Energy Summary for Jan. 2, 2015
2015-01-02 19:20 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery lost 58 cents to $52.69 on the New York Merc, while Brent for February lost 91 cents to $56.42 (all figures in this para U.S.). Western Canadian Select traded at a discount of $16 to WTI ($36.69), unchanged. Natural gas for February added 11.4 cents to $3.00. The TSX energy index lost a fraction to close at 221.10.
The S&P/TSX Composite Index ended 2014 up 7.4 per cent or 1,038.25 to close at 14,632.44, a respectable gain, although only half of what it had advanced up to midsummer. The energy sector was responsible for much of the run-up and much of the fall. Of the 250 constituents of the index, 41 are oil and gas producers, of which 31 ended the year down.
The worst performer was Lightstream Resources Ltd. (LTS), which began the year at $5.92 and ended it at $1.19, for a decrease of 79.9 per cent. Today it added four cents to $1.23 on 2.65 million shares. Lightstream has struggled for years with heavy debt, production problems and a generous dividend, which has been cut twice since November, 2013, but still yields 14.6 per cent. Analysts figure that another cut is looming. The most recent cut was last month, when the monthly payout went to 1.5 cents from four cents. It had previously been eight cents. Lightstream, formerly PetroBakken Energy, listed in October, 2009, and hit a high of nearly $36 that month as it talked up its light oil production in the Saskatchewan Bakken. In the spring of 2013, after increasing its focus on light oil plays in Alberta, it changed its name to Lightstream. The fresh name did not bring a fresh start. By the end of 2013, the company was over $2-billion in debt and had no choice but to cut its dividend, set a modest budget for 2014 and pledge $600-million in asset sales by the end of 2015. It accomplished the asset sale goal well ahead of schedule, unloading a total of $729-million of assets as of October, but by then oil was well into its tumble and investors were even more skeptical about Lightstream's future. Its debt was (and remains) high at around $1.5-billion. Earlier this month, Lightstream set nearly the same plan as it did last year: a dividend cut; a simple budget; and the promise of asset sales, specifically the sale of the cornerstone Bakken unit in the next 12 to 24 months. President and CEO John Wright told Bloomberg two weeks ago that he does want to sell that until oil prices rebound. Unless that happens soon, he may have to rethink his plan, as Lightstream may need the money. Dundee Securities analyst Dale Lewko predicted last month that Lightstream will breach a covenant on its credit facility in the second half of 2015, while Dundee Capital analyst Brian Kristjansen pegged the timing at the end of 2015.
The second-worst energy performer on the S&P/TSX Composite Index was Penn West Petroleum Ltd. (PWT), which began 2014 at $9.18 and ended it at $2.43, for a decrease of 73.5 per cent. Today it added five cents to $2.48 on 4.15 million shares. Like Lightstream, it has been selling assets to repay debt, and it chopped its dividend and capital spending plans in mid-December. Its three-cent quarterly payout, down from 14 cents, yields 4.8 per cent. Penn West has been "attacking [its] cost structure" so as to lower expenses in its core Cardium, Viking and Slave Point light oil plays. Ever optimistic, it notes that even oil's tumble has a silver lining: lower service costs. It feels that it remains a "best-in-basin light oil opportunity." Director John Brydson seems to agree. He joined the board in June, 2014, and currently owns 503,000 shares, of which 300,000 were bought in December. Mr. Brydson was previously a managing director with Lehman Brothers from 1983 to 1995, and then a managing director with Credit Suisse until 2009. Penn West appears to be his first and only board seat at a public Canadian company.
The third-worst energy performer on the index was Trilogy Energy Corp. (TET), which began 2014 at $27.57 and ended it at $7.91, down 71.3 per cent. Today it added a pleasing $1.03 to $8.94 on 556,500 shares. On Dec. 8, it eliminated its 3.5-cent monthly dividend, which then yielded 4.6 per cent. The stock lost $1.09 to $7.89 on the news. Investors were particularly disappointed because Trilogy not only removed their income in 2015, but also their hopes for production growth; the forecast is flat at around 35,000 barrels of oil equivalent a day. That will come from the Kaybob (Duvernay and Montney) and Grande Prairie areas of Alberta. The company recently put its Grande Prairie assets up for sale, and also hinted on Dec. 8 that it will start looking for a joint venturer in the Duvernay. Insiders seem confident. In the three days after the dividend elimination, directors Bob MacDonald and Keith MacLeod bought 15,000 shares. Chairman and major shareholder Clay Riddell bought another 15,000 shares on Dec. 31, and president and COO John Williams bought 10,000 on Dec. 22.
Other index companies that posted declines of at least 50 per cent in 2014 were Legacy Oil + Gas Inc. (LEG: $2.24) (down 64.3 per cent), Pacific Rubiales Energy Corp. (PRE: $7.36) (61.7 per cent), Athabasca Oil Corp. (ATH: $2.67) (61.4 per cent) and Baytex Energy Corp. (BTE: $19.77) (53.1 per cent).
Not every energy company ended 2014 down. Ten of the 41 oil and gas producers in the S&P/TSX Composite Index were up over the year, with two posting gains of at least 20 per cent. Both are gas producers in the Montney. Advantage Oil & Gas Ltd. (AAV), down four cents to $5.52 on 873,100 shares, rose to $5.56 at the end of 2014 from $4.62 at the beginning, for a gain of 20.3 per cent. That is all the more pleasing because the company entered 2014 in the midst of a dreaded "strategic alternatives" review, which it ended in February without attracting any acceptable offers. It decided instead to revamp its business by selling one of its three main assets, its investment in Longview Oil (later bought by Surge Energy Inc. (SGY: $3.80). The next month, it agreed to sell the second of its three assets, its investment in Questfire Energy Corp. (QEC: $0.41). That left it as a pure-play Montney producer in Alberta. All of its production, which averaged 22,100 barrels of oil equivalent a day in the third quarter, comes from its Glacier project. The company hopes to achieve production of 40,800 barrels a day and to start generating free cash flow in 2017. This does not include any contribution from its Valhalla Montney property, just east of Glacier. Advantage acquired this property in September, 2013, but has only just started giving it any real attention. It licensed a Valhalla Montney well on Dec. 18.
The other Montney-focused gainer was Painted Pony Petroleum Ltd. (PPY), up 53 cents to $9.78 on 339,400 shares. It began 2014 at $6.96 and ended it at $9.25, for a gain of 32.9 per cent. It too became a Montney pure play in 2014 (this time on the B.C. side of the trend) after selling its Saskatchewan production in July. August brought more news, most notably a five-year supply deal and a $50-million private placement with AltaGas, which helped Painted Pony reach a high of $14.75 that month. AltaGas paid $12 a share for 4.16 million shares under the private placement 147104. Since then, in part because of doubts about the future of the B.C. LNG (liquefied natural gas) industry, those shares have lost over $9-million in value. Painted Pony seems aware of the fretting. As recently as September, it was touting its position as "ideally suited & situated for future west coast LNG supply," but in its new corporate presentation, it says its five-year plan to reach 100,000 barrels of oil equivalent a day (from 21,500 in 2015) can be achieved "with no reliance on LNG." For those who still like LNG, it makes sure to repeat the "ideally suited" bit later on.