Stockwatch Energy today
Energy Summary for June 1, 2022
2022-06-01 20:41 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery added 59 cents to $115.26 on the New York Merc, while Brent for August added 69 cents to $116.29 (all figures in this para U.S.). Western Canadian Select traded at a discount of $17.40 to WTI, down from a discount of $17.00. Natural gas for July added 55 cents to $8.70. The TSX energy index added 5.19 points to close at 274.51.
International oil and gas producer Vermilion Energy Inc. (VET) added $1.35 to $28.71 on 4.48 million shares, after closing its $485-million takeover of B.C. Montney junior Leucrotta Exploration Inc. (LXE), halted at $2.21 ahead of its imminent delisting. Shareholders received $1.73 cash and one share of a spinout for each share of Leucrotta. Vermilion's management boasted that the deal provides "an expected two decades or more of low-risk, self-financing, high-deliverability drilling inventory with strong rates of return."
Leucrotta's management, meanwhile, will make its way over to the spinout, dubbed Coelacanth Energy, after a fish species pronounced "see-la-kanth." Chief executive officer Rob Zakresky and his people have a fondness for unusual, often animal-themed names. (The leucrotta is a mythical beast combining the features of a lion, a stag and a giant badger.) Coelacanth will receive the exploration-stage assets not being acquired by Vermilion. It will be the seventh company that Mr. Zakresky and his people have built together since 1993. Vermilion already seems interested; it has just bought 53.3 million shares of Coelacanth at 27 cents, for an 18-per-cent interest. Mr. Zakresky hopes to list the promotion on the TSX-V as soon as possible.
Also wasting no time was Desjardins Securities analyst Chris MacCulloch. His employer, Desjardins, was a "strategic adviser" on the takeover. Now that it has safely closed, Mr. MacCulloch published a prompt and boosterish research note about it this morning. He toasted Vermilion for adding "scalable future drilling inventory from a world-class asset." Vermilion's other assets, particularly in Europe, also greatly impress Mr. MacCulloch. So does the balance sheet: Vermilion is expecting to reach its net debt target of $1.2-billion later this year, which in Mr. MacCulloch's view "should be a catalyst for enhanced shareholder returns through some combination of an increased base dividend, special dividends and share buybacks." The analyst hiked his price target on Vermilion to $40 from $32.50. The stock closed today at $28.71.
In other acquisition news, John Jeffrey's Saturn Oil & Gas Inc. (SOIL) lost 36 cents to $2.75 on 2.32 million shares, after announcing another acquisition in Saskatchewan and another financing to help pay for it. CEO John Jeffrey called the acquisition "transformational." He has used this word repeatedly since Saturn embarked on its Saskatchewan shopping spree one year ago. In that time, including the new acquisition, Saturn has increased its production to 11,400 barrels a day from barely 200.
The new assets are in the Viking play of west-central Saskatchewan. They will add 4,000 barrels a day and cost Saturn $260-million, which the company will cover with the proceeds of a $65-million bought deal and a $200-million term loan. It took a similar approach when it arranged its first major acquisition last year. That was when it bought Crescent Point Energy Corp.'s (CPG: $11.35) 6,700-barrel-a-day Oxbow assets for $93-million -- prices have rocketed since then -- which it came up with by issuing $32.2-million in equity and taking out $82-million in debt. (The original equity amount was much lower, but Saturn increased it because of extra demand.) Saturn then announced another acquisition and equity financing in February, 2022. The one announced today is its most expensive yet.
Shareholders were unenthused. The new $65-million bought deal -- assuming it is not increased -- will see Saturn issue 23.6 million units at $2.75, a significant discount to recent trading levels above $3. It will also be significantly dilutive. Saturn currently has just 32 million shares outstanding, with this trimness being entirely thanks to a 1-for-20 rollback last October, before which its share count exceeded 500 million. Investors do not like to see a share count climbing too quickly. Some will also have their eye on Saturn's balance sheet, which is moving further away from management's earlier goal of being debt free in early 2023. It now says perhaps late 2024 instead.
The important thing, emphasized management, is that the "transformational" deal will help Saturn achieve "greater institutional appeal, improved liquidity and the potential for inclusion in key indexes." It outlined a roughly three-year plan whereby it will aim to generate over $500-million in free cash flow while boosting total production to around 15,000 barrels a day. No doubt these will be useful talking points for the underwriters of the $65-million bought deal, co-led by Canaccord Genuity and Eight Capital. It would be equally unsurprising if analysts from those firms suddenly felt an urge to launch some boosterish coverage.
In Alberta, George Fink's Cardium-focused Bonterra Energy Corp. (BNE) added 17 cents to $12.51 on 245,400 shares, following a chatty update on everything from its drill program to its credit facility -- though not the one thing investors are most eager to hear about. The press release passed with nary a mention of when Bonterra might revive its dividend. It previously suspended the dividend in March, 2020, but its founder and chief executive officer, Mr. Fink, has made no secret that he would like it to come back one day. (As he owns 4.6 million of Bonterra's 35.8 million shares, this is an understandable sentiment.)
For now, investors had to settle for a discussion of the "progress and success" of Bonterra's drill program. This is chugging along as expected, prompting Mr. Fink to reiterate the company's full-year production guidance of about 13,500 barrels a day. He did give the budget a minor boost to $65-million (from $60-million), citing inflation.
As well, Mr. Fink announced an update on Bonterra's credit facility. This was previously good for up to $200-million. The limit is now going down to $165-million and will gradually go down to $115-million by the end of October, a development Bonterra claimed to be perfectly happy with, as this is "in alignment with [its] debt reduction goals and results in decreased interest costs." The balance of the facility is $120-million, down from $138-million two months ago. Mr. Fink is confident that Bonterra will speedily reduce this to "minimal" levels by November, when the facility matures. Optimists are crossing their fingers that the dividend could then make a comeback. Bonterra has previously disclosed on SEDAR that the facility's terms leave it "restricted from making any payment of dividend distributions," a restriction that should cease to matter come November.
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