Stockwatch Energy today
Energy Summary for May 3, 2022
2022-05-03 20:57 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery lost $2.76 to $102.41 on the New York Merc, while Brent for July lost $2.61 to $104.97 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.52 to WTI, down from a discount of $12.38. Natural gas for June added 47 cents to $7.95. The TSX energy index added 9.27 points to close at 250.02.
Oil sands producer MEG Energy Corp. (MEG) added 96 cents to $20.42 on 9.95 million shares, as it cheered "record" first quarter financials and trumpeted a net profit of $362-million. Production of 101,100 barrels a day was in line with analysts' predictions, while cash flow of $1.87 a share was ahead of analysts' predictions of $1.81 a share. "The first quarter was a record quarter for MEG from both an operational and financial perspective," cheered president and chief executive officer Derek Evans. He added that MEG is just about ready to "initiate share buybacks ... in the second quarter."
Investors were pleased. Although the buyback is no surprise -- MEG received TSX approval to launch one in March -- the company has been waiting to get started until its net debt reaches $1.7-billion (U.S.). As of March 31, net debt was $1.72-billion (U.S.), hence Mr. Evans's enthusiasm. He added that MEG's next target is $1.2-billion (U.S.), which he is aiming to reach next quarter, at which point he will "increase the percentage of free cash flow allocated to share buybacks." Next year, he hopes to hit $600-million (U.S.) in net debt and then ensure that "100 per cent of free cash flow will be returned to shareholders." Optimists took this as a clue that MEG might eventually add a dividend on top of the buybacks.
Two other companies had their own buyback announcements. Imperial Oil Ltd. (IMO), up $2.87 to $68.04 on 2.38 million shares, has firmed up the details of the $2.5-billion special buyback program that it first announced last week. It will use a modified Dutch auction procedure with a tender price range from $62 to $78. The range implies that Imperial plans to buy back 32 million to 40 million shares, or about 5 per cent of its current share count of 669 million. The offer will be open from May 6 to June 10.
Separately, Baytex Energy Corp. (BTE) added 38 cents to $6.81 on 15.3 million shares, after receiving TSX approval to buy back up to 56.3 million shares, representing 10 per cent of its public float. This is the company's first buyback announcement in about 20 years. Like MEG, Baytex had been waiting to get a better handle on its debt, announcing in February that it expected to reach net debt of $1.2-billion during the second quarter and then launch a buyback program. It reiterated this goal as recently as last Thursday and is now pressing ahead.
Over in Saskatchewan, John Jeffrey's Saturn Oil & Gas Inc. (SOIL) lost three cents to $2.80 on 235,200 shares. It has filed a preliminary shelf prospectus qualifying up to $200-million in equity or debt financings over the next 25 months. The prospectus comes mere weeks after Saturn raised $20.6-million at $3 in March, saying it needed the money for a recent $8.3-million asset acquisition, as well as drilling activity, working capital and catch-all general purposes. Subscribers saw the stock rise to $3.56 in April, but it has since given back those gains and then some.
The earlier financing for $20.6-million could only do so much for Saturn. According to its year-end financials -- which arrived last Friday after the close, never an auspicious time for a news release -- the company had a working capital deficit of $66-million as of Dec. 31. It did some financial restructuring in the new year, and in Friday's update, it claimed to be in such good shape that it could achieve net-debt-free status by the end of 2023 and then launch a dividend or a share buyback program. Investors do not seem so sure. They should get their next update this Thursday, May 5, when Saturn plans to release its first quarter financials, followed (somewhat oddly) by a delayed conference call on Monday, May 9.
Getting back to financings, the Gray family's Petrus Resources Ltd. (PRQ) added 29 cents to $2.39 on 225,600 shares, after closing a $20-million rights offering. President and CEO Ken Gray said the offering received "overwhelming support." Shareholders exercised 97 per cent of the rights available under the basic subscription privilege, with many of them then going on to exercise an additional subscription privilege that was only available to holders who fully exercised their rights.
Not a single share had to be issued to the standby guarantors who had offered to backstop the entire financing. The standby purchasers were Don Gray, Stuart Gray and Glen Gray -- all brothers of Ken Gray -- who collectively own nearly three-quarters of Petrus's shares (and participated in the rights offering, to be clear, just not the standby commitment). Don Gray is the brother who founded Petrus in 2011 and currently serves as chairman. (He is also the chairman of both Gear Energy Ltd. (GXE: $1.56) and Peyto Exploration & Development Corp. (PEY: $13.89).) He turned Petrus into a family affair about a year ago, bringing in his brothers as major shareholders and (in Ken's case) president and CEO.
The brothers have since busied themselves tidying up Petrus's balance sheet and getting back to work in the Alberta Cardium. They have claimed to see signs of progress on both fronts. During 2021, net debt nearly halved to $61-million from $114-million (though this was partially thanks to a sizable shares-for-debt swap with the Grays. Between that and other equity issuances, including the above rights offering, Petrus's share count has risen to 121 million from 49 million in less than a year). As for production, Petrus noted in an update on its website last week that its output in March averaged 7,600 barrels a day, up from an average of 5,900 barrels a day in the first quarter of 2021. It is aiming to exceed 9,000 barrels a day by the end of this year.
Yet the balance sheet still needs plenty of work, and some of it will have to be fast. A credit facility that is currently about $57-million drawn comes due at the end of this month. Petrus is pouring all the money from the above rights offering into this facility, but $20-million will not be enough. It said in the circular for the rights offering that it is "exploring potential refinancing alternatives." If it cannot find an alternative, or persuade the current lenders to renegotiate or extend the facility, it will need to scrape up more financing or face the possibility of default.
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