Energy Summary for March 10, 2021
2021-03-10 20:04 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery added 66 cents to $64.67 on the New York Merc, while Brent for May added 65 cents to $68.17 (all figures in this para U.S.). U.S. President Joe Biden's $1.9-trillion (U.S.) stimulus package received final congressional approval this morning, with Mr. Biden planning to sign it into law on Friday. Western Canadian Select traded at a discount of $11.24 to WTI, up from a discount of $11.27. Natural gas for April added two cents to $2.69.
The TSX energy index added 4.64 points to close at 125.20. One of the more surprising gainers of the day was Alex Verge's Alberta Duvernay-focused Journey Energy Inc. (JOY), which shot up 33 cents to 83 cents on 1.02 million shares, notching one of the best and busiest days in its history. The company released its year-end financials late last night. Happily, for the first time in nearly a year, these did not come with a warning about "significant doubt as to the company's ability to continue as a going concern."
Journey first planted the going-concern red flag last spring, fretting over its strained credit facilities amid the new COVID-19 downturn. The bankers were in the process of steadily reducing Journey's credit facilities as part of a schedule arranged in 2019. They paused the reductions once the downturn took hold, but at that point, the facilities were good for just $75-million and Journey was already $74.3-million drawn. The parties signed a forbearance agreement and entered several long months of negotiations.
In October, Journey's major shareholder, Alberta Investment Management Corp. (AIMCo), stepped in and agreed to refinance all of the bank debt for $38-million (turning itself into Journey's largest creditor as well). Mr. Verge triumphantly declared that Journey was back in charge "to control our own destiny" -- but not really, because now it had to repay AIMCo. This led it to announce a $15-million asset sale in November. The assets were desirable, and the deal would have eliminated nearly one-fifth of Journey's 8,000-barrel-a-day production. Investors were unhappy. At the time the sale was announced, Journey's stock was about 14 cents, down from nearly 70 cents in May.
Then Journey's luck finally turned. As the proposed asset buyer struggled to complete the deal, Journey extended the closing date a few times, but eventually oil prices rallied so much that the cash flow from keeping the assets outweighed the benefit of selling them. Journey terminated the sale last week and pocketed the $902,000 deposit. It added that it was making headway on its debt to AIMCo. Last night's financials provided an even fuller picture. Some risk was acknowledged -- particularly with $21-million of debt coming due to AIMCo later this year -- but instead of expressing "significant doubt" about Journey's going-concern status, the financials used the term "could cast doubt." Like parents whose failing child finally brings home a D instead of straight Fs, investors were overjoyed.
Journey's improving report card also allowed investors to shift more of their attention to its operations. The company owns assets in the Alberta Duvernay, which it partially farmed out in 2018 to Pat Carlson's Kiwetinohk Resources Corp. (The first word is pronounced key-wheat-in-no, but Journey wisely shortens the whole thing to KRC.) KRC spudded three wells on the assets in 2019. Had it spudded more wells in 2020, it could have earned a higher interest in the assets, but the pandemic hindered its activity, and Journey (in another stroke of luck) ended up retaining a larger chunk of the assets than it had expected. The Duvernay has been much in the news lately, after Crescent Point Energy Corp. (CPG: $5.32) agreed to buy Shell Canada's Duvernay assets for $900-million. Regarding its own Duvernay assets, Journey says it is "actively seeking opportunities to monetize [them] or find a joint venture partner."
Elsewhere in Alberta, George Fink's Cardium-focused Bonterra Energy Corp. (BNE) added 38 cents to $3.91 on 156,600 shares, as it too impressed investors with its year-end financials and a debt update. The year-end financials held few surprises because Bonterra already released an operational update last month. Last month's update also included Bonterra's 2021 guidance, including a prediction that it will enjoy around $13-million in free cash flow this year. Today's update speculated that improving commodity prices might actually push this figure as high as $30-million. Bonterra plans to use the proceeds to reduce its net debt, which was a lofty $315-million as of Dec. 31.
The heavy debt is one reason why Bonterra's stock, at $3.91, is still worth just a fraction of the $20 it occasionally traded at in 2018 (the last time Canadian oil prices were at today's levels). While plenty of energy companies are still off their 2018 highs, Bonterra's performance has been notably bad. For that reason, the stock caught the eye today of Raymond James analyst Jeremy McCrea, who upgraded the stock to "outperform" and hiked his price target to $4.50 from $3. Bonterra is "quickly resolving leverage issues," wrote Mr. McCrea. He emphasized the company's low current share price, its steadily decreasing costs and its limited hedging for the second half of 2021 (providing high exposure to rising oil prices).
South of the border, the North Dakota Bakken-focused Enerplus Corp. (ERF) added 39 cents to $6.88 on 3.54 million shares. It has closed its $465-million (U.S.) acquisition of fellow Bakken player Bruin E&P. Enerplus announced this deal in January, adding that part of the price tag would be covered by a $132-million equity financing at $4 a share. Subscribers are now sitting on gains of 72 per cent. Interestingly, although Enerplus promised to provide its 2021 guidance once it closed the acquisition, it evidently has a few more details to sort out first, as today's press release simply mentioned the closing.
Investors will have to hope that they do not have to wait to receive guidance until April 9. Enerplus has undoubtedly circled this day on its calendar, as it will provide the first clear indication of the above-mentioned President Biden's views on the contentious Dakota Access pipeline (DAPL -- rhymes with apple). DAPL, the main pipeline for Bakken crude, was ordered by a judge last summer to be shut down for a lengthy environmental review. A higher judge allowed the line to keep operating. Yet it is technically operating without a key easement, leaving it vulnerable to a shutdown by the federal government. A status hearing with government lawyers is set for April 9. Opponents of DAPL, emboldened by Mr. Biden's swift cancellation of TC Energy Corp.'s (TRP: $58.05) Keystone XL pipeline in January, are hoping for a repeat performance. Enerplus and other Bakken producers, which will face higher costs and lower cash flow if they have to use rail instead of DAPL, are praying that Keystone was a one-off.
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