Energy Summary for Aug. 30, 2021
2021-08-30 20:50 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added 47 cents to $69.21 on the New York Merc, while Brent for October added 71 cents to $73.41 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.25 to WTI, unchanged. Natural gas for October lost six cents to $4.31. The TSX energy index lost 1.29 points to close at 122.41.
Oil prices twisted in the winds of Hurricane Ida. The storm made landfall on Sunday and has caused at least one death and millions of power outages across Louisiana and Mississippi. Ahead of the storm, U.S. Gulf Coast oil producers began shutting in offshore platforms and evacuating workers. The Bureau of Safety and Environmental Enforcement is estimating that 1.7 million barrels a day of offshore production remains off-line, representing 95 per cent of the region's oil output. (For context, total U.S. oil output in 2020 averaged 11.3 million barrels a day.) This led to some volatile trading. After touching a four-week high, oil prices retreated and steadied over the course of the day, particularly after the hurricane was downgraded to a tropical storm.
Here in Canada, the newsmakers in the oil sector were the juniors. Little Altura Energy Inc. (ATU), down 1.5 cents to 19 cents on 4.22 million shares, is recapitalizing and repopulating its board and management with former executives of Vermilion Energy Inc. (VET: $8.31). The company announced this morning that it will complete a "transformative transaction" with the goal of becoming a global "growth and income" player. Primarily, it plans to raise $25-million at 18 cents, overhaul everyone at the top -- including appointing Tony Marino as its new president and chief executive officer -- and embark on an international acquisition spree.
Altura's announcement marks the first time that Mr. Marino has popped up since he abruptly stepped down as Vermilion's president and CEO in May of last year. Vermilion was licking its wounds at the time. It used to be one of the consummate global growth-and-income players, paying a generous dividend out of assets scattered across North America, Europe and Australia. It still has the assets, but it suspended the dividend in April of last year, seeking to cut costs amid the downturn. This was a problem for Mr. Marino, as he had spent the previous several months publicly and persistently claiming that the dividend was safe. He "stepped down ... effective immediately" a month after the suspension. Co-founder Curtis Hicks took charge, putting the focus on debt repayment while vaguely promising that a dividend could return someday.
Now Mr. Marino will become president and CEO of Altura. A handful of other former Vermilion executives will join him, including Michael Kaluza as chief operating officer (the same role he held at Vermilion), Bradley Bennett as chief financial officer (he was Vermilion's treasurer) and Jonathan Balkwill as vice-president of business development (he was a senior business development engineer at Vermilion). "We see great opportunity in international markets to capture quality M&A [merger and acquisition] opportunities at this time," declared Mr. Marino. He will rename the company as Tenaz Energy and start looking for deals in Europe, South America, and the Middle East/North Africa.
This is not the first time Altura has pursued this kind of recapitalization -- right down to favouring former Vermilion executives. Long-term investors may remember that the company used to be called Northern Spirit. It recapitalized and changed management in 2015 (such deals were all the rage at the time) and gave the CEO job to David Burghardt, a former eight-year executive with Vermilion. Mr. Burghardt changed the company's name to Altura and managed to double its production in Alberta. Of course, in absolute terms, production is still only around 1,000 barrels a day. Perhaps Mr. Marino and his more ambitious plans for Tenaz will produce loftier results.
Another Alberta producer, Don Gray's Petrus Resources Ltd. (PRQ), shot up 13.5 cents to 16 cents on 301,600 shares. It too has announced a "transformative transaction." In this case, the transaction is with existing major shareholders (rather than new ones), and the goal is debt reduction (rather than acquisitions). Petrus has been struggling with its debt for more than two years. Its bankers developed a disagreeable habit of trimming its credit facility seemingly every time it managed to pay down some debt, meaning that money was always tight. The pressure heightened as Petrus neared the due date for a separate term loan due in 2020 (later extended to 2021). As Petrus tried to work out a solution, the lenders parcelled out tiny extensions, sometimes for as little as one week at a time.
Now Petrus has scored some real breathing room. Through debt-for-equity swaps and an equity financing, the company is fully settling the loan, extending the facility to May, 2022, and lowering its overall debt to a more manageable $63-million from $112-million. This will "markedly transform Petrus from a company with limited capital resources to a company with the capital required to develop its currently undeveloped land base," according to president and CEO Ken Gray. It will also be quite the family affair: His three brothers, Don, Glen and Stuart, are the major participants in all of the financings. The three of them will thus boost their joint ownership of Petrus to 74.2 per cent from 49.9 per cent. Don Gray is the largest and longest serving of the Petrus brother-backers, having founded it in 2011 and served as chairman ever since. His brothers did not get involved until this year, but were apparently happy to dive right in.
South of the border, the U.S. Bakken oil producer, Enerplus Corp. (ERF), edged down nine cents to $7.27 on 2.93 million shares. It surprised investors with a $115-million (U.S.) asset sale. The assets are producing 3,000 barrels of oil equivalent a day in the Sleeping Giant and Russian Creek areas, which are part of Enerplus's core acreage in the Bakken/Three Forks play of North Dakota and Montana. Yet president and CEO Ian Dundas said these particular assets were not truly core at all. He described them merely as "legacy" assets that were "not attracting capital in our portfolio."
Put another way, Mr. Dundas found the assets to be worth giving up so that Enerplus could perform some tidy-up on its balance sheet. The company has been far more of a buyer than a seller this year, spending close to $800-million (U.S.) to scoop up desirable assets in North Dakota. Accordingly, net debt rocketed to $1.1-billion (U.S.) as of June 30, 2021, from $518-million (U.S.) a year earlier. Mr. Dundas had already reassured investors that most of Enerplus's free cash flow is going toward debt reduction. Today's asset sale is designed to speed this up, while eliminating less than 3 per cent of total production. Mr. Dundas did not mention a guidance reduction and is presumably leaving the full-year guidance intact at 112,000 to 115,000 barrels a day.
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