Stockwatch Energy for yesterday
Energy Summary for Oct. 17, 2022
2022-10-17 18:46 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery lost 15 cents to $85.46 on the New York Merc, while Brent for December lost one cent to $91.62 (all figures in this para U.S.). Western Canadian Select traded at a discount of $28.75 to WTI, down from a discount of $28.70. Natural gas for November lost 45 cents to $6.00. The TSX energy index lost a fraction of a point to close at 237.25.
It was a quiet day in the Canadian oil patch, perhaps the calm before the storm of quarterly reporting season, which starts in one week. PrairieSky Royalty Ltd. (PSK: $19.99) will take its usual place at the head of the line, releasing its third quarter financials next Monday after the close. Other companies scheduled to release their financials next week include Crescent Point Energy Corp. (CPG: $9.55), Whitecap Resources Inc. (WCP: $9.76), Tamarack Valley Energy Corp. (TVE: $4.15), Advantage Energy Ltd. (AAV: $10.48) and Imperial Oil Ltd. (IMO: $64.41).
South of the border, the week kicked off with two major acquisition announcements. Notably, the NYSE-listed Continental Resources Inc. (U.CLR) added $5.90 (U.S.) to $74.12 (U.S.) on 23.6 million shares, after accepting a $27-go-private offer from its founder, chairman and major shareholder, the U.S. shale billionaire Harold Hamm. Mr. Hamm and his family (through Omega Acquisition Inc.) will acquire all of the shares of Continental that they do not already own for $74.28 (U.S.) a share. The deal values Continental, which was founded by Mr. Hamm in 1967 and remains about four-fifths owned by him and his family, at a total of $27-billion (U.S.). The price is a 9-per-cent premium to the stock's closing price on Friday of $68.22 (U.S.).
It is also a 15-per-cent premium to Continental's price of $64.50 (U.S.) in mid-June, when Mr. Hamm and his family first made their interest known in taking Continental private. "We have consistently said that as long as we were appreciated in the market, we would remain a public company, but if our opportunities were limited by being public, we should look at alternatives," Mr. Hamm wrote in a letter to employees in June. He said he would be willing to pay $70 (U.S.) a share to take Continental private, valuing the company at $25-billion (U.S.).
Now Mr. Hamm is tacking on another $2-billion (U.S.). The price has won over the board of Continental, which said today that it approves of the offer and wants shareholders to tender to it. Not everyone is as thrilled: Smead Capital Management, which is Continental's largest shareholder after the Hamm family, lambasted the offer as tantamount to "stealing" the company, and said the Hamms should really be paying at least $90 (U.S.) a share. Smead's options for voicing its displeasure are somewhat limited as the deal does not require shareholder approval. According to Bloomberg, Smead is considering legal action.
More broadly, the deal is bringing attention to Mr. Hamm's desire in taking Continental private: freedom. "Private companies ... have the freedom to operate and aren't limited by public markets, similar to the way that we operated approximately 15 years ago, prior to becoming a public entity [in 2007]," Mr. Hamm wrote in his letter earlier this year. This echoed comments he made to Bloomberg last December, when he lamented the pressure faced by public companies to prioritize dividends and buybacks, rather than boosting production as many private companies were doing to take advantage of higher prices. "These privates, they have more freedom than we do," said Mr. Hamm.
Incidentally, Mr. Hamm made those remarks to Bloomberg mere weeks after a different U.S. shale operator, Goodrich Petroleum, announced a go-private transaction last November. While privatization is clearly not a trend yet, it bears watching. Eric Nuttall, a senior portfolio manager at Canada's Ninepoint Partners, opined today on Twitter that the energy sector is sending a signal to the markets that "if you don't see the value in our stock, then we do." He clarified that he does not expect or even want a wave of privatizations -- there are, after all, advantages in remaining public -- but would like to see energy stocks enjoy a "rerating," as investors appreciate just how much cash these companies are raking in. By his calculations, many of them could afford to buy back all of their shares and become debt-free within just a few years and still have decades of development ahead of them.
The other major acquisition news south of the border came from Archaea Energy Inc. (U.LFG), which shot up $9.065 (U.S.) to $25.945 (U.S.) on 32.1 million shares, after accepting a $26-(U.S.)-a-share takeover offer from BP. Archaea is a four-year-old bioenergy company that takes waste emissions from landfills, farms and other facilities and turns it into usable, pipeline-quality gas. The industry term for this is renewable natural gas, or RNG. BP sees RNG as a "strategic transition growth engine" that will help it reach its goal of net zero emissions by 2050.
The big words and promises came with a big price tag: BP is paying a total of $4.1-billion (U.S.) for Archaea, comprising $3.3-billion (U.S.) cash and $800-million (U.S.) in assumed debt. That works out to more than 53 times Archaea's latest quarterly revenue of $77.2-million (U.S.). By contrast, the $27-billion (U.S.) valuation of Continental is closer to 10 times its latest quarterly revenue of $2.65-billion (U.S.).
© 2022 Canjex Publishing Ltd. All rights reserved.