Stockwatch Energy for yesterday
Energy Summary for June 30, 2021
2021-06-30 20:34 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery added 49 cents to $73.47 on the New York Merc, while Brent for August added 37 cents to $75.13 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.05 to WTI, down from a discount of $13.75. Natural gas for August added two cents to $3.65. The TSX energy index added 1.50 points to close at 140.05.
The year is half over, and for oil prices, it has been the best half-year in over a decade. Their year-to-date rise of around 50 per cent represents their best six-month performance since 2009. The TSX energy index has climbed by 53 per cent so far this year, doing better than any other sector. This in turn helped the S&P/TSX Composite Index rise by about 16 per cent, its best performance since 2009, and a better showing than the S&P 500 and MSCI World Indexes. Some of the best performers within the index were energy stocks, including Enerplus Corp. (ERF: $8.91), Tourmaline Oil Corp. (TOU: $35.43) and MEG Energy Corp. (MEG: $8.97). All three have more than doubled since the start of the year.
Not everyone shared in the victorious mood. Craig Steinke's Reconnaissance Energy Africa Ltd. (RECO), despite today's gain of 29 cents to $11.74 on 1.14 million shares, is still smarting from last week's bruising report by a U.S. short-seller. The stock was trading at nearly $13.50 prior to the report. As discussed in the June 25 and 28 Energy Summaries, the short-seller, Viceroy Research, called Reconnaissance "a disaster waiting to happen" and gave it a "near-zero chance of finding any asset of value" at its property in Namibia. It insinuated that Reconnaissance's management is trying to "swindle investors" with a pump-and-dump scam. Reconnaissance published a response by press release on Monday, claiming that it has already found signs of "commercial potential" in Namibia, that its management and directors have been buying the stock, not dumping it, and that Viceroy either does not understand the facts or is "intentionally distorting" them.
The sniping continued in Viceroy's latest missive, a 13-page report simply entitled "Con Africa." The short-seller scoffed that Monday's press release "contains zero facts" and that Reconnaissance is "continu[ing] an opaque charade destroying shareholder funds." Viceroy took issue with the claim that management and directors have been steadfast buyers of the stock, as the acquired shares "were in fact stock options issued with no transparent compensation plan, exercised at up to 90-per-cent discounts." (SEDI filings confirm that the majority of shares acquired by insiders over the last year were obtained through option or warrant exercises.) Viceroy also questioned why Reconnaissance has yet to release petrophysical data from its wells. "Given RECO's penchant [for] self-promotion, the only reason this data has not been released [is] because the wells were failures," claimed Viceroy. It concluded that Reconnaissance's promoters are "grifters behind the curtain" who are "fleecing RECO investors."
Reconnaissance has yet to mount a defence to this latest attack. As noted above, it has been slowly climbing back since the initial report last week, which sent the stock down to $10.99 from $13.34 in a single day. Today the stock closed at $11.74.
Here in Canada, gas producers enjoyed a pleasant end to the first half of the year. Jeff Tonken's Montney-focused Birchcliff Energy Ltd. (BIR) added 35 cents to $5.20 on 6.31 million shares, while Andy Mah's Montney-focused Advantage Oil & Gas Ltd. (AAV) added 14 cents to $5.06 on 2.34 million shares. This is the first time that either stock has crossed $5 since 2018. As of five weeks ago, both stocks were below $4, and as of January they were below $2. Another (non-Montney) Alberta gas producer, Peyto Exploration & Development Corp. (PEY: $8.35), was worth less than $3 at the start of the year, but crossed $8 yesterday for the first time since 2018. All of them are benefiting from rising prices in a tightening Alberta gas market. A recent S&P Global Platts report noted that Western Canadian gas inventories "continue to dive below last year's levels" (which were already low). If U.S. markets such as California increase their power imports as summer progresses, this could create even more demand for Canadian gas, pushing prices even higher, mused S&P.
S&P is not the only one taking notice of Canadian gas stocks. In a research note on Birchcliff last week, CIBC analyst Chris Thompson hiked his price target on the stock to $5.75 from $3.50, citing its high free cash flow and various "catalysts that could drive outperformance." One such catalyst would be a dividend increase, which will likely occur in 2022, reckoned Mr. Thomson. (Birchcliff currently pays a token quarterly dividend of half a penny -- or two cents on an annualized basis -- for a yield of 0.4 per cent.)
Speaking of dividends, Neill Carson's i3 Energy PLC (ITE) added 1.5 cents to 25 cents on 3.94 million shares, after obtaining U.K. court approval to rejigger its balance sheet in order to pay its first dividend. (As the PLC marker implies, i3 is a U.K. company by birth, but has been operating in Western Canada since last year.) The company has long been promising to pay up to 30 per cent of its free cash flow to shareholders in the form of a half-yearly dividend. Yet it can only pay dividends out of distributable profits, and seeing as it has retained losses, it needed to find a way to offset those losses via a sprinkle of accounting magic. Shareholders approved this a few weeks ago and now the court has followed suit. i3 says it will reveal the details of its maiden special dividend in the coming days. A presentation on its website says it has allocated $2-million for the first dividend (implying that it will be the barest fraction of a penny, as i3 currently has 700 million shares outstanding).
In the meantime, i3 has been keeping busy in Western Canada, including some of its most attention-grabbing plays. The company recently arranged a farm-in and a 15-year lease in parts of the Clearwater oil play of Alberta. The Clearwater has come under increasing scrutiny from companies such as Tamarack Valley Energy Ltd. (TVE: $2.57) and Headwater Exploration Inc. (HWX: $4.36), both of which entered the play late last year. Raymond James analyst Jeremy McCrea opined this year that the Clearwater is "one of the top economic plays in Canada." Separately, i3 has been acquiring assets in the Simonette and Wapiti areas of the Alberta Montney, where neighbours include Spartan Delta Corp. (SDE: $6.03) and Whitecap Resources Inc. (WCP: $6.16).
Between the Clearwater and the Montney, i3 declared in its above-noted presentation that its assets offer "company-making upside potential." It said it is currently producing about 9,000 barrels of oil equivalent a day and will "continue growing [this] strong production base" while paying a dividend. Shareholders seem intrigued. At 25 cents, the stock has nearly doubled from 13 cents in the last five weeks.
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