Stockwatch Energy todayThis one's for you TD12 hope you took what you could off the table rather than wait around? In box me I'll give you my jr. thought-no money no guts! Oh wait got money now? Enjoy the moment- Loonie
Energy Summary for March 28, 2022
2022-03-28 20:01 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost $7.94 to $105.96 on the New York Merc, while Brent for May lost $8.17 to $112.48 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.00 to WTI, unchanged. Natural gas for April lost six cents to $5.51. The TSX energy index lost 5.40 points to close at 224.39.
Oil prices had a stumbling start to the week, as COVID infections surged in China -- particularly in Shanghai -- and prompted the country's largest lockdown in two years. This is raising concerns about falling demand in China, the world's largest oil importer. Meanwhile, attention is also turning to the next OPEC+ meeting, scheduled for Thursday. The group is expected to stick to its plan for modest monthly production increases.
Here in Canada, Rob Zakresky's Leucrotta Exploration Inc. (LXE) -- named for a mythical creature said to resemble both a stag and a lion -- bounded up 65 cents to $1.95 on 25.8 million shares. The B.C. Montney junior has accepted a $477-million takeover offer from Vermilion Energy Inc. (VET), down $2.00 to $27.20 on 4.5 million shares. The deal will also see the creation of a new company to hold Leucrotta's exploration assets. As consideration for each share of Leucrotta, shareholders will receive $1.73 cash, plus a share and a partial warrant in the new exploration company.
Vermilion president Dion Hatcher hyped the deal and its alignment with the so-called "VET Vision" (a 10-year plan covering 2021 through 2030). "[Leucrotta] is expected to provide us with 20-plus years of high-value Tier 1 drilling inventory," claimed Mr. Hatcher. He was referring primarily to Leucrotta's Mica asset, which is currently producing about 4,000 barrels a day but is forecast to get up to 28,000 barrels a day "within a few years." This should push Vermilion past the psychologically pleasing 100,000-barrel-a-day threshold. Between Leucrotta and other acquisitions (including non-Canadian ones), Mr. Hatcher boasted that Vermilion has announced $1.2-billion in acquisitions since the start of 2021, without issuing a single share. The company has also continued to pay down debt and expects to be net-debt-free by the end of next year.
As for Leucrotta, it claims not to mind giving up its crown jewel, Mica, considering that the better-capitalized Vermilion is "suited to surface value sooner ... than Leucrotta can." Now its focus -- or rather the new exploration company's focus -- will be the Two Rivers area. This is a "highly prolific" area with "significant value and growth potential that can now be accelerated," according to Leucrotta. Vermilion seems intrigued as well, having already agreed to invest $14.4-million in the exploration company and obtain a 12.5-per-cent interest. The company will be led by Mr. Zakresky, Leucrotta's president and chief executive officer, as well as other members of Leucrotta's management.
This part of the deal bears a strong resemblance to the one that Mr. Zakresky and his people put together for their last promotion. This was a different Montney junior called Crocotta Exploration. In 2014, Crocotta accepted a $327-million takeover offer from Long Run Exploration, with Long Run agreeing to spin out some of the assets it did not want into a new company: Leucrotta. Leucrotta will now be the sixth company they have built and sold together since 1993. The others were Bellator Exploration, Viracocha Energy, Chamaelo Energy and Chamaelo Exploration.
Fellow Montney producer Advantage Energy Ltd. (AAV) added one cent to $8.45 on 1.24 million shares. Its clean tech subsidiary, Entropy Inc., boasted this morning that it has arranged a $300-million "strategic investment agreement" from Brookfield Renewable. It will use the money to "scale up deployment of Entropy's carbon capture and storage (CCS technology globally." The actual terms of the commitment were vague. Brookfield has agreed to invest in "a hybrid security that implies a premoney valuation of approximately $300-million," which Entropy can draw down as it reaches final investment decisions on CCS projects. It is currently working on just one CCS project, at Advantage's Glacier asset in the Alberta Montney, which should be operational at some point next quarter. Entropy is presumably hopeful that this will spur interest from other companies. It claims to have signed MOUs (memorandums of understanding) collectively representing "approximately $1.5-billion of potential investment." The only company (other than its doting parent) with which it has a somewhat firmer agreement is Athabasca Oil Corp. (ATH: $2.19), which has progressed to the LOI (letter of intent) stage for a potential CCS project at its Leismer oil sands mine.
Elsewhere in Alberta, Rick McHardy's Spartan Delta Corp. (SDE) lost six cents to $9.16 on 697,100 shares, as a major investor -- but one with uncomfortable ties -- pared its interest. ARETI Energy issued a press release today disclosing that it will sell 15 million shares of Spartan to a private purchaser for $121.5-million. It will then own 12.8 million shares, or about 8 per cent of the 153 million shares outstanding.
As discussed in the Energy Summary for March 9, ARETI Energy is part of the ARETI International Group that is led by the billionaire Russian oligarch Igor Makarov. ARETI obtained its Spartan shares when Spartan acquired the ARETI-backed Inception Exploration last year. This connection has come under increasing scrutiny since Russia's invasion of Ukraine. To be clear, Mr. Makarov is not among the Russian individuals hit with sanctions over the invasion (although he was suspected of having -- and his spokespeople subsequently denied -- a close relationship with Russian President Vladimir Putin, to the point of appearing on the U.S. government's "Putin List" in 2018). Undoubtedly aware of the scrutiny, Spartan publicly emphasized on March 8 that it has nothing but "support for Ukraine" and wants Russia to "stop [its] inhumane military operations ... [and] end the war."
Spartan made the above comments without explicitly mentioning its Russian shareholder. Today, it similarly offered no comment on ARETI's reduced interest. ARETI in turn made no particular mention of its reasons for selling, other than a desire to "generate immediate liquidity and reduce [its] overall economic exposure to Spartan." As the 15 million shares represent 9.8 per cent of the outstanding total, their buyer will not necessarily cross the 10-per-cent insider disclosure threshold and may remain anonymous.
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