Stockwatch Energy today
Energy Summary for Dec. 15, 2020
2020-12-15 20:16 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added 63 cents to $47.62 on the New York Merc, while Brent for February added 47 cents to $50.76 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.05 to WTI, up from a discount of $14.15. Natural gas for January lost one cent to $2.67. The TSX energy index added a fraction to close at 95.15.
The soon-to-be third-largest oil and gas producer in Canada took another step toward creation today. Shareholders of Cenovus Energy Inc. (CVE), up six cents to $7.76 on 16.3 million sharers, and Husky Energy Inc. (HSE), down one cent to $6.46 on 7.8 million shares, have reportedly approved the multibillion-dollar merger of both companies. Neither company has put out a press release as of this writing, but The Canadian Press spent the day filing reports on the special shareholder meetings both Husky and Cenovus held within hours of each other today. Husky went first and apparently received more than 95-per-cent shareholder approval this morning. Cenovus followed in the early afternoon with roughly 90-per-cent approval.
Cenovus's chief executive officer, Alex Pourbaix, who will lead the combined company, was quoted in The Canadian Press as calling the shareholder meetings a "defining moment" that creates "significant cause for optimism." He told shareholders, "I'm confident that our combined company will be stronger [and] more competitive, efficient and profitable than either company on its own." The deal has been cast as a $23.6-billion megamerger, but most of that transaction value reflects debt. In terms of equity value, based on the 0.7845 of a Cenovus share that will be issued for each Husky share (plus a fraction of a warrant), the price tag is about $6.1-billion. The deal should close in the first quarter of 2021.
In other acquisition news, Brian Schmidt's Alberta- and Saskatchewan-focused Tamarack Valley Energy Ltd. (TVE) edged down two cents to $1.37 on 10.1 million shares, after arranging $90-million worth of asset acquisitions in the Clearwater play of Alberta. It is offsetting the cost by selling a royalty on some of the new assets for $16-million, bringing the net purchase price down to $74-million. It is also selling a $47-million private placement at $1.15 a share.
The deals involve several counterparties. One is the thinly traded Highwood Oil Company Ltd. (HOCL), which lost $2.16 to $9.00 on 500 shares, after agreeing to sell its 50-per-cent-owned Clearwater assets to Tamarack for $40.8-million. Shareholders seem less than enthused. After all, the Clearwater has been a rare bright spot in the energy sector lately. Since 2017, the industry has spudded about 300 wells in this relatively low-risk and lucrative oil-weighted play, boosting production past 26,000 barrels a day. Even in 2020, a year of record low drilling activity, the Clearwater has seen over 130 wells spudded.
Highwood's own Clearwater output was about 1,500 barrels a day as of early 2020. At the time, it was taking great pleasure in boasting that its Clearwater wells were "meeting and/or exceeding [its] production expectations," and said it would shed non-core assets elsewhere so it could narrow its focus. Asset sales would also have the effect of helping Highwood get back in the good graces of its lenders. Thus Highwood arranged to sell its Red Earth assets for $8-million in February. This pleased shareholders so much that the stock notably headed higher in March, in pure defiance of the COVID-19 downturn. Alas, that Red Earth sale fell through in June, and when Highwood managed to arrange a Red Earth sale for the second time in November, the price tag was a considerably lower $2-million. Meanwhile, the lenders have only increased their pressure. The result is that Highwood now finds itself selling its prized Clearwater assets as well. Shareholders seem downcast. Highwood did its best to cheer them up, pointing out that the $40.3-million in sale proceeds will be "transformative" to its balance sheet and will allow it to "seek out new growth opportunities." The $9 stock nonetheless remains well off its mid-March high of over $23.
As for Tamarack, in addition to acquiring Highwood's Clearwater properties, it is also buying a private company called Woodcote Oil -- which just so happens to be Highwood's 50-per-cent joint venturer in part of the Clearwater. Woodcote also owns a 50-per-cent interest in assets in a different part of the play. All told, through the two acquisitions, Tamarack will acquire roughly 107,000 acres in the Clearwater, with current production of about 2,000 barrels a day. It reckons it can boost this production to around 5,000 barrels a day within a year and 10,000 barrels a day within two years. As well, it wants to expand the EOR (enhanced oil recovery) pilots that were recently introduced by both Highwood and Woodcote. On its website, Tamarack boasts of its "extensive experience" with EOR, largely waterflooding (at both its Veteran Viking and Penny Barons projects).
As noted above, to help offset the $90-million purchase price for the assets, Tamarack is selling a royalty on the assets for $16-million. The counterparty for this deal is Topaz Energy Corp. (TPZ), up 17 cents to $13.90 on 272,500 shares. Topaz is a royalty and infrastructure company that went public in October at $13. This is its second royalty acquisition since then, following a $130-million deal in November with its parent company, Tourmaline Oil Corp. (TOU: $18.23). Tourmaline created Topaz as a private subsidiary in 2019 and then started to spin it off in chunks. Now Tourmaline holds a roughly 52-per-cent interest in Topaz, but says it is perfectly willing to sell more, particularly to help finance acquisitions. Tourmaline has been on a steady shopping spree for over a year and is currently working on two takeovers worth a total of $526-million.
In any case, both Topaz and Tamarack received applause from analysts today for their wheelings and dealings. Scotia Capital analyst Cameron Bean said Topaz is fast emerging as "the financial partner of choice for quality E&Ps [explorers and producers]" (an indirect compliment to Tamarack, which is not covered by Mr. Bean). He has a "sector outperform" rating on Topaz and a price target of $19, well above today's close of $13.90. Meanwhile, Canaccord Genuity analyst Anthony Petrucci said Tamarack now has a "new focus area" in the Clearwater, building on its existing assets in the Viking and the Cardium. He described the Clearwater as "one of the most economic oil plays in the WCSB [Western Canadian sedimentary basin" and praised Tamarack for securing a foothold on "favourable" transaction terms. For its efforts, Tamarack received a new price target of $1.75, up from Mr. Petrucci's prior target of $1.20. The stock closed today at $1.37.
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