Stockwatch Energy for yesterday
Energy Summary for July 5, 2022
2022-07-05 20:09 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery plummeted $11.16 to $99.50 on the New York Merc, tumbling below $100 for the first time since May on rising fears of a global recession, while Brent for September lost $10.80 to $102.70 (all figures in this para U.S.). Western Canadian Select traded at a discount of $18.25 to WTI, up from a discount of $18.40. Natural gas for August lost 21 cents to $5.52. The TSX energy index lost 15.99 points to close at 219.12.
Grant Fagerheim's Alberta- and Saskatchewan-focused Whitecap Resources Inc. (WCP) lost 71 cents to $8.54 on 14.8 million shares. Yesterday afternoon, its president and chief executive officer, Mr. Fagerheim, headed to BNN to talk up the company's proposed acquisition of XTO Energy Canada from Imperial Oil Ltd. (IMO: $58.01) and ExxonMobil. The $1.9-billion deal was announced last week and will expand Whitecap's assets in the Alberta Montney and Duvernay plays.
The lofty price tag of $1.9-billion has raised some eyebrows, given that analysts were expecting a deal for nearly half that (around $1-billion). Mr. Fagerheim stated on BNN that he has "no remorse here for winning this asset." He said the process was "highly competitive," attracting numerous Canadian and U.S. bidders and requiring "protracted" negotiations. That Whitecap emerged victorious was not only because it was willing to pay the most -- though that was certainly part of it -- but also because it could pay in cash, said Mr. Fagerheim. Imperial and Exxon did not want the buyer to have to complete an equity financing, and Whitecap could cover the price tag without doing so. (Whitecap did, however, need to secure a $1.1-billion loan, another reason for the market's lukewarm reaction.)
More broadly, the deal shows that there is still interest in Canadian assets -- even if the interest comes mostly from homegrown producers. Canada has seen an exodus of international majors over the past five years, and Exxon's unloading of XTO Energy only continues this trend (although Exxon still has a large Canadian presence, not least through its 69.6-per-cent interest in Imperial). Mr. Fagerheim attributed the withdrawal to "nervousness" about federal policies. He grumbled that Ottawa has spent years "wanting to limit the amount of capital that's put into oil and gas." Ottawa has changed its tune somewhat in recent months, given global supply shortages, but the skittishness remains.
Mr. Fagerheim is choosing to look on the bright side, opining that "this is a very good opportunity for Canadian companies to flourish." He expects great things from the acquisition of XTO Energy and its "very strong" and "extremely large" set of assets. "We're very excited about this opportunity," concluded Mr. Fagerheim. Despite his best efforts -- and largely because of today's steep drop in oil prices -- the stock ended the day down.
Elsewhere in Alberta, Darren Gee's gassy Peyto Exploration & Development Corp. (PEY) lost 99 cents to $11.52 on 1.77 million shares. CEO Mr. Gee had a different way of taking his message to shareholders. He has published his latest monthly report on Peyto's website, going over the company's activity in June.
It was not a happy June. Mud and rain "slowed our operations to a crawl," complained Mr. Gee, displaying photographs of flooded lots and stranded vehicles. Production fell for the first time all year, averaging 103,000 barrels a day in June, down from 104,000 in April and May. The company also has more than 5,000 barrels a day of production that it has not been able to tie in yet because of the bad weather. Mr. Gee is more than ready for the weather to improve so that Peyto can "preserve the quick payouts we're enjoying with high commodity prices."
Although Mr. Gee chose to avoid this topic in the letter, June was also a rough month for Peyto's share price, which has fallen toward $11.50 from nearly $17 over the past four weeks. This partly reflects a steep pullback in gas prices. In mid-June, Freeport LNG's Quintana terminal in Texas, a major export facility for liquefied natural gas (LNG), suffered a fire and has been off-line ever since. This has led to a backup in gas supplies across much of North America. The main Alberta gas benchmark, AECO, has fallen to about $5 from $8 during this period, with gas producers such as Peyto falling in turn. Even with the drop, however, gas prices are about double what they were at the start of the year, hence Mr. Gee's eagerness to tie in new production.
Another Alberta gas producer, George Fink's Pine Cliff Energy Ltd. (PNE), lost five cents to $1.49 on 1.89 million shares. While it too has seen its share price fall from over $2 in the past month, it was in a cheerful mood today as it trumpeted the rewards of still-high gas prices. "Pine Cliff Energy Ltd. Announces Debt-Free Status," blared the headline. The company has repaid all of its term debt and insider debt. The total amount was equal to about $31.9-million as of March 31.
Pine Cliff boasted that it is "one of the first Canadian public oil and gas producers to be debt-free." It has been eyeing debt-free status for months, signalling that it was getting close in May, when it declared its very first dividend. The monthly dividend of 0.83 cent (or 10 cents annualized) represents a yield of 6.7 per cent. For the above Mr. Fink, who owns 25.6 million of Pine Cliff's 347 million shares, it also represents over $213,000 in monthly dividend payments -- nice pocket change if you can get it. Mr. Fink is Pine Cliff's largest insider shareholder. Until recently, that title was held by Vancouver broker Robert Disbrow, but he sold 90,000 shares in May and fell just below the 10-per-cent insider threshold. Assuming he still owns the 34.3 million shares that he owned in May, he too will be enjoying Pine Cliff's generous dividend yield
Further afield, Gabriel de Alba and Dr. Suresh Narine's Guyanese oil explorer, CGX Energy Inc. (OYL), lost one cent to 92 cents on 83,700 shares. It has hired a new chief financial officer. The successful candidate is George Davis, who just so happens to have a work background at Mr. de Alba's Frontera Energy Corp. (FEC: $10.43), which is CGX's majority shareholder and joint venturer in Guyana. Mr. Davis has also worked for PricewaterhouseCoopers, the Canada Pension Plan Investment Board and the African uranium miner Global Atomic.
Mr. Davis replaces interim CFO Hill-York Poon, who took the job temporarily after the abrupt resignation of Tralisa Maraj last November. CGX did not give a reason for her departure, but just a few weeks earlier, Ms. Maraj had sold nearly all of her shares of CGX, stirring up much disgruntled chatter among CGX's investors. The stock promptly fell to $1.13 from $1.47 in three days (on no accompanying news). When she resigned the next month, the stock shot up to $1.57 from $1.28 in one day. It remains, of course, unclear that her share sale had anything to do with her exit.
More recently, CGX's stock has crept below $1, on concerns about its finances. The company and Frontera are about to drill their next well in Guyana, at the Corentyne block. Frontera issued a $35-million (U.S.) loan to CGX in April to help the smaller joint venturer afford its share of the costs. They are aiming to drill the well at some point this quarter.
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