Stockwatch Energy today
Energy Summary for March 11, 2022
2022-03-11 19:28 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery added $3.31 to $109.33 on the New York Merc, while Brent for May added $3.34 to $112.67 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.37 to WTI, down from a discount of $12.36. Natural gas for April added 10 cents to $4.73. The TSX energy index added a fraction to close at 220.07.
Oil prices wrapped up another volatile week. Despite today's rise, prices showed their biggest weekly drop in four months, after getting as high as $130 (U.S.) on Monday. They simmered down on hopes that producing countries would increase supply. Today, however, brought the news that negotiators have put an Iranian nuclear deal (which would allow Iran to boost oil exports) "on pause ... due to external factors." The factors are last-minute demands from Russia that its invasion of Ukraine will not lead to any trade sanctions between Russia and Iran. The negotiators did not say how long the pause might last, or whether the talks might ultimately become another casualty of the war.
Within the sector, Gabriel de Alba's Frontera Energy Corp. (FEC) added 22 cents to $13.82 on 127,300 shares, after extending another financial lifeline to its perpetually strapped joint venturer in Guyana. That would be Dr. Suresh Narine's CGX Energy Inc. (OYL), down two cents to $1.82 on 2.14 million shares. The two companies announced this morning that Frontera will give CGX $35-million (U.S.) in the form of a convertible loan.
This is hardly the first time Frontera has dug into its wallet for CGX. It has been pouring money into the smaller company for more than a decade, starting with a $41.1-million equity investment in 2011. Subsequent years brought further equity financings, loans, shares-for-debt deals, open-market purchases and more. They deepened their ties by becoming joint venturers in 2019, the same year that Frontera crossed the threshold into being not just a major shareholder but the majority shareholder. As of today, Frontera holds 257 million of CGX's 334 million shares. The good news is that many of the shares were acquired at favourable prices. Frontera has spent $224-million amassing its position, which as of today is worth $468-million.
This is still a long way down from the $1.16-billion that the position was worth when CGX's stock hit a high of $4.53 just six weeks ago. Investors were excited about the joint venturers' first well together, the Kawa-1 well at the Corentyne block, which at the time had just turned up preliminary signs of hydrocarbons. CGX's stock then plummeted on March 3 after the companies announced that they were unable to collect high-quality samples from the well, which also went massively over budget. In addition, the Guyanese government informed CGX that it must soon carry out additional drilling commitments at other blocks, even though it does not have the money for them. The company was already trying to arrange financings to complete the next steps at Corentyne with Frontera.
Now CGX has managed to firm up one financing. Its new $35-million (U.S.) loan from Frontera comes with some interesting strings attached. It is convertible at $3.10 a share, well above today's close of $1.82. It is also short term, coming due on July 31 (though it can be extended in exchange for increasing the already-high interest rate). The lofty conversion price and the short deadline suggest that Frontera expects to see CGX's share price head higher as the companies prepare to spud their next well, Wei-1. If CGX wants to bring in another joint venturer, complete a dilutive equity financing or undertake any other transaction to help pay for Wei-1, it must now either seek Frontera's consent or repay the loan.
Heavy-handed as the loan is, CGX was of course grateful to accept it and "move forward with our overall plans, beginning with Wei-1," said executive co-chairman Dr. Narine. Frontera's CEO, Orlando Cabreles, chimed in that he is "pleased to complete this financing agreement in support of our joint venture." They hope to spud their next well in the second half of the year.
Here in Canada, Neil Roszell's Headwater Exploration Inc. (HWX) added five cents to $7.01 on 3.07 million shares, after releasing its year-end financials. They held relatively few surprises, as Headwater already issued an operational update on Feb. 1. It noted that it has kept busy in the weeks since then. In its core Clearwater play in Alberta, chairman and CEO Mr. Roszell is "extremely pleased" by recent exploration results testing the southern and eastern extents of the area that it calls Clearwater A. Fresh results from Clearwater B are also "highly encouraging."
Mr. Roszell also provided the first update in months on Headwater's McCully gas field in New Brunswick. This is a holdover from when Mr. Roszell and his people took over a small gas producer called Corridor Resources in early 2020. (They changed its name to Headwater to reflect a long-standing preference for water themes, having previously sold Raging River Exploration, Wild Stream Exploration and Wild River Resources from 2009 to 2018.) Headwater entered the Clearwater in late 2020 and has given it the lion's share of the attention since then, but these days, gas projects in Eastern Canada are getting a promotional lift as pundits point to ways of weaning Europe off Russian gas. Mr. Roszell made sure to mention that McCully produced "strongly" all winter.
Lastly, Mr. Roszell eased aboard an increasingly crowded bandwagon. "As the business continues to evolve, there will be an increased focus on returning excess free cash flow to shareholders," he stated. He did not say whether he meant dividends, buybacks or other options, but did promise "clarity on these elements over the next nine months."
In stark contrast to Mr. Roszell's reticence was Paul Colborne of Surge Energy Inc. (SGY). Surge added three cents to $8.86 on 2.02 million shares today, regaining most of the four cents it lost yesterday after it too released its financials for 2021 -- the final year without a dividend, apparently. The dividend was previously suspended in early 2020. In the new financials (which were generally unsurprising in light of an earlier operational update), president and CEO Mr. Colborne used the word "dividend" three times in two sentences (and seven times over all). He expressed great enthusiasm to "resume [Surge's] historical shareholder-returns-focused business model."
Specific details were left out of the press release, but in a subsequent interview with Toronto-based IR firm Adelaide Capital, Mr. Colborne and chief financial officer Jared Ducs indicated that Surge will aim for a yield of at least 2 to 3 per cent. It also wants to unveil the dividend "before the midyear point." Mr. Colborne has almost a million reasons to look forward to this. He holds 928,000 of Surge's 83 million shares, which (assuming a two-cent monthly dividend, for a 2.7-per-cent yield) would entitle him to a potential $223,000 in annual dividend payments.
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