Stockwatch Energy today
Energy Summary for Aug. 25, 2022
2022-08-25 20:42 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery lost $2.37 to $92.52 on the New York Merc, while Brent for October lost $1.88 to $99.34 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.00 to WTI, down from a discount of $19.70. Natural gas for September added five cents to $9.38. The TSX energy index added 1.54 points to close at 248.72.
It was another day, another expansion announcement in the Montney. Dealmakers in the Montney over the last few months include Vermilion Energy Inc. (VET: $37.75) (which bought Leucrotta Exploration in May), Whitecap Resources Inc. (WCP: $9.69) (which proposed a Montney asset acquisition from Imperial Oil Ltd. (IMO: $9.69) in June) and the private Canbriam Energy (which proposed a Montney asset acquisition from Crew Energy Inc. (CR: $6.78) just last week). Now Pat Carlson's Kiwetinohk Energy Corp. (KEC), up 51 cents to $15.48 on 35,800 shares, is adding itself to the list.
Kiwetinohk -- pronounced "key-wheat-in-no" (a Cree word meaning north), though investors tend to prefer the merciful abbreviation KEC -- plans to pay $61.4-million for an additional 28.5-per-cent interest in its Placid Montney assets in Alberta. The deal will add 1,200 barrels a day. Moreover, it will expand KEC's control within a region that it believes will be the home of a "material Montney position." Management shook its head at the "historically underdeveloped" Placid region and vowed faster progress on drilling. By its estimate, it can boost its Placid production from the current level of 7,000 barrels a day to as high as 13,000 barrels a day by the end of next year.
If the region is underdeveloped, that may be because the company through which KEC first established its Placid position spent years dealing with other preoccupations. That would be Delphi Energy, a once-public Montney producer that traded as high as $69 in 2014, but succumbed to debt woes in 2020 and left shareholders with nothing. It caught the eye of Mr. Carlson's KEC, which helped Delphi recapitalize in 2020 in exchange for partial ownership. In mid-2021, KEC and Delphi (which by then had changed its name to Distinction Energy) decided to merge. With its new Montney assets, and with some high-profile promoters -- including Mr. Carlson, best known for founding Seven Generations (Canada's largest condensate producer until its takeover last year by ARC Resources Ltd. (ARX: $18.60)) -- KEC went public last January.
Like Seven Generations in the past, KEC has its eye on boosting production quickly. Today's announcement brought its third guidance increase of the year, to a full-year range of 16,000 to 18,000 barrels a day. Production previously averaged 9,800 barrels a day in 2021 and just 800 barrels a day in 2020.
Elsewhere in the oil patch, Don Gray's Gear Energy Inc. (GXE) lost three cents to $1.30 on 2.07 million shares. President and chief executive officer Ingram Gillmore has published his latest monthly update to shareholders on Gear's website. The update included an estimate of production for July, a month in which Mr. Gillmore already griped that Gear was beset by bad weather. Production indeed slipped to 5,700 barrels a day in July from 5,900 in June.
Curbing his complaints, Mr. Gillmore devoted most of his update to polishing Gear's green credentials. "At Gear, we have always made the environment a priority and have tried to be as pro-active as possible to meet or exceed regulatory requirements,' he declared. He hyped a relatively new gas conservation project at its Tableland asset in Saskatchewan, which is allowing Gear to collect and sell gas from its oil wells rather than simply flaring it (as is common in parts of Saskatchewan, because oil fields can be too scattered to justify building the gas-gathering infrastructure). "This arrangement has been a win-win-win for Gear, the third party [gas gatherer] and the environment," cheered Mr. Gillmore. It was, however, not enough to offset today's dip in the stock.
Another Saskatchewan producer, John Jeffrey's Saturn Oil & Gas Inc. (SOIL), added four cents to $2.71 on 627,600 shares. It spent today basking in the adulation of Canaccord Genuity analyst Mike Mueller. "Bleeding green -- emerging Saskatchewan producer offers compelling value proposition," was the title of Mr. Mueller's research note, his first on the company. The note clocked in at 26 praise-filled pages. No popcorn was included, but the note would set the stage for a fearsome drinking game based on the volume of analyst-beloved jargon, from "catalysts" to "significant upside potential" to "free cash flow machine."
In any case, Mr. Mueller went over Saturn's two-year history of "transformational acquisitions" (drink) that boosted its production to 11,000 barrels a day from barely 500. The company is now turning its focus to drilling its own wells and tidying up its balance sheet. By Mr. Mueller's estimate, Saturn will halve its net debt by the end of 2023 and boost production to 15,000 barrels a day by the end of 2025. This should "provide the company with the size and scale to garner more attention from institutional investors and establish itself as a relevant oil-weighted junior," he opined. He set a "speculative buy" rating and a price target of $7.
It is surely only a happy coincidence that Mr. Mueller's note comes mere months after an $18-million bought deal at $3 that Saturn closed in March, underwritten in part by Mr. Mueller's employer, Canaccord. Before that, Canaccord co-led a $13-million private placement for Saturn at $2.40 last year. The fine print at the bottom of Mr. Mueller's note indicates that Saturn remains a "client" of Canaccord and pays undisclosed amounts for unspecified investment banking services. As for subscribers in the above financings, many of them will still be waiting for their big payday. An investor who subscribed for $10,000 last year and another $10,000 this year would now be sitting on $20,322, just barely above water.
The Energy Summary will be on hiatus until Wednesday, Sept. 7.
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