Stockwatch Energy today
Energy Summary for March 1, 2022
2022-03-01 20:55 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery added $7.69 to $103.41 on the New York Merc, crossing into triple digits for the first time since 2014, while Brent for April added $3.98 to $104.97 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.85 to WTI, up from a discount of $12.30. Natural gas for April added 17 cents to $4.57. The TSX energy index added 2.49 points to close at 211.73.
Oil prices surged to a fresh eight-year high as Russia entered the sixth day of its invasion of Ukraine. Canada has now banned imports of Russian crude oil (though the ban is largely symbolic, as no Russian crude has entered the country since 2019), and the United States and Western Europe are facing calls to do the same. To address the threat of supply disruptions, the International Energy Agency (IEA) convened a special meeting today, at which its 31 member countries (which do not include Russia) agreed to release a combined 60 million barrels of oil from their emergency reserves. This is equal to about 12 days of Russian exports. The IEA will hold another meeting later this month.
Within the sector, the Lundin family's Africa Oil Corp. (AOI) skidded down 33 cents to $2.57 on 10.8 million shares, as its year-end financials -- and a much-hyped new dividend -- failed to live up to investors' high expectations. Rising excitement had sent the stock up to $2.90 from $2.07 over the last four weeks. The buy-the-rumour/sell-the-news adage was in full swing.
During a conference call this morning, chief executive officer Keith Hill admitted to being "surprised" by the sell-off, but quickly regained his smile and said it "obviously" represents "a great buying opportunity." He speculated that the "consternation" came from the size of the dividend. Africa Oil's board has approved an annualized dividend of five U.S. cents, payable semi-annually. The implied yield is 2.5 per cent and the annualized cost of the dividend will be $25-million (U.S.). Considering that the company's full-year profit in 2021 was a record $190-million (U.S.), investors were likely hoping for a more generous payout, or for the dividend to be combined with other activity such as a large share buyback. (Africa Oil has 473 million shares outstanding.)
Mr. Hill defended the proposed payout and lack of a buyback during today's call. "This is a decision to pay a dividend, but it is not a decision to stop growing the company," he said. "We do purposely keep some of our cash back because we do still feel that even in this $100 (U.S.) oil environment, there are some really good acquisitions out there ... [and] we want to keep our powder dry." In case that did not mollify investors, he made sure to add that, really, this dividend is just "kind of a first step." The company "would hope to see that dividend grow throughout the year" and will also "potentially look at share buybacks in the future."
Turning to the rest of the financials, the above-mentioned record net income came courtesy of Africa Oil's producing assets in Nigeria, the only country where it has any production. The company also has a presence in Kenya, Namibia, South Africa and other countries. Kenya and Namibia got some particularly intriguing mentions during today's call. Mr. Hill called Kenya "the forgotten child ... But the stars seem like they're finally aligning." He hinted that the company might announce a new "strategic partner" in Kenya as early as next quarter. As for Namibia, it has been the subject of much excitement in the wake of two recent offshore discoveries, one of which is partly, indirectly owned by Africa Oil (the Venus discovery, as discussed last Thursday). Mr. Hill called this a "beautiful" demonstration of the "huge potential" of Africa Oil's exploration assets.
Elsewhere in Africa -- in Namibia, in fact, though onshore rather than offshore -- Craig Steinke's Reconnaissance Energy Africa Ltd. (RECO) edged down five cents to $5.89 on 438,900 shares. It has closed a previously announced $47.4-million bought deal of units. This included the full exercise of the underwriter's overallotment option. (The underwriter was Canaccord Genuity, a departure for Reconnaissance, which usually favours Haywood Securities. Cynical investors will no doubt be watching for a boosterish "Initiating Coverage" research note from a Canaccord analyst coming soon.)
All told, Reconnaissance issued 7.47 million units at $6.35, with each unit comprising a share and a warrant exercisable at $9. The warrants have an unusually fast maturity, expiring on Oct. 31, 2022 -- less than eight months away. Subscribers are hoping that between then and now, Africa Oil will finally begin a much-delayed Namibian drill program, which it wanted to start last year but is now aiming to start this spring.
Speaking of financings, here in Canada, Alex Verge's Journey Energy Inc. (JOY) lost 32 cents to $3.67 on 2.02 million shares, after arranging a different bought deal. It has entered an agreement with Acumen Capital (which, yes, has a research analyst division) to sell $10.5-million worth of shares at $4.25. (The premium reflects tax advantages associated with these particular shares.) The proceeds will go toward development at Journey's oil assets in Alberta.
The financing seemed to come as a surprise to investors. Journey previously said its entire budget of $34-million to $38-million for 2022 should be "financed entirely from company cash flows." It did, however, have a working capital deficit of $22.7-million as of Sept. 30, with $23.8-million in term debt coming due this year (and another $43-million coming due over the next two years). With the stock having more than doubled to $3.67 from $1.50 over the past few months, Journey evidently saw now as a good time to shore up the balance sheet. As it has a trim 48 million shares outstanding, the financing will dilute existing shareholders by about 5 per cent.
Over in Saskatchewan, John Jeffrey's Saturn Oil & Gas Inc. (SOIL) lost one cent to $2.97 on 362,200 shares. It has closed a previously announced $8-million asset acquisition in the Plato area. News of the acquisition on Feb. 18 sent Saturn's stock down to $2.97 from $3.44 in a single day, likely because it was accompanied by the decision to arrange a dilutive financing of $16-million -- enough to close the $8-million acquisition and then some. Today, Saturn said it wants to raise even more money: It has arranged a separate private placement for $2.19-million. The second financing will "facilitate participation of strategic existing shareholders from Europe structurally unable to participate in the concurrent bought deal," said Saturn.
As to what Saturn will do with the extra cash from both financings, Mr. Jeffrey, its CEO, said he is hoping to arrange a "much-expanded capital expenditure budget ... [to] allow the company to accelerate its production growth in the current high-oil-price environment." Saturn's current production (including the new assets) is around 7,500 barrels a day. Mr. Jeffrey has yet to release guidance for 2022, but said he would provide more detail once it closes the two financings, which it is aiming to do by Thursday, March 10.
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