Stockwatch Energy today
Energy Summary for Feb. 7, 2022
2022-02-07 20:37 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery lost 99 cents to $91.32 on the New York Merc, while Brent for April lost 58 cents to $92.69 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.76 to WTI, down from a discount of $13.58. Natural gas for March lost 34 cents to $4.23. The TSX energy index lost 1.59 points to close at 199.50.
Stephen Loukas's Alberta-focused Obsidian Energy Ltd. (OBE) added 14 cents to $9.40 on 651,600 shares, after trumpeting another year of rising reserves. The company released its year-end reserve report this morning. Its 2P (proved and probable) reserves reached 147.8 million barrels as of Dec. 31, 2021, up appreciably from 128.3 million barrels a year earlier, reflecting a busy drill program as well as an asset acquisition late in the year.
Mr. Loukas, Obsidian's interim president and chief executive officer -- still holding on to the "interim" tag 2-1/2 years after taking the job in September, 2019 -- patted the company on the back for "the strength of our assets and our technical teams." He noted that for the fifth year in a row, Obsidian had a 2P replacement ratio of more than 100 per cent, meaning that it added more barrels of reserves than it depleted through production. (It came close to breaking this streak in 2020, but squeaked by in the end.) Mr. Loukas attributed this to Obsidian's "compelling inventory." Its assets are largely in the Cardium, but the above-noted acquisition expanded its holdings in the Peace River region and the up-and-coming Clearwater play.
Investors have certainly found the combination compelling. At $9.40, Obsidian's stock has doubled since Christmas, has octupled over the last year and has seen one of the sector's most significant bounces off a low of just 20 cents in 2020. It can thank rising oil prices. Mr. Loukas is hoping to keep the excitement going this year with another busy drill program and a hoped-for refinancing of Obsidian's debt.
One shareholder that is surely watching closely is FrontFour Capital, the hedge fund where Mr. Loukas is a partner, managing member and portfolio manager. FrontFour spent about $40-million amassing a 5-per-cent interest in Obsidian from 2013 to 2019. At the worst of the downturn in 2020, this position was worth a painful $778,000. It has since rallied to $36.5-million -- close, but not quite above water yet.
Further afield, Craig Steinke's Reconnaissance Energy Africa Ltd. (RECO) edged up nine cents to $6.69 on 588,900 shares, as investors weighed a new acquisition against a new batch of lawsuits. The PR crew did its best to give them a nudge. The chirpy acquisition announcement this morning included five paragraphs and was peppered with adjectives such as "delighted," "strategic" and "excellent." The news of the lawsuits slid in with a terse four sentences on Friday after the close.
Starting with the acquisition, it will boost Reconnaissance's interest in a massive, 6.3-million-acre Namibian exploration licence to 95 per cent from 90 per cent. The licence covers the entire Kavango basin within Namibia. (The basin extends into Botswana, where Reconnaissance holds a 100-per-cent interest covering another 2.2 million acres.) Namibia's state-owned NAMCOR had been the owner of the remaining 10-per-cent interest. Now NAMCOR will sell half of this interest to Reconnaissance for $34-million in cash and shares.
Naturally, both sides pitched the deal as a win-win. Reconnaissance CEO Scot Evans dubbed himself "pleased" to boost the company's ownership of the project. For its part, the effusive NAMCOR was "delighted to enter into this strategic and mutually beneficial transaction with ReconAfrica ... [an operator in which] we have the utmost confidence." Reconnaissance has been the operator of the permit since 2015 and drilled the first two test wells in 2021. It found evidence of oil, sending the stock to nearly $14 in the spring of 2021, but the stock has since been cut in half as investors await higher-quality data and another drill program (which was supposed to start in late 2021 but is delayed). For every bull proclaiming that today's sale was the last holdup in getting drill permits, there is a bear speculating that NAMCOR is retreating for a reason. (It is not in full retreat, as it will retain a 5-per-cent interest in the assets and will also receive five million shares of Reconnaissance.)
The new lawsuits also cast a pall over today's deal. Mr. Evans tersely acknowledged late Friday that Reconnaissance has been served with two class action lawsuits in New York, both of which are "almost identical" to a separate complaint filed last October. The October complaint was dropped by the plaintiff in November, but had accused the company of deliberately misleading shareholders about its African prospects in order to inflate its share price from 2019 to 2021. (The share price over this period ranged from 23 cents to $13.84.) Management "continuously engaged in stock pumping ... [and made] materially false and/or misleading [statements] at all relevant times," alleged the complaint. The new complaints seem to contain similar accusations. Reconnaissance has not publicly addressed them, beyond vowing to "vigorously defend" its position.
Back in Canada, Craig Bryksa's Alberta- and Saskatchewan-focused Crescent Point Energy Corp. (CPG) lost 10 cents to $8.34 on 6.66 million shares. It had no news today -- indeed, its last press release was two months ago -- but rumours began swirling this morning that it is trying to sell up to $500-million worth of assets. Reuters reported that Crescent Point has hired National Bank Financial to market three packages of assets in Alberta and Saskatchewan, producing a total of 10,500 barrels of oil equivalent a day. (For context, Crescent Point's full-year 2022 production guidance is 133,000 to 137,000 barrels a day.)
The purported marketing process comes almost exactly a year after Crescent Point surprised the market with a massive asset acquisition, agreeing to buy Shell Canada's Alberta Duvernay assets for $900-million in February, 2021. The deal closed in April. Shortly after that, in June, Crescent Point sold $93-million of non-core Saskatchewan assets to Saturn Oil & Gas Ltd. (SOIL: $3.55). Selling additional assets could further shore up the balance sheet and chip away at a net debt load that exceeded $2-billion as of Sept. 30. The proceeds could also go toward fresh deals if Crescent Point is still feeling acquisitive. Coincidentally enough, a separate Reuters story this morning reported that Spain's Repsol may be putting its Duvernay assets up for sale, hoping to fetch up to $750-million.
Neither Crescent Point nor Repsol commented on the rumours. If either or both of them are pursuing sales, they will join a lengthening list of companies testing the market's appetite for Western Canadian oil and gas assets. Other companies marketing assets include Enerplus Corp. (ERF: $15.11), which announced a sales process for its Canadian assets last week, Imperial Oil Corp. (IMO: $55.68) and Exxon, which put their jointly owned XTO Energy Canada up for sale last month, and Abu Dhabi's TAQA, which hired advisers to sell its Canadian assets last September.
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