shares, on top of the 10 cents it added yesterday after providing an operational update. It pegged its production for the first quarter at 31,500 barrels of oil equivalent a day. This was slightly ahead of analysts' predictions of 30,500 barrels a day. Near the end of the quarter, in late March, Spartan closed three acquisitions for a total of $147-million. It boasted to investors yesterday that these deals helped boost its production to the current total of 41,800 barrels a day, well above its full-year guidance of 35,500 to 37,500.
Investors seemed pleased. Spartan reminded them that it is aiming to keep boosting its production by drilling a total of 12 wells in the second half of this year, after spring breakup. It emphasized that four of the wells will target its new Gold Creek Montney assets. These are some of the numerous assets that Spartan acquired in March, in this case by buying the private Inception Exploration. Inception was private by ownership and by nature, but public data suggest that it was producing around 4,800 barrels a day when it was acquired. Considering that Inception also owned enough infrastructure to more than triple that production, Spartan's speediness in planning a drill program is easily understood.
Elsewhere in Alberta, George Fink's Cardium-focused Bonterra Energy Corp. (BNE) lost eight cents to $3.52 on 68,200 shares. At the start of last week, the stock was as high as $4.54, but has been stuck in a sea of red ever since, with one notable exception: Two days ago, it shot up 40 cents to $3.80 after making some board changes. Mr. Fink, its founder and CEO, is stepping down as executive chairman. "The separation of board chair and CEO is common practice," explained Bonterra, perhaps ever so slightly defensively. It has asked new director Michael Stewart to step up as chairman instead. Mr. Stewart joined Bonterra's board just a month ago, on March 17.
Bonterra also laid out some amendments to its bylaws. Notably, it has adopted an advance-notice bylaw setting out restrictions on shareholder proposals for director nominations. Plenty of companies have these sorts of bylaws, but they do tend to be seen as a tool to prevent a stealth proxy contest or outright ambush. The timing is especially interesting in Bonterra's case, as the company recently spent seven months fending off a hostile below-market takeover offer from fellow Cardium player Obsidian Energy Ltd. (OBE: $1.50). Obsidian let its offer lapse on March 29, citing a changing economic environment. (The fact that the bid was unsuccessful despite multiple extensions likely played a role as well.)
On March 31, shortly after Obsidian's offer expired, Bonterra's Mr. Fink gave an interview to The Canadian Press. He acknowledged that he felt "animosity" from the criticisms hurled his way during the seven-month campaign. With the battle over, Mr. Fink said Bonterra is eager to get back to its goals of stabilizing its production, paying down debt and -- sooner than later -- reinstating its dividend (which was suspended last year amid the COVID-19 downturn). If this week's bylaw amendments are any indication, Bonterra wants to focus on these goals without the potential threat of a proxy ambush.
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