Stockwatch Energy today
Energy Summary for July 12, 2021
2021-07-12 20:15 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery lost 46 cents to $74.10 on the New York Merc, while Brent for September lost 39 cents to $75.16 (all figures in this para U.S.). The OPEC+ stalemate remained unresolved. Western Canadian Select traded at a discount of $13.22 to WTI, up from a discount of $13.32. Natural gas for August added eight cents to $3.75. The TSX energy index lost 1.61 to close at 134.73.
Canadian oil stocks fell with oil prices. Stephen Loukas's Obsidian Energy Ltd. (OBE), which one week ago was trading above $5 for the first time in 2-1/2 years, today lost nine cents to $4.43 on 727,800 shares, despite touting "strong production results" from the Alberta Cardium. The company pegged its second quarter production output at 24,700 barrels of oil equivalent a day. This is up from 23,200 barrels a day in the first quarter. Obsidian added that the third quarter is off to a good start, and that it plans to drill 23 wells in the second half of the year, taking the full-year total to 32 wells.
"The company has significant capability to scale its development drilling in response to changes in commodity prices," added management. Investors seemed less confident in that. Although Obsidian's hedges this year are modest (meaning it is enjoying nearly the full benefits of rising oil prices), it is counting on the extra cash flow to ease the load on its balance sheet. The company had $455-million in net debt as of March 31. It spent the preceding five months in a back-and-forth with its bankers, which repeatedly extended its credit facilities, but only for short bursts at a time. Also at issue were $60-million (U.S.) in senior notes coming due in November, 2021.
Finally, in late March, the bankers and the noteholders agreed to extend everything to November, 2022. This gave Obsidian another year and a half of breathing room. It came at a cost, however: The notes now have a higher average interest rate (7.3 per cent instead of 5.2 per cent), and the credit facilities (now $440-million) will go down by $35-million on Dec. 31. None of that stopped Obsidian from chattering about its "substantial" drilling plans and even the potential for "consolidation opportunities." There were hints of tension when two long-time directors, Maureen Cormier Jackson and Bill Friley, abruptly resigned last month with no explanation. Obsidian was unfazed and held an on-line investor presentation to talk up its future plans. Today it remained in good spirits, downplaying debt while talking up "progress in field execution."
Elsewhere in Alberta, Keith MacPhail and Ronald Poelzer's Montney-focused NuVista Energy Ltd. (NVA) lost five cents to $3.90 on 881,900 shares, after proposing a $200-million private placement of senior notes. It seems to be hopping aboard the refinancing trend. Several energy companies have refinanced debt over the last year, including MEG Energy Corp. (MEG: $8.71), Frontera Energy Corp. (FEC: $7.21) and the private Teine Energy, all of which have issued fresh batches of notes to repay older notes that had higher interest rates. NuVista is presumably joining them. It did not specify the coupon on the new notes, but said it will use the proceeds to redeem $220-million of notes that are due in March, 2023, and bear interest at 6.5 per cent.
The above-mentioned Frontera Energy Corp. (FEC) lost eight cents to $7.26 on 113,500 shares, after providing an update from South America. Frontera (which is primarily a Colombian oil producer) has an exploration-stage joint venture off the coast of Guyana with CGX Energy Inc. (OYL), up three cents to $1.57 on 468,000 shares. Today both companies announced that they will spud their first Guyanese well during the first half of August.
The well will target the Kawa prospect on the Corentyne block. It will be Frontera's first ever Guyanese well, and CGX's first well in nearly a decade. CGX's two previous wells (Eagle-1 and Jaguar-1) were drilled way back in 2012 and were unsuccessful. The next batch of exploration drilling was supposed to start by 2017, but CGX never got around to it, instead repeatedly extending its deadline with the Guyanese government. The government had good reason to play nice. CGX had contributed nearly $10-million (U.S.) to Guyana's legal costs in a maritime border dispute with Suriname from 2000 to 2007. As well, in 2015, ExxonMobil discovered oil at its massive Stabroek block -- which happens to be right beside Corentyne -- and in the process bought local explorers a lot of goodwill.
Goodwill runs out eventually, however, and CGX faced rising pressure to not let an entire decade go by without drilling a new well. "CGX Energy appoints drilling director after facing heat for not honouring work programme for years," was the grumbling headline in one local newspaper (the Guyana Standard) last January. That was when the company hired Kevin Lacy. Mr. Lacy has been in the industry for over four decades, working for Chevron, BP and Talisman Energy. CGX reminded investors of his qualifications today as it rallied its "highly qualified and experienced team" to prepare -- at long last -- for the August spud date.
Another South American junior, Richard Gonzalez and Charles Cotter's Petro-Victory Energy Corp. (VRY), lost 12 cents to $2.11 on 1,700 shares, after hiring a European financial advisory firm. The U.K.-based Gneiss Energy will provide "strategic corporate finance advice in relation to capital raising, corporate and asset transactions, and other strategic growth initiatives."
The hiring comes about two months after Petro-Victory enjoyed a burst of excitement in Brazil. As discussed in the May 3 Energy Summary, Petro-Victory rocketed to $3.00 from just 36 cents (and climbed to a high of $4.89 the very next day) after it released its first reserve report, covering three Brazilian oil fields. The company had agreed to acquire these fields in 2017. It was not able to close the acquisition until 2019, however, and was not able to record revenue until 2020. Such things move slowly in Brazil. Also sluggish is the production itself, at just 43 barrels a day, but the company promised a "significant" boost in 2021. It just needed money for a drilling and workover program. The financials for the quarter ended March 31 showed negative cash flow, a working capital deficit of $3.4-million and a field of "going concern" red flags.
At $2.11, Petro-Victory's stock has held onto a surprising amount of its gains from May, but these have not translated into a workable financing. The company is hoping that Gneiss will help with that. Gneiss was founded five years ago by Jon Fitzpatrick, a former senior managing director at Macquarie Capital. Fellow former Macquarie man Paul Weidman is Gneiss's corporate finance director. As European markets tend to be friendlier than North American ones for far-flung juniors, the men will likely keep their Petro-Victory pitch international.
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