Stockwatch Energy today
Energy Summary for Feb. 17, 2021
2021-02-17 20:33 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added $1.29 to $61.34 on the New York Merc, while Brent for April added 99 cents to $64.34 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.36 to WTI, unchanged. Natural gas for March added 10 cents to $3.23. The TSX energy index added a fraction to close at 108.22.
Oil prices headed higher. The frozen Texas landscape -- an unexpected combination of words -- is keeping an estimated four million barrels a day shut in, representing more than one-third of U.S. oil output. One-fifth of U.S. refining capacity has been knocked off-line as well. The cold snap is now expected to disrupt U.S. production for several days, or even weeks. Separately, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman told an on-line energy symposium today that oil producers must remain "extremely cautious." It is too early to declare victory over COVID-19, said the prince. He added, "Those who are trying to predict the next move of OPEC+, to those I say, don't try to predict the unpredictable." This immediately triggered predictions that OPEC+ will refrain from easing its production cuts (or will enact only a modest easing) when it holds its next policy meeting on March 4.
Here in Canada, Rick McHardy's Alberta-focused Spartan Delta Corp. (SDE) lost 14 cents to $4.06 on 1.34 million shares, after announcing a big batch of acquisitions. It plans to spend a total of $147.9-million to close three deals. Two are asset acquisitions in Spartan's existing core areas of the Cardium and the Spirit River, and the third is a takeover of a private company in a new play for Spartan, the Alberta Montney.
Investors have been waiting for Spartan to do deals like these. The company was formerly known as Return Energy until Mr. McHardy and his people took it over and recapitalized it in late 2019, changing its name in the process to Spartan Delta. (The name continued a long-running theme for the new management, which has sold three Spartan-branded companies since 2011, for an average return of 370 per cent.) Spartan acquired the assets of a now-defunct Alberta gas producer in the spring of 2020. That was a sizable deal, costing over $100-million and adding about 25,000 barrels a day of production, yet Spartan was clear that it was not finished buying assets yet. Investors were thus surprised when the rest of 2020 passed without a single other deal. Spartan did pop up in January, 2021, to announce three "strategic acquisitions," but these were so small (costing $7.1-million and adding 105 barrels a day) that they might have been scarcely worth mentioning -- if not for one detail. The assets acquired last month included a bit of land in the Alberta Montney. Its Montney interest thus signalled, Spartan is now following through on its implied expansion promise with a much larger set of deals.
To help pay for the new assets, Spartan proposed a $50-million private placement and a $30-million bought deal, both of which were promptly boosted to $75.5-million and $45-million, respectively. Both financings will comprise shares issued at $4 (per common share) or $4.92 (per tax-advantaged share). Last spring's acquisition was financed in much the same manner, except then Spartan issued the shares at $2. It currently has 58 million shares outstanding. Postfinancings, this number will approach 87 million.
Elsewhere in Alberta, George Fink's Cardium-focused Bonterra Energy Corp. (BNE) added 12 cents to $3.28 on 72,300 shares, as investors weighed a mixed update and came down on the bull side. Bonterra announced that it produced 10,575 barrels a day in 2020 and expects to produce 12,800 to 13,200 barrels a day in 2021. This is the first time it has provided these numbers in a press release. For that reason, the 2020 production figure appeared to catch some people off guard, such as Canaccord Genuity analyst Anthony Petrucci. He grumbled this morning that if Bonterra's full-year production was 10,575 barrels a day, then its fourth quarter production must have been 10,100 barrels a day, which is "well below consensus and our prior forecasts." Yet it should be noted (as Stockwatch did on Jan. 22) that Bonterra filed a SEDAR document in mid-January that laid out an entire three-year plan, with the 2020 production figure clearly stated as 10,600 barrels a day. Bonterra may have rounded up, but consensus estimates could still have been far more accurate than they apparently were.
The flip side, alas, is that the three-year plan also pegged the expected 2021 production at 13,200 barrels a day, whereas the new update suggests that actual production could be well below that. Bonterra has set a more comfortable target of 12,800 to 13,200 barrels a day. It will have to come in at the high end of that range to bolster confidence in the rest of the three-year plan, which includes a further production boost to 13,700 barrels a day in 2022. All the while, Bonterra says it expects to generate free cash flow that it can use for debt reduction. That promise stayed in place in today's update. Based on the proposed 2021 budget of $65-million to $75-million (well above the 2020 spending level of $44-million), Bonterra reckons that it will generate anywhere from $13-million to $20-million in extra cash flow to reduce debt.
As to why Bonterra filed the three-year plan in the first place (especially without an accompanying press release), the answer lies in its determination to avoid the hostile takeover attempt being made by fellow Cardium producer Obsidian Energy Ltd. (OBE: $1.39). not to tender their shares to the Obsidian has been publicly going after Bonterra since August. Bonterra is trying to convince its shareholders that it will be fine as a stand-alone company and they should reject Obsidian's advances. Many of them may not need much convincing: The proposed exchange ratio of two Obsidian shares for each Bonterra share has represented, from the beginning, a steep discount to Bonterra's market price. Currently Bonterra's stock is trading at $3.28 and Obsidian's offer values it at $2.78.
Obsidian remains undeterred, and has twice extended the tender deadline (now March 29), while reducing the minimum tender condition to the lowest legally permissible threshold (50 per cent plus one). Bonterra's shareholders seem unenthused. Three weeks ago, Bonterra claimed (with no small amount of gloating) that under 1 per cent of its shares had reportedly been tendered. Today, Bonterra barely mentioned Obsidian, except for a brief reminder that it wants shareholders to ignore the bid.
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