Stockwatch Energy today
Energy Summary for Nov. 14, 2022
2022-11-14 21:04 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery lost $3.09 to $85.87 on the New York Merc, while Brent for January lost $2.85 to $93.14 (all figures in this para U.S.). Western Canadian Select traded at a discount of $29.07 to WTI, up from a discount of $29.10. Natural gas for December added five cents to $5.93. The TSX energy index lost 3.88 points to close at 265.96.
Oil prices tumbled as Chinese COVID cases climbed. Beijing, Guangzhou and other major Chinese cities reported record infections today, spurring concerns about lockdowns and reduced fuel demand. Meanwhile, in its closely watched monthly report, OPEC made yet another reduction to its 2022 and 2023 forecasts of global oil demand. This is the fifth time that the group has lowered its demand estimates since April.
Here in Canada, the Riverstone-backed Pipestone Energy Corp. (PIPE) edged up four cents to $3.52 on 2.29 million shares, attempting to enter this week on firmer footing than it ended last week. The stock has fallen from $4.51 since releasing its third quarter financials last Wednesday. They were so poorly received that Pipestone is now one of the only stocks in the sector trading near 52-week lows.
Taken on its own, the third quarter was a productive one for Pipestone. Its Alberta Montney-focused output averaged a record 32,100 barrels a day, surpassing analysts' predictions of 31,800 barrels a day. Management patted itself on the back for the "significant production growth" from the company's days as a 1,500-barrel-a-day start-up in 2019. Cash flow came to 46 cents a share in the third quarter, also exceeding analysts' predictions of 41 cents a share.
The uproar arose when Pipestone announced its planned shift to "moderated production growth and a focus on shareholder returns." Specifically, the company slashed its 2023 guidance to a range of 34,000 to 36,000 barrels a day (a decrease of 6,000 barrels a day or 15 per cent), and changed its long-term production target to 45,000 barrels a day in 2025 (rather than 55,000). To offset the newly lowered production ambitions, management unveiled a three-cent quarterly dividend (for a yield of 3.4 per cent) and dangled the promise of a special share buyback program in early 2023.
Investors turned up their noses at Pipestone's carrots. While Pipestone is hardly the first energy company in recent years to scale back its production plans and hop aboard the returns bandwagon, its pitch of the switch failed spectacularly. Competitors have given the impression of a deliberate choice based on the market's mood; if the market is not rewarding big production boosts, then the money to achieve them can be shovelled at shareholders instead. By contrast, Pipestone's reasoning includes "technical constraints" and deteriorating well performance. In other words, as the bears see it, the assets are getting worse and the dividend is a last-ditch gambit to keep investors around. A yield of 3.4 per cent (2.7 per cent at the time of the announcement) is not going to cut it. As for the buyback, Pipestone is already somewhat tightly held -- Riverstone and another institutional investor control over 157 million of its 279 million shares -- and buybacks add to the concerns of thin liquidity.
Management, for its part, did its best to hype the "enhanced shareholder return strategy." At least one member of management has also taken the recent dip as a buying opportunity. In SEDI flings this morning, president and chief executive officer Paul Wanklyn disclosed that he bought 15,000 shares last Friday, spending $51,931. He now owns 935,211 shares.
Speaking of insider activity, more is swirling around Serafino Iacono's Colombian gas junior, NG Energy International Corp. (GASX), down 11 cents to 80 cents on 874,700 shares. The company announced today that it has arranged a $20-million non-brokered private placement of 73-cent shares (plus a warrant sweetener). This is in addition to a $30-million debenture offering that NG Energy announced last month, and according to the company, both financings will see "participation of the same lead group of strategic investors," including insiders.
Shareholders, who had shown little reaction to the debt financing, scowled at the equity one. NG Energy has 125 million shares outstanding, and the 27 million shares to be issued under the latest financing (prior to any warrant exercises) will dilute the share count by more than 20 per cent. CEO Mr. Iacono nonetheless dubbed himself "delighted to receive the investor interest we have during a very uncertain time in the equity markets." Between the two financings, he said NG Energy will have enough money to complete its phase 1 exploration program at its core SN-9 gas block, while being able to drill an extra well at its producing Maria Conchita gas block. All of this means that 2023 should be "a defining year" as NG Energy strives to become "a leading energy company in Colombia," he declared.
If that happens, it will not be the first time that Mr. Iacono has had a leading role at a Colombian energy darling -- but investors will have hope for a happier ending. Mr. Iacono remains best known for his previous promotion, Pacific Rubiales, a Colombian oil major where he was co-chairman from 2008 to 2016. Over this time, the stock soared to over $35 from about $2, then reversed course and fell to 38.5 cents and into bankruptcy. (It later re-emerged as Frontera Energy Corp. (FEC: $10.67), under new management.)
Back in Alberta, Tony Marino's Tenaz Energy Corp. (TNZ) added eight cents to $1.59 on 41,900 shares, after releasing ho-hum third quarter financials. It eked out a profit of $224,000 on production that stayed fairly flat with the prior quarter at 1,200 barrels a day. On the strength of a four-well drill program that it plans to start next summer, management unveiled full-year production guidance of 1,450 to 1,550 barrels a day for 2023.
Investors mostly shrugged. What they are really hoping to see is some movement on the grand ambitions that Tenaz announced more than a year ago, when it reorganized, recapitalized, and repopulated its board and management with former promoters of Vermilion Energy Inc. (VET: $26.72). Ever since August, 2021, president and CEO Mr. Marino (who had the same job titles at Vermilion until 2020) has been touting his "vision of building an intermediate E&P [exploration and production] company by executing an acquire-and-exploit strategy targeting international assets." Unfortunately, the first international deal that he announced for Tenaz -- the proposed takeover of an AIM-listed North African junior called SDX Energy -- ended in failure in July, amid opposition from SDX's shareholders. Nearly four months have passed since then, with no new deal announced.
Despite the dealmaking drought, Mr. Marino put on an air of hustle and bustle in today's financials, declaring that "we have maintained a high level of activity in the M&A [merger and acquisition] market ... [and] fully expect to complete one or more value-adding transactions in a reasonable time frame." He did not attempt to define the time frame. Many months ago, the hope among bullish investors was that Mr. Marino would land a deal by Christmas 2021. Perhaps Christmas 2022 will bring better luck. Of course, with just six weeks to go until the holidays, perhaps not.
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