Energy Summary for Oct. 25, 2021
2021-10-25 19:59 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery stayed unchanged at $83.76 on the New York Merc, while Brent for December added 46 cents to $85.99 (all figures in this para U.S.). Western Canadian Select traded at a discount of $15.70 to WTI, unchanged. Natural gas for November added 62 cents to $5.90. The TSX energy index added 3.05 points to close at 160.25.
Earnings season kicked off in the oil patch with the third quarter results of PrairieSky Royalty Energy Ltd. (PSK), up 23 cents to $16.05 on 6705,00 shares. While not a direct oil and gas producer, PrairieSky collects royalties from producers across Western Canada, thereby providing a useful barometer of industry activity. This morning, PrairieSky reported royalty revenue of $76-million in the third quarter. "[This is] our second-highest quarter since inception in 2014," boasted president and chief executive officer Andrew Phillips. He credited "strong commodity prices for all products." Emphasizing his continued high hopes, Mr. Phillips added that PrairieSky spent over $190-million on acquisitions during the third quarter. This is up from $6-million in the second quarter and nothing at all in the third quarter of last year.
Among producers, Alberta oil sands player Athabasca Oil Corp. (ATH) lost five cents to $1.05 on 11.3 million shares, failing to impress investors with its new "strategic update." It was originally aiming to release this update last week, when it planned to close a $350-million (U.S.) debt refinancing (as discussed in last Monday's Energy Summary). Closing took a few days longer than expected, but the refinancing is now done and CEO Rob Broen boasted today that Athabasca is "in an enviable position ... [with] significant strategic flexibility."
Investors did not seem so sure. Even as Athabasca talked up the "tremendous upside" of its operations, it made clear that plenty of work remains to be done on the balance sheet. The company does not expect to be in a net cash position until perhaps 2023. This will require significant debt repayment, and to lock in the cash flow necessary for this, the company plans to hedge up to three-quarters of its production over the next 18 months (limiting its exposure to higher oil prices, should they continue to rise). It does not plan to increase production either; this is to remain relatively flat at 32,000 to 34,000 barrels of oil equivalent a day.
In other words, Athabasca is still very much in cleanup mode. Mr. Broen spun it as best he could, hyping his "path to net zero leverage in 2023 ... [which] is expected to unlock significant shareholder value through this time period and beyond." The stock headed down despite his best efforts. Some of the drop may reflect the warrant sweetener in the refinancing. Subscribers received a total of 79.4 million warrants with a strike price of 94.4 cents, which is already in the money, raising concerns about dilution and the possibility of selling pressure from holders who want to lock in fast gains.
Besides Athabasca, no fewer than three other energy companies completed financings today. One was Doug Bailey and Frank Muller's Alberta-focused Razor Energy Corp. (RZE), up five cents to 93 cents on 99,400 shares. It raised $1.89-million by selling 2.25 million shares at 84 cents.
There were just three placees in the financing, the largest of which was Alberta Investment Management Corp. (AIMCo). AIMCo has been a steady 10-per-cent shareholder and major creditor since Razor went public in 2017. Now AIMCo has now subscribed for 2.2 million of the new shares, doubling its shareholdings to 19.8 per cent. (Razor has a trim 23 million shares outstanding.) The other two placees, who took 25,000 shares each, were the above-mentioned Mr. Bailey and Mr. Muller, Razor's chief executive officer and chief operating officer, respectively. They previously co-founded Striker Exploration and sold it to Gear Energy Ltd. (GXE: $0.89) for $1.79 a share in 2016.
Further afield, a larger financing was closed today by Serafino Iacono's NG Energy International Corp. (GASX), up 16 cents to $1.95 on 705,200 shares. The Colombian gas explorer closed an $8-million private placement of units at $1. Each unit comprised a share and a warrant exercisable at $1.20.
The fact that the stock closed today at $1.95 shows the market's high expectations for how NG Energy will use this money. As discussed in the Energy Summary for Oct. 7 -- when NG Energy arranged the financing, and when its shares were trading closer to $1.20 -- the company plans to "fast-track" its drilling and production plans at its SN-7 and Maria Conchita gas blocks in Colombia. It is hoping to join the ranks of Colombian gas producers before the end of the year. Colombia has high gas prices, a fact emphasized frequently lately by both NG Energy and the country's largest independent gas producer, Canacol Energy Ltd. (CNE: $3.92).
This brings us nicely to the final financing of today's roundup. Colombian oil junior Arrow Exploration Corp. (AXL) added 1.5 cents to 14.5 cents on 124,900 shares, after closing a $15-million private placement of 140.9 million shares at 10.6 cents -- with the above Canacol subscribing for more than one-quarter of them. Canacol now holds over 41 million of Arrow's shares, equal to a 19.9-per-cent interest.
The two companies already have long-standing ties. Arrow effectively got its start in 2018 by buying Canacol's Colombian oil assets (as the larger company was switching its focus to gas). While Canacol received plenty of shares of Arrow as part of its compensation, it quickly distributed these shares to its own shareholders. This made them the unhappy ones when Arrow missed the mark so badly that it had to start a "strategic alternatives" review in late 2019 (code for going up for sale). The stock touched a low of just 1.5 cents in 2020, down from a high of $1.20 in 2018. Yet after a management overhaul in the spring of 2020 -- including appointing CEO Marshall Abbott, who led and sold four companies from 2002 to 2020 -- Arrow managed to sell $12-million (U.S.) of assets and restart production at its core Tapir oil field. The stock slowly rallied to today's close of 14.5 cents.
The new financing indicates that Canacol is among the investors with revived confidence in Arrow (and Canacol likely wants more oil exposure in today's frenzied oil price environment). Arrow conducted the financing as part of its new listing on London's AIM exchange. The listing took effect today, and Arrow celebrated by hyping its "near-term, value-transformative [activities]." Over all, it vowed to quintuple production to 3,000 barrels a day, by pursuing "organic growth activity over the next 18 months."
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