Energy Summary for March 15, 2021
2021-03-15 20:21 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery lost 33 cents to $65.28 on the New York Merc, while Brent for May lost 43 cents to $68.78 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.18 to WTI, up from a discount of $11.19. Natural gas for April lost 10 cents to $2.50. The TSX energy index lost 1.55 points to close at 125.07.
U.S. shale producer Ovintiv Inc. (OVV) edged down 23 cents to $34.63 on 508,500 shares. According to Reuters, the company is on the verge of selling its assets in the Texas Eagle Ford basin for more than $800-million (U.S.), in a move that would continue to narrow its focus on just three preferred plays. Ovintiv had entered the Eagle Ford in 2014 through a $3.1-billion (U.S.) asset acquisition from FreePort-McMoRan. The buyer set to scoop them up for less than $1-billion (U.S.) is apparently Pontem Energy Capital, an investment firm that might announce the deal as early as next week.
Long gone are the days when Ovintiv was active in over two dozen oil and gas plays around North America. It started to exit one play after another in 2013, soon settling on what it called its "core four" -- the Texas Eagle Ford, the Texas Permian, the Alberta Duvernay and the Alberta/B.C. Montney. These four made up the majority of Ovintiv's production in 2018. In 2019, however, the company announced the $7.7-billion (U.S.) takeover of Newfield Exploration in the Anadarko play in Oklahoma, prompting another asset shake-up.
These days, Ovintiv's hype machine runs on three core plays, the Anadarko, the Permian and the Montney. The demoted Duvernay assets were unloaded earlier this year for $263-million (U.S.). That the Eagle Ford assets were next on the chopping block is no surprise. Indeed, Reuters began reporting in November that Ovintiv was mulling a sale of the Eagle Ford assets, with the aim of fetching $600-million (U.S.) to $700-million (U.S.). Oil prices have headed higher since then, and now the rumoured proceeds are above $800-million (U.S.) -- a nice little bump, although nowhere near what Ovintiv paid originally. In any case, investors can expect Ovintiv to use the money for debt reduction. It told them last October that it wanted to reduce its debt by at least $1-billion (U.S.) by the end of 2021. The Duvernay sale plus the rumoured Eagle Ford sale would handily accomplish that goal.
Even further south, Colombian oil giant Frontera Energy Corp. (FEC) added 35 cents to $6.78 on 367,300 shares, after firming up its share buyback plans. It has received TSX approval to buy back 5.19 million shares, or 10 per cent of its public float. (The public float of 51.9 million shares represents just over half of Frontera's 97.4 million shares outstanding. Over 33 million shares are controlled by Catalyst Capital, which led Frontera out of bankruptcy restructuring proceedings in 2017. A further 10.6 million shares are held by Gramercy Funds Management.)
Frontera signalled its share buyback intentions amid a wave of press releases two weeks ago, when it announced its year-end financials, its reserves, its 2021 guidance, a new CEO appointment and a host of other updates. It said at the time that it would seek TSX approval to buy back some of its public float. This buyback was to serve partly as a substitute for Frontera's fleeting quarterly dividend, which was launched in 2018 but payable only in quarters when Brent oil prices averaged at least $60 (U.S.). After the first quarter of 2020, with the onset of the COVID-19 downturn, the dividend vanished. Frontera apparently has no interest in reviving it, even though Brent is now back near $70 (U.S.). The company told investors two weeks ago that it sees buybacks as "a more effective way to deliver value to shareholders when compared with cash dividends."
The main news in the earlier updates had to do with what Frontera dubbed its "strategic plan." In 2021, this plan involves spending $200-million (U.S.) to $295-million (U.S.), roughly half of which will go toward boosting production in Colombia. Most of the rest is earmarked for exploration in Colombia, Ecuador and -- the biggest exploration priority -- Guyana. Frontera has a Guyanese joint venture with CGX Energy Inc. (OYL: $0.96), with CGX recently announcing that they plan to spud their first well together in the second half of this year. Excitement about this well has helped CGX's 96-cent stock nearly double from 50 cents since the start of February.
The Guyanese hype may be less crucial to the much larger Frontera, but the company remains excited about this "growth opportunity," which will in fact become the focus of outgoing CEO Richard Herbert. Mr. Herbert will shift into a new role at Frontera as a Guyana-focused adviser. His successor as CEO is Orlando Cabrales, who boasts strong political and networking connections. He is the former vice-minister of Colombia's energy department and the former president of Colombia's energy regulator.
Back in Guyana, a different explorer had news today. Gil Holzman and Colin Kinley's Eco (Atlantic) Oil & Gas Ltd. (EOG) edged up one cent to 45 cents on 43,400 shares, after renewing the exploration licence on the Orinduik block off the Guyanese coast. The block is now in good standing for another two years. Eco owns 15 per cent of Orinduik, which is operated by Tullow Oil with a 60-per-cent interest. Eco noted with excitement that once the joint venturers finish "high-grading candidates for the next drill program," Tullow will finalize and select the drill targets later this year. Eco also announced that there is also a new joint venturer officially in the mix. France's Total, which previously owned 25 per cent of Orinduik, has finally transferred a partial interest to Qatar Petroleum, under an agreement that the two companies announced back in 2019. They had to wait for Guyanese government approval that did not arrive until a few weeks ago. Now Orinduik is effectively owned 15 per cent by Eco, 60 per cent by Tullow, 15 per cent by Total and 10 per cent by Qatar Petroleum.
Here in Canada, Rick McHardy's Alberta-focused Spartan Delta Corp. (SDE) edged down one cent to $4.05 on one million shares, on top of the two cents it lost on Friday after releasing its year-end financials. It reported fourth quarter production of 26,000 barrels of oil equivalent a day. This was in line with analysts' predictions, while fourth quarter cash flow of 28 cents a share was nicely above predictions of 24 cents a share. The market mostly yawned, but the financials did catch the eye of Scotia Capital analyst Cameron Bean, who in a new research note praised Spartan's "big beat" on cash flow, its "exceptional" acquisition history and its "pristine" balance sheet. He concluded that the stock is a "great buy." Mr. Bean's employer, Scotia Capital, was an underwriter for a $45-million bought deal that Spartan closed last week at $4 a share. His current rating on the stock is "sector outperform," with an obligingly bullish price target of $7.
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