Penn & Teller or Golidlocks?So what's really going on here? Is this simply an illusion to appease investors by putting on a good show & giving the company a better image or is there something more at play here? Just smoke & mirrors or prepping for something more enticing? Well, to find out we're going to have to go back in time and see how things were and maybe break things down a bit into simpler pieces. I'll try to be brief & to the point.
Going back in time, 1990's style! Like some of you old timers know by now, at least those you who have been following my comments throughout the last several years, and as i've mentioned many times on here, i've been investing in the O&G sector for a few decades, since the early 90's really. Back then, things were very different, the landscape & mechanics a very much different story. The most important one being the "Climate Change" focus & global agenda. Let's just say that if the same factors that are at play today, those being pricing, profit margins and supply & demand constraints, were at play back then, Crew would be at least double the price it is now. Unfortunately this isn't the 90's, we're in the mid 2020's and things are so much different across the board. Though the core issues that counted for ep's back then are still important today, our perception of the industry is just not the same. And when i mean we, i mean the overall "majority" & those that count in the end.
The Premise. I'll go on record right off the bat and say i'm not "exactly" sure what's really going on here behind closed doors at Crew HQ. Or what their true intentions or end game objectives are. But knowing the company inside & out fairly well, their thinking & philosophies including the company culture, i can give some pretty good guesses here of what's up. Crew was always one not to really stand out, they basically did what needed to be done when the situation demanded it, just the essentials & nothing more than what was required. They survived, no matter how good or bad the environment was and made sure they took the necessary steps to move forward. Whether that was standing on both feet by walking briskly or in a laid back & relaxed way, or on both knees crawling. Nothing more, nothing less. That's JUST how the company & those that led her were. So when you start to see them to slightly break away from that norm, you start to notice & ask questions.
The company's true Motive? Finally time or continue to march or hobble forward? So if we take a closer look at what the company did with this disposition, you can deduce a few things, some good some not so good. Their publicly stated objectives, to dispose non core assets to reduce debt. Though this might be true or not, it does muddy things a bit more then before. So they sold some non developed, non producing assets, which by them were classified non core, those being Portage & Attachie. I'm not that familiar with the former, but Attachie was well known & surprising to me. As most of you know by now, i've targeted this company to be "taken out" for some time now, at least two years since oil & gas prices made their comeback. I'm actually still surprised that no one took run at the company yet (maybe some have but offers rejected outright!), but not entirely shocked considering the "difficult environment. If we look at what was "disposed", things get really complicated. In the past, i've always had a short list of possible candidates that could be buy or merge with the company. The most likely making the most sense being Arc Energy. The problem here though, was with the disposition of Attachie it kinda shoots a hole in that theory or possibility and makes any possible transaction with Arc DOA. Surprising thing was that Arc wasn't even the eventual buyer for the property. Did Arc even make an attempt or offer for the property? I don't think we'll ever find out.
Anyone else interested? Remains to be seen, for now. Yeah, that Attachie disposition was a tough one to figure out, especially when Arc wasn't even part of it in any way. But the eventual buyer being rumored to be privately owned Pacific Canbriam, if true, makes sense, especially for Portage asset. Even Attachie is economically conducive for Pacfic Canbriam if one looks at it. Just tough to imagine that Arc didn't even bother to fight for it. Is it possible they did, but were just simply outbid by a very motivated competitor & Arc mgmt were too frugal in that endeavor? Who knows really. All we know now is that Attachie is now part of some one other than Crew or Arc. So since this move puts Arc completely out of the picture or at the very least lowers the odds tremendously that they aren't in Crew's sphere of influence anymore, who else can find some value in Crew? As mentioned above, if this was the 90's, or even the early 2000's, there would be a whole slew of interested parties. But it's not and we're in the 2020's where a *rap load of stuff has completely changed and has greatly narrowed the list of potential suitors.
Next batter up. So with Arc being out, who's left? Of course this is assuming that Crew has an exit strategy in place and this is no Penn & Teller circus. Well, you can eliminate some folks right off the bat. Some of the usual suspects of the past, like the large American or Chinese buyers are for all intents & purposes out of the picture as far as i'm concerned. Mostly for different reasons, but both are divesting themselves of Canadian O&G assets all the same. The same goes for some of the European conglomerates, like Royal Dutch & Reposal. The Europeans who have gone completely "Climate Change" nutts, not only being marred down by regulations & a clamping down on anything fossil fuels but also instituting some of their own internal policies to divest themselves of "dirty" Canadian oil assets. So what you have left my friends is purely home grown Canadian local players. Then question then becomes who? This question can be separated into two distinct groups, the large caps like Ovintiv (which might be the only American ep with Canadian roots left that might still be interested and probably make some moves), Canadian Natural & Cenovus AND the mid caps.
The Deal. So $130M Cdn for ~47K acres and ~5M & ~30M bbls of P&P reserves. Most of it be used to par down the debt, by almost 1/3. Some interesting points here, on an acreage pov, this is just under $3k. Interesting to note that Leucrotta got 3X as much for their land earlier this year, of course those were PvnPd assets. From a reserves standpoint, of which i include probably reserves having some value here, it looks like Proven reserves got about ~$20/bbl. Is this low for non producing assets, considering the current environment? I think you can make a case either way, if you really wanted to here. I know many here don't think that probable reserves have ANY value in these types of transactions, especially on exploratory non producing properties. And normally i would agree with them in a sub $50 wti & dismal economic environment. But as of right now this is even close to be being the case, so they should "technically" have some degree of worth here at $75+ wti & a temporary supply/demand crunch.
The Deal & The Players. So fleshing out this deal and narrowing the potential list of candidates, a few things become clear. One, if this was some sort of slow exit by mgmt & prepping Crew to be sold, then the amount of possible suitors is limited to just two or three. If this recent transaction is a continuation of dispositions started with the loyldminster sale or not is not entirely known or certain. The lolydminster Heavy oil assets could be argued that it made total sense, considering the state, perception & economics of "dirty" oil on the global scene, as much as for those reasons as for Crew as well being a mostly NG focused ep. This disposition though is very different, as it does open some doors, it closes others as well. For starters, take a large Canadian producer such as Canadian Natural. If CNQ was at all interested in buying out someone like Crew, why would Crew get rid great assets like Attachie? Sure selling some non core properties to par debt would make sense & be required for a mid tier who wishes to remain both slim downed & efficient and maintain a strong BS. But for guys like CNQ, Ovintiv or Cenovus, it just doesn't. Who cares if you have $450M or $300M in debt, from those behemoths pov, it makes absolutely no difference, on the contrary, it wouldn't make sense. But for a Canadian mid tier, it certainly does
TBC.......
GLTA