Stockwatch Energy today
Energy Summary for Jan. 17, 2022
2022-01-17 20:02 ET - Market Summary
by Stockwatch Business Reporter
U.S. markets were closed for Martin Luther King Jr. Day. West Texas Intermediate crude for February delivery added 34 cents to $84.16 in electronic trading on the New York Merc, while Brent for March added 42 cents to $86.48 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.53 to WTI, unchanged. Natural gas for February was unchanged at $4.26. The TSX energy index added 3.27 points to close at 193.58.
After two months of disruption, the Trans Mountain pipeline has returned to normal operating pressure, according to a weekend update from the pipeline's operator. The operator previously shut the pipeline down on Nov. 14 because of heavy rainfall and flooding in British Columbia. The shutdown lasted 21 days, after which the line reopened at a reduced capacity on Dec. 5. This past Saturday, following a "comprehensive engineering assessment," the operator cheered the resumption of normal pressure. (This does not necessarily mean normal capacity -- particularly because Trans Mountain already told shippers that it was reducing capacity for all of January -- but it sets the stage for normal operations shortly.)
Within the oil patch, Paul Colborne's Alberta- and Saskatchewan-focused Surge Energy Inc. (SGY) added 29 cents to $6.55 on 4.11 million shares, pleasing investors with its 2022 guidance. They particularly seemed to like Mr. Colborne's "fundamental goal of reinstating the company's dividend." Surge's dividend was once as high as five cents a month in 2014. That was a long time ago. The last time shareholders got a dividend from Surge was nearly two years ago in April, 2020, and the monthly payout was less than a penny.
As it happens, a dividend was one of the first things that Mr. Colborne introduced when he became Surge's president and chief executive officer in 2013. He was so pleased that for years he did not even take a salary, boasting that he was standing "shoulder to shoulder" with shareholders by enjoying dividend payments. Alas, the dividend shrank until it finally disappeared in 2020 -- Mr. Colborne having quietly switched to a $415,000 annual salary in 2017 -- and Surge has since been too busy with debt repayment to bring it back. Mr. Colborne forecast today that Surge will reach its debt target by midyear and then "look to resume" a dividend. He did not specify an amount. Whatever it is, he will surely welcome the return of regular dividend payments; he controls 919,000 of Surge's 83 million shares.
As for the rest of the guidance, it shows that Surge is "positioned for outperformance," according to Mr. Colborne. The company is planning to spend $124-million to produce 21,500 barrels of oil equivalent a day. This is exactly the same as what Surge is producing now, but on a year-over-year basis, it will be an increase of around 20 per cent (largely reflecting the takeovers of Astra Oil and Fire Sky Energy in the second half of 2021). Mr. Colborne indicated that the goal for the year is not to boost production, but rather to get as much free cash flow as possible: $130-million, by his estimate.
Interestingly, although the operational side of the guidance focused Surge's assets in the Sparky play of Alberta and in southeast Saskatchewan, the overall update seemed to cheer one of Surge's neighbours in a different area. Little Prairie Provident Resources Inc. (PPR) climbed four cents to 19 cents on a heavier-than-usual 2.75 million shares. It has assets in the Evi area of Northern Alberta, in the same region that Surge calls Greater Sawn. A new presentation on Surge's website refers to Greater Sawn as a "supporting asset," otherwise known as a non-priority asset. Yet Prairie Provident takes area excitement wherever it can get it. Over the last month, while Surge's stock has risen to $6.55 from $3.99, Prairie Provident's stock has more than doubled to 19 cents from 8.5 cents.
The bigger dream among Prairie Provident's shareholders -- and the subject of considerable chatter today in on-line investment forums -- is that the company may eventually receive a windfall from the International Centre for Settlement of Investment Disputes (ICSID). This dispute involves a U.S.-registered predecessor of Prairie Provident called Lone Pine Resources. Lone Pine used to have assets in Quebec, which the Quebec government revoked for environmental reasons in 2011. This led Lone Pine to file a NAFTA suit against the government of Canada in 2013. It is seeking $118.9-million (U.S.) in damages. That is six times Prairie Provident's market cap of $24.4-million (Canadian).
Unfortunately for Prairie Provident, there has been no windfall yet. The case has dragged on for years, to the point that the original arbitrator died in 2020 and had to be replaced -- hardly a good sign. As usual when the stock has a good day, its cheerleaders are abuzz with rumours about an imminent ruling. There is currently nothing to suggest as much on ICSID's website, which lists the most recent development as "a hearing on jurisdiction and the merits" that took place in February, 2021.
Another Alberta junior, Cameron and Fern MacDonald's Tenth Avenue Petroleum Corp. (TPC), lost three cents to 25 cents on 157,100 shares, giving back some of the eight cents it added on Friday. Friday's excitement reflected a "transformative" $2.5-million acquisition. Today's update was about how Tenth Avenue will pay for the acquisition, namely by selling a $3-million private placement of 12-cent units (each comprising a share and half a warrant).
Both updates come just a month after Tenth Avenue reorganized and overhauled its board and management. Tenth Avenue has been around in one form or another since 2005, but in all those years it has made little impression in the market, seeming to flit from one non-promotable project to the next. Under its former CEO, securities lawyer Gregory Leia, it settled on Alberta in 2017, but still had little luck attracting investors. Finally, in October, 2021, it completed a small asset acquisition from a private company called Salida Energy. As part of the deal, Tenth Avenue spun out some of its former assets to a different private company led by Mr. Leia, while the CEO of Salida took over that job at Tenth Avenue.
That CEO is the above-mentioned Mr. MacDonald. He is also the founder and CEO of the Macam Group of Companies (specializing in banking) and a director of junior resource company Aurwest Resources. He, Ms. MacDonald (his mother) and Salida together hold 13.2 million of Tenth Avenue's 21.1 million shares. Other familiar faces added to Tenth Avenue as of last month include director Ron Hozjan, the former chief financial officer of Tamarack Valley Energy Ltd. (TVE: $4.80), and director Brian Prokop, the former CEO of Argent Energy Trust (which went bankrupt in 2016).
The new management announced on Friday that Tenth Avenue will complete a "transformative" acquisition in Alberta, through which it will buy a grand total of 88 barrels a day of production. It is illustrative of investors' thirst for action -- or the stock's thin volume -- that this is the update that gave the stock one of its best days in years. In any case, now the new management has worked out a way to pay for the acquisition, namely a $3-million non-brokered private placement. The financing will provide more than enough to close the $2.5-million acquisition, with a bit left over for working capital.
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