Energy Summary for Aug. 31, 2021
2021-08-31 20:03 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery lost 71 cents to $68.50 on the New York Merc, while Brent for October lost 42 cents to $72.99 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.45 to WTI, down