Stockwatch Energy today
Energy Summary for May 17, 2021
2021-05-17 20:07 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery added 90 cents to $66.27 on the New York Merc, while Brent for July added 75 cents to $69.46 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.79 to WTI, unchanged. Natural gas for June added 15 cents to $3.11. The TSX energy index added 3.65 points to close at 130.21.
Grant Fagerheim's Alberta- and Saskatchewan-focused Whitecap Resources Inc. (WCP) added 33 cents to $5.93 on 8.52 million shares, pleasing investors with an unexpected dividend increase -- the second increase this year. The company is hiking its monthly dividend to 1.625 cents (or 19.5 cents annualized) from 1.508 cents, for a yield of 3.3 per cent. It already boosted the dividend from 1.425 cents in February.
In both cases, the dividend increase was accompanied by the closing of a sizable acquisition. Whitecap closed the $900-million takeover of Brett Herman's TORC Oil & Gas in February, which was shortly after closing the $155-million takeover of Manulife's NAL Resources in January (which did not come with a dividend boost). Then in April, Whitecap announced yet another acquisition: the $300-million purchase of Steve Harding's Kicking Horse Oil & Gas. Whitecap was particularly proud of this deal for expanding its acreage in a new core area, the Alberta Montney. (For context, the non-Montney-focused NAL had more than triple Kicking Horse's production, yet fetched half the purchase price.) Whitecap closed the acquisition of Kicking Horse today. Citing "exceptional Montney well results," it simultaneously announced the dividend boost.
The decision marks a bit of a change from management's remarks less than three weeks ago, during an April 29 conference call to discuss the company's first quarter financials. Mr. Fagerheim, Whitecap's president and chief executive officer, expressed interest in "strengthening our dividend as we move forward," but suggested that this would take place over the longer term. Chief financial officer Thanh Kang mentioned dividends and free cash flow in the context of Whitecap's plans "as we think about 2022 and 2023." Both of them suggested that Whitecap's more immediate priority was to pay down its debt. (Net debt was $1.45-billion as of March 31, not counting Kicking Horse's contribution of about $54-million.)
Whitecap proclaimed today that it can handle both the debt and the higher dividend obligations. For kicks, it even threw in one more announcement: the resumption of its share buyback program. Whitecap has not repurchased any of its own shares since last June. It announced today that it has received TSX approval to buy back 29.8 million shares over the next year, "representing 5 per cent [of its share count of 597 million] as of May 10." Apparently it preferred to use last week's trimmer-looking share count rather than the post-Kicking Horse one, which exceeds 632 million as of today.
Another Alberta and Saskatchewan producer, Paul Colborne's Surge Energy Inc. (SGY), added four cents to 56 cents on 5.94 million shares. It released its first quarter financials on Friday after the close. The timing of any Friday night news release is always somewhat suspect, and indeed, the financials were on the disappointing side. Analysts were predicting first quarter production of 17,000 barrels of oil equivalent a day and cash flow of six cents a share. Surge's actual figures were 16,600 barrels a day and five cents a share.
Investors did not seem to mind. Today's higher oil prices helped, as did Surge's continual reminders of the progress it has made on its balance sheet. Notably, net debt dropped to $303-million as of March 31 from $381-million as of Dec. 31, thanks to a sizable asset sale that Surge closed in March. (The remaining debt is still well above Surge's current market cap of $212-million.)
Surge bolstered its bank account again last Thursday by closing a $23-million bought deal of shares at 59 cents. It simultaneously unveiled guidance for both 2021 and 2022 so subscribers and other investors could get a sense of where their money is going. The answer, for the most part, is more balance sheet cleanup. Surge is forecasting flat production of just 16,500 barrels a day as of year-end 2021 and throughout 2022. Its focus is on maximizing free cash flow and repaying debt. While companies such as Whitecap are taking the oil recovery as a chance to go on aggressive shopping sprees, Surge seems to be sprucing itself up in case one of the companies looks its way.
Speaking of shopping, John Jeffrey's Saturn Oil & Gas Inc. (SOIL) added 4.5 cents to 15.5 cents on 5.14 million shares, after trumpeting a $93-million deal to expand in Saskatchewan. (It announced the deal last Thursday, but halted trading beforehand and did not resume trading until today.) Saturn has historically focused on the Saskatchewan Viking light oil play. Now it is buying assets in the nearby Midale and Frobisher light oil plays, acquiring 6,700 barrels of oil equivalent a day. That compares with its current production of around 300 barrels a day. Mr. Jeffrey, chairman and chief executive officer, cheered the "transformational" deal, marvelling at the 2,000-per-cent increase in Saturn's production, 1,300-per-cent increase in its reserves and 775-per-cent increase in its land base.
Mr. Jeffrey kept up the hype during an interview with GBC AG analyst Julien Desrosiers. GBC is based in Germany (Saturn is listed in Frankfurt and Toronto) and is a self-described independent investment bank and research firm. Perhaps it ought to include PR firm; a disclosure in the fine print of the interview noted that GBC and Saturn have a contractual relationship and that GBC received compensation for its efforts. The amount paid was not specified, but it was clearly enough to merit such softballs as, "Can you explain how transformative this moment is for the future of the company?" Mr. Jeffrey was happy to oblige. "The magnitude of this transaction is enormous," he declared, "and will transform Saturn into a leading producer and landholder throughout Saskatchewan," he declared. He added that the assets come with "strong" cash flow and are in some of the "most economic plays in North America."
Saturn is paying for the assets mostly by taking out an $82-million term loan. Mr. Jeffrey told GBC that Saturn will be debt-free within two years, and will make sure it accomplishes this by hedging the majority of its production. To cover the rest of the price tag, and provide some cash for general corporate purposes, Saturn is aiming to close $28-million in equity financings at 12 cents. The financings (prior to any associated warrant exercises) will boost its share count to 467 million from 234 million. Mr. Jeffrey seems unfazed by the dilution and indeed seems to already be thinking about future expansion plans. "As our debt is paid down," he told GBC, "we will start transitioning to both organic growth and looking at new opportunities for creative acquisitions."
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