Energy Summary for Feb. 19, 2021
2021-02-19 20:27 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery lost $1.68 to $58.84 on the New York Merc, while Brent for April lost $1.30 to $62.63 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.36 to WTI, unchanged. Natural gas for March was unchanged at $3.08. The TSX energy index added a fraction to close at 107.06.
Canada's largest condensate producer -- and the second half of what will soon be Canada's sixth-largest energy producer across the board -- slipped after releasing its year-end 2020 financials. Seven Generations Energy Ltd. (VII), down 23 cents to $8.63 on 5.19 million shares, posted a net loss for the year of $2.15-billion. This largely reflected $2.85-billion in impairment charges. Only a $652-million tax recovery kept the bottom line from looking even uglier.
The headline-grabbing net loss aside, the financials were generally better than analysts expected. Seven Generations produced 190,100 barrels of oil equivalent a day from its Alberta Montney assets in the fourth quarter, mildly ahead of analysts' predictions of 186,000 barrels a day. Cash flow of 82 cents a share was well above analysts' predictions of 73 cents a share. Notably, the company spent about $125-million in the quarter, whereas analysts had expected it to spend over $144-million. The low spending helped it achieve free cash flow of $149-million, its highest quarterly total ever.
(Seven Generations has generated free cash flow in only nine quarters of its 13-year history. Prior to 2018, its main priority was increasing production, regardless of how far it had to spend beyond its means. While it certainly succeeded in increasing production, it must now contend with the resulting heavy net debt, which came to $1.9-billion as of Sept. 30.)
This will be one of Seven Generations' last quarters as a stand-alone entity. Last week, it announced an $8.1-billion merger with fellow Montney producer ARC Resources Ltd. (ARX: $7.85), in a deal that will create Canada's largest condensate producer, third-largest gas producer and sixth-largest overall energy producer. Seven Generations used its financials as an opportunity to remind investors of this "strategic Montney combination." It directed investors to a 19-page presentation about the merger on its website, dedicated to convincing them to vote for the deal and create "the premier Montney company" at a special meeting on March 31.
The merger hubbub has not gone unnoticed by other Montney producers. Dale Shwed, president and chief executive officer of B.C. Montney producer Crew Energy Inc. (CR) -- which lost two cents to 98 cents today, but is up from 57 cents since the start of the year -- presented at an industry conference earlier this week and predicted that "merger mania will continue." He played coy as to whether Crew wants to participate.
Mr. Shwed delivered his presentation on Wednesday afternoon at the MicroCap Rodeo Winter Wonderland Conference, a virtual conference that ran from Feb. 16 to 19 and purported to be "showcasing 35 best ideas from the buy side." Crew's case for being a best idea lies in its "unique one-two punch of value and growth," said Mr. Shwed. He noted that over its 18-year history, Crew's stock, which is currently trading at about $1, has been in the $18 to $20 range three separate times. "I can tell you that the company today is a much stronger, better company that it was at any of those points in time," declared Mr. Shwed, "so our view and vision is to get our share price up to that range again." For now it will try to impress shareholders by pursuing its two-year plan. This involves a 50-per-cent production boost to 32,000 barrels a day in late 2022 from 21,500 in late 2020. Mr. Shwed added that Crew has "ample" liquidity and is generating free cash flow, and thus has "no plans to raise equity at this time," although it might sell non-core assets. As for Crew stance's on the aforementioned "merger mania," Mr. Shwed said he likes the company's current plan, but if an offer should emerge, "we'll definitely entertain it."
While Mr. Shwed hit the conference circuit, another Montney CEO headed to prime time. Andy Mah, president and CEO of Advantage Oil & Gas Ltd. (AAV) -- which lost six cents to $2.50 today, but is up from $1.70 since the start of the year -- appeared on BNN to talk up the company's exposure to rising gas prices. "The timing is working out perfect for us," declared Mr. Mah. He was referring to the new wells that Advantage started bringing on-line in December in January, with more on the way. The recent cold snap, particularly in the United States, has led to what Mr. Mah dubbed "constructive pricing" for gas. This makes up about 90 per cent of Advantage's roughly 45,000-barrel-a-day production.
Despite Mr. Mah's best efforts, Advantage's stock has not moved up as much as some of its competitors since the start of the year. Birchcliff Energy Ltd. (BIR), for example, closed today at $3.13, rising from $1.77 over the last seven weeks. Worth noting is that Birchcliff Energy has not hedged any of this year's gas production. "We ran our budget at $2.80 (U.S.) for NYMEX gas, and today we are selling it for $16 (U.S.)," gloated Birchcliff CEO Jeff Tonken in a CTV News article on Wednesday. By comparison, Mr. Mah said in his BNN interview on Wednesday that Advantage has hedged about 40 per cent of its production for the first half of the year. This means it is not reaping the full benefits of the recent price rally. Mr. Mah emphasized that the second half is "more open" (meaning less hedged), so with any luck, the rally will hold.
Heading south of the border, the North Dakota oil and Pennsylvania gas producer Enerplus Corp. (ERF) lost four cents to $5.62 on 4.64 million shares, after releasing its year-end 2020 financials. As with Seven Generations, the financials showed a big impairment hit. Enerplus ended up posting a net loss for the year of $923-million. Beyond that, the financials were mixed. Enerplus produced 86,200 barrels a day during the fourth quarter, exceeding analysts' predictions of 84,500, but cash flow of 38 cents a share dipped below analysts' predictions of 42 cents a share.
Enerplus emphasized that it managed to generate $66.8-million in free cash flow during the fourth quarter. Further, it expects a "material increase in its free cash flow generation" this year, once it closes its takeover of fellow Bakken player Bruin E&P. This $465-million (U.S.) takeover was announced on Jan. 25. To help cover the purchase price, Enerplus raised $132.2-million at $4 a share on Feb. 3, with participants already showing a 41-per-cent gain on paper. Enerplus says it will provide post-Bruin budget and production guidance once the deal closes next month.
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