Energy Summary for Aug. 31, 2020
2020-08-31 20:39 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery lost 36 cents to $42.61 on the New York Merc, while Brent for November lost 53 cents to $45.28 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.60 to WTI, up from a discount of $11.65. Natural gas for October lost three cents to $2.63. The TSX energy index lost 2.49 points to close at 79.57.
This summer is proving to be the season to bulk up. In the last two months, the oil patch has seen at least six private companies enter merger agreements, while some of the larger public players have snapped up smaller competitors or their assets (such as ConocoPhillips's agreement to buy Montney assets from Kelt Exploration Ltd. (KEL: $1.66), or Canadian Natural Resources Ltd.'s (CNQ: $25.72) proposal to take over Painted Pony Energy Ltd. (PONY: $0.69)). Now some of the smaller public players are getting into the game too. This morning brought two separate merger proposals involving three different public companies.
One of the proposals came from Grant Fagerheim's Saskatchewan- and Alberta-focused Whitecap Resources Inc. (WCP), which edged up four cents to $2.57 on 7.55 million shares, after agreeing to a "strategic combination" with the private NAL Resources. The deal is valued at $155-million and will see Whitecap issue 58.3 million shares to acquire NAL. NAL, a wholly owned subsidiary of the insurance company Manulife Financial, is currently producing 27,000 barrels of oil equivalent a day in similar regions as Whitecap. As a result, Whitecap will boost its production to over 80,000 barrels a day while "enhancing the company's exposure to economically compelling plays." The deal will dilute Whitecap's current share count of 408 million by about 14 per cent. Manulife will own 12.5 per cent of the shares.
That NAL and Whitecap have similar interests is no secret. Back in 2016, both NAL and Whitecap examined properties in Saskatchewan that Husky Energy Inc. (HSE: $4.41) had put up for sale in a bid to shed non-core assets and reduce debt. Whitecap ended up buying $595-million worth of Husky's assets in west-central Saskatchewan, while NAL bought a $102-million package from Husky in the west-central Saskatchewan Viking. While those buys largely involved oil production, NAL also produces a fair amount of gas: Its gas weighting is about 45 per cent, whereas Whitecap's is closer to 15 per cent. Gas markets have been strengthening lately -- the AECO Alberta benchmark has rocketed to $2.50 from $2 since the start of the month -- which likely factors into NAL's appeal.
Whitecap's investors seemed ambivalent. No doubt the deal is sparking some reminiscences about another time that Manulife sold an energy division to a producer, unfortunately with less than stellar results. Back in 2012 (another period of market turmoil and anemic valuations), Manulife agreed to sell its NAL Energy for $1.6-billion to Pengrowth Resources, a then-public oil sands producer. The combination of an oil sands company with a more geographically dispersed, conventional resource player like NAL raised plenty of eyebrows (one portfolio manager confessed to The Globe and Mail that she felt "very confused"). Pengrowth was unfazed. It was less interested in weaving the two asset bases together than in using NAL's cash flow to build a key oil sands project, Lindbergh. Unfortunately, while Lindbergh was indeed built -- and in fact became the best asset in the portfolio -- Pengrowth still ended up woefully deep in debt. It limped along for a few more years until finally accepting a below-market takeover offer in November, 2019. Under the offer, Pengrowth's stock -- once worth over $27 in 2006 -- was valued at just five cents.
The nickel payout garnered a great deal of press coverage in late 2019 and early 2020, in large part because of a prominent investor in Pengrowth, the Canadian billionaire Seymour Schulich. Mr. Schulich had paid approximately $187-million over the years to amass a roughly 30-per-cent interest in Pengrowth. The takeover saw him sell his shares for a mere $8.5-million. The 95-per-cent loss was, at least, accepted with good grace. "Joining all the 10-per-centers," Mr. Schulich quipped to the Financial Post in January. "Used to be 1 per cent B.P. Before Pengrowth."
Getting back to Whitecap, its deal with NAL Resources is not raising the same kind of red flags as the Pengrowth arrangement did in 2012, as Whitecap and NAL Resources are a lot more similar in terms of operations. This deal is also quite a bit smaller, at $155-million instead of $1.6-billion. Naturally, Whitecap is showing no trepidation about the deal, filling its press release with enthusiastic descriptions of its postmerger "increased scale and financial strength." It made sure to mention that the cash flow from NAL's assets will more than cover the additional dividend obligations that will result from issuing shares to Manulife. Whitecap pays a 1.425-cent monthly dividend, for a yield of 6.7 per cent.
The other tie-up announcement of the day came from Stephen Loukas's Alberta Cardium-focused Obsidian Energy Ltd. (OBE), up five cents to 58 cents on 487,300 shares. Obsidian has presented a proposal -- but has not received an answer -- regarding a merger with a fellow Cardium producer, George Fink's Bonterra Energy Corp. (BNE), up one cent to $1.51 on 117,200 shares. Obsidian wants to create a "Cardium Champion" by offering two shares of itself for every one share of Bonterra. Based on Obsidian's closing price on Friday, this offer values Bonterra at $35-million, or $1.06 a share. The curiosity is that this is by no means a premium. In fact, $1.06 represents a 29-per-cent discount of Bonterra's closing price on Friday of $1.50.
