Energy Summary for Dec. 3, 2021
2021-12-03 19:25 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost 24 cents to $66.26 on the New York Merc, while Brent for February added 21 cents to $69.88 (all figures in this para U.S.). Western Canadian Select traded at a discount of $18.60 to WTI, down from a discount of $18.38. Natural gas for January added seven cents to $4.13. The TSX energy index lost a fraction to close at 157.02.
Energy investors had a special reason to look forward to the end of the Friday workday. Today after the close, S&P Dow Jones Indices is set to announce its quarterly changes to its major indexes. ATB Capital Markets is predicting that no fewer than eight oil and gas stocks could win entry, or in many cases re-entry, into the key S&P/TSX Composite Index. This in turn should create buying support from index-linked funds.
The eight hopefuls, in order of year-to-date percentage gains in their share price, are Baytex Energy Corp. (BTE: $3.56), Paramount Resources Ltd. (POU: $20.94), Advantage Energy Ltd. (AAV: $6.84), Peyto Exploration & Development Corp. (PEY: $9.79), Tamarack Valley Energy Ltd. (TVE: $3.28), Secure Energy Services Inc. (SES: $5.07), Freehold Royalties Ltd. (FRU: $10.79) and Topaz Energy Corp. (TPZ: $17.91). The predicted influx marks a drastic reversal of fortunes for the sector. The reversal started in September, when Birchcliff Energy Ltd. (BIR) regained entry (after being booted out in 2019). For perspective, just prior to the downturn in 2014, energy companies made up 22 per cent of the index. This figure was down to just 11 per cent of September, 2021 -- and that was after Birchcliff clawed its way back in. With any luck, more will soon come storming the gates.
One of the above companies, Paramount Resources Ltd. (POU), added 13 cents to $20.94 on 642,300 shares. Its key backers are shoring up their position. According to a new SEDAR filing, Treherne Resources Ltd. has converted $25-million worth of debentures of Paramount into 3.75 million shares. Treherne is controlled by Jim Riddell, Paramount's chairman, president and chief executive officer. The conversion boosts Mr. Riddell's ownership (through Treherne, other entities and personal holdings) to 35.8 million of Paramount's 140 million shares.
Paramount has been the flagship oil company of the Riddell family for nearly 50 years, ever since Clay Riddell, Jim's late father (who died in 2018), founded it in 1976. Jim Riddell took over management of Paramount in 2015. (His sister, Sue Riddell Rose, is an energy CEO in her own right, leading Perpetual Energy Inc. (PMT: $0.56). She is also married to Mike Rose, the CEO of Tourmaline Oil Corp. (TOU: $41.00).) Paramount's stock has had plenty of ups and downs over the decades. At $20.94, it is still well below its 2014 high of $66, but it has rebounded gloriously from a low of just 81 cents in early 2020.
Early 2021 is when Paramount issued the above debentures to Treherne. The debentures did not mature until 2024, but Treherne had the right to convert them at any point before then, with the catch being that the conversion price would rise over time. The stock was then trading at around $6 and the conversion prices ranged from about $6.60 to nearly $8. To get the lowest price, Treherne would need to convert them prior to Jan. 31, 2022 -- and it has now done exactly that. The $25-million in debentures became 3.75 million shares at a conversion price of $6.666. This was a good investment; at current market prices, those 3.75 million shares are worth $78.5-million.
Another company in the above list of index hopefuls, Tamarack Valley Energy Ltd. (TVE), lost 10 cents to $3.28 on 11.1 million shares. The drop came despite its efforts this morning to tout its shiny new 46-page ESG (environmental, social and governance) report. This is Tamarack's second annual ESG report and, according to president and CEO Brian Schmidt, "highlights how Tamarack continues to be a leader in responsible development."
The report is filled with the usual colourful arrows and graphs and smiling or scenic photographs. Unlike some competitors that talk of reaching net zero emissions by 2050 but then immediately clarify that the goal is "aspirational" -- a term that broadly seems to mean reliant on technology, government incentives and consumer behaviours that do not yet exist -- Tamarack has not set explicit emission reduction goals. It says its emissions are already low to begin with. They actually rose slightly during 2020, which Tamarack blamed on acquisitions. It emphasized that it has now launched "integration of ESG key performance indicators (KPIs) into acquisition criteria." Meanwhile, another ESG element particularly close to Tamarack is indigenous relationships. Mr. Schmidt has decades-long connections to the Southern Alberta Blood tribe, even being appointed an honorary chief in 2018.
The bigger news arrived after the close. As expected, S&P Dow Jones Indices put out its quarterly rebalancing report late in the day -- and every single one of the above-listed eight companies, from Advantage to Tamarack, are heading to the S&P/TSX Composite Index. The index made 12 additions in total, two-thirds of which were oil and gas stocks. No oil and gas stocks were deleted. The changes will take effect at the open on Monday, Dec. 20.
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