Stockwatch Energy today
Energy Summary for Oct. 15, 2021
2021-10-15 19:54 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery added 97 cents to $82.28 on the New York Merc, its ninth consecutive week of gains, while Brent for December added 86 cents to $84.86 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.20 to WTI, unchanged. Natural gas for November lost 28 cents to $5.41. The TSX energy index added a fraction to close at 158.10.
It was a quiet end to a shortened post-Thanksgiving work week in the oil patch. One of the day's biggest gainers was Rick McHardy's Alberta-focused Spartan Delta Corp. (SDE), up 30 cents to $6.23 on a heavier-than-usual 2.26 million shares. The company got a lovely mention this morning from the TMX Group. The group finally got around to bringing in Spartan's management to open the market (virtually speaking) and to "celebrate the company's graduation" to the TSX. Spartan actually graduated to the TSX from the TSX-V more than a month ago, on Sept. 1. (For context, another company invited to ring the opening bell this week was IntelGenx Technologies, which graduated just last week.)
As if to make up for the delay, the exchange showered Spartan with compliments. "Spartan Delta is the dominant player in Canada's Montney oil window," declared senior TSX representative Berk Sumen. He marvelled at the company's expansion to over 60,000 barrels a day from just 250 barrels a day within the last 16 months. Most of that came from acquisitions. Even after these deals, Spartan retains "strong financial sustainability with prudent leverage and strong funds flow," according to Mr. Sumen. He also made sure to mention Spartan's new "three-year development-plan [that] is focused on organic growth and free cash flow generation."
Spartan has been promoting this plan since it closed its most recent acquisition, the takeover of the 20,000-barrel-a-day Velvet Energy in August. It paid $751-million in cash, shares and assumed debt. Now the plan is to boost total production to 84,000 barrels a day in 2024. By management's estimate, Spartan will generate over $650-million in free cash flow over this period, most of which will go toward debt reduction -- but not all. Management has stayed quiet about its plans for the rest of the money, avoiding the current rampant temptation to drop hints about dividends and share buybacks. President and CEO Fotis Kalantzis remained coy as he opened the market this morning. All he would say is that he is "very excited to start a new chapter in the growth of Spartan."
Speaking of new chapters, fellow Alberta player Altura Energy Inc. (ATU) added two cents to 36.5 cents on 1.84 million shares, as it firmed up its planned name change to Tenaz Energy. The change will take effect Tuesday, Oct. 19. This is part of a broader overhaul of the company, which announced in August that it was recapitalizing, bringing in new management and directors, and embarking on a planned switch to a "growth-and-income capital markets model." The new management and directors took up their posts last week. Most of the new management, including president and CEO Tony Marino, formerly worked at international oil and gas producer Vermilion Energy Inc. (VET: $13.49). Mr. Marino has said he plans to undertake an international search to acquire new assets for Tenaz.
In a recent video presentation on Tenaz's website, Mr. Marino confirmed that the company will focus on "conventional and semi-conventional assets in the overseas market." Such assets have been neglected operationally and financially for years, in his view, and thus tend to have lower price tags while offering "greater opportunity for operational improvement." Mr. Marino said Tenaz will scout for assets in Europe, the Middle East/North Africa (MENA) and South America, and will try to invest $100-million to $500-million at a time. "Our objective ... is to build, via our international M&A strategy, a leading intermediate-sized [company] over the next few years," he concluded. (The intermediate range is broadly considered to be 10,000 to 100,000 barrels a day.)
Mr. Marino's remarks likely brought on a strong case of deja vu for many investors. Tenaz is just the latest company to announce that it will go out scouting for international assets. Abby Badwi's TAG Oil Corp. (TAO), for instance, has been on the hunt for over a year, having announced in September, 2020, that it would begin "an exciting new chapter of pursuing consolidation opportunities ... in our initial focus area of [the] Middle East and North Africa." Mr. Badwi has an extensive network in this area, having previously sold Kuwait Energy and the Egypt-focused Rally Energy. Yet 13 months of searching have turned up no deals for his new promotion. TAG had $16.3-million in working capital and no debt as of June 30.
Separately, Sean Guest's Valeura Energy Inc. (VLE) announced way back in August, 2020, that it was "actively seeking opportunities to grow its business through the mergers and acquisitions market ... focusing on the greater Mediterranean region." Valeura has yet to announce any acquisitions either. In fairness, it first needed to close a sizable asset sale, which did not happen until May, 2021. As of June 30, it had $43.4-million (U.S.) in cash and no debt.
Yet another competitor for international assets, particularly in South America, is Jose Francisco Arata's New Stratus Energy Inc. (NSE), which has spent the last year talking up its "strategy of consolidating its presence in the sub-Andean geological basins." It announced a potential 18,000-barrel-a-day acquisition in Ecuador in October, 2020, but that fell through mere weeks later after failing to secure regulatory approval. The company has been "evaluating opportunities" ever since. A few months ago, it closed a $9.6-million private placement, suggesting (at least to its faithful cheerleaders) that a new deal was on the way -- or perhaps an improved version of the old deal, as New Stratus has said it would try to restructure the Ecuadorean agreement to assuage the regulators. Shareholders continue to wait.
As for Tenaz, its faithful cheerleaders are already making noises about wanting to see a deal close by Christmas. That would be an impressive coup for Mr. Marino. Yet given the delays at TAG, Valeura and New Stratus, combined with rising oil prices that are widening the gulf between buyers' and sellers' expectations, Tenaz's investors may not want to pin their hopes too heavily on a Christmas miracle.
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