Obsidian presented its lowball offer with hardball nerve. It insisted that $1.06 a share is, despite appearances, a "competitive and highly compelling exchange ratio." Obsidian's logic seems to go something like this: Bonterra's current share price of $1.50 is a mistake; a merger at $1.06 is perfectly fair; and postmerger, due to some greater-than-the-sum-of-the-parts calculations by Obsidian, Bonterra's share value will climb all the way up to $6.40 or even $10.50, so really the premium is quite appreciable after all. Despite Obsidian's efforts, it remains difficult to see any of this striking a chord with Bonterra's shareholders, even those who may have bought at the mid-March low of just 64 cents. Obsidian claimed to be open to the idea of a higher price, saying it would "consider an increased exchange ratio in the event Bonterra is able to demonstrate additional value," but this too should raise skeptical eyebrows. The current proposal would already see Bonterra's shareholders owning 48 per cent of the combined company. There is thus little room for an increase that would not give Bonterra's shareholders majority control, effectively transforming the deal into a takeover of Obsidian rather than the other way around. Obsidian itself seemed to dismiss the idea quickly, informing Bonterra that it really likes the current offer and, if it does not hear back from Bonterra by Friday, Sept. 4, it is "prepared to pursue all options to consummate this transaction."
Bonterra has yet to issue a public response to the rather cheeky proposal. Apparently it has been swatting aside Obsidian's advances for months; Obsidian noted that the two companies have been in "periodic discussions" since January, 2019. Bonterra has been on its own path to improving its financial outlook, recently becoming one of the few energy companies to receive federal aid through the Business Development Bank of Canada (as discussed in the Energy Summary for Aug. 21). Obsidian mentioned this sneeringly as a "vastly inferior outcome" to its own offer.
This disparagement may belie the fact that Obsidian has not had much luck in securing firm financial footing for itself. Just about a year has passed since it launched a "strategic alternatives" review, signalling that it was willing to sell itself, sell its assets, recapitalize or pursue virtually any other options. There have been no takers yet. One of Obsidian's investors is particularly keen to see it arrange something favourable. FrontFour Capital, a U.S. hedge fund of which the above-noted Mr. Loukas is a co-founder and portfolio manager -- he then became Obsidian's interim CEO in December of last year -- previously disclosed in 2017 that it had spent over $33-million (U.S.) acquiring a 5.5-per-cent interest in Obsidian. While it may have done some trading over the years, the investment has still performed poorly over all. These days, FrontFour holds a 5.3-per-cent interest in Obsidian, which at today's prices is worth $2.27-million.
© 2020 Canjex Publishing Ltd. All rights reserved.
Bonterra Energy extends revolving credit facility
2020-08-31 22:11 ET - News Release
Mr. George Fink reports
BONTERRA ENERGY CORP. ANNOUNCES EXTENSION OF REVOLVING CREDIT FACILITY
Bonterra Energy Corp. has received approval from its syndicate of lenders to extend the revolving period applicable to the company's existing credit facility to Sept. 30, 2020, from Aug. 31, 2020. The credit facility will continue to be available on a revolving basis until that date.
The extension affords Bonterra and its syndicate of lenders additional time to finalize definitive agreements related to the Business Development Bank of Canada ("BDC") non-binding Term Sheet under their Business Credit Availability Program ("BCAP"), which would potentially provide the Company with an up to $45 million non-revolving, second lien, four year term facility (the "BDC Term Facility"). The BDC Term Facility offers Bonterra significant additional long-term liquidity at reasonable interest rates to withstand the impacts of the COVID-19 pandemic and allow the Company to continue pursuing development of its high-quality, Cardium light oil asset base in order to generate long-term, sustainable net asset value per share growth as the economy recovers.
Press Release by Obsidian on August 31, 2020
Bonterra also acknowledges the press release issued earlier this morning on August 31, 2020 by Obsidian Energy Ltd. (the "Obsidian Press Release"), whereby Obsidian expressed their interest in a potential transaction with Bonterra. At all times, Bonterra takes into consideration potential alternatives that could be of value and benefit to its stakeholders. Any unsolicited third-party expression of interest in a potential transaction is reviewed by Bonterra and its Board of Directors (and also, as appropriate, with its legal and financial advisors). With respect to the Obsidian Press Release, Bonterra confirms that the Company remains aware of Obsidian's interest in a potential transaction. Bonterra does not intend to provide any further public announcements regarding the Obsidian Press Release and any matters referred to therein unless (i) future discussions with Obsidian, if any, result in a transaction, or (ii) the Company determines that disclosure is warranted and in accordance with the requirements of applicable securities law.
Bonterra Energy Corp. is a conventional oil and gas corporation with operations in Alberta, Saskatchewan and British Columbia, focused on its strategy of long-term, sustainable growth and value creation. The Company's shares are listed on The Toronto Stock Exchange under the symbol "BNE".
We seek Safe Harbor.
© 2020 Canjex Publishing Ltd. All rights reserved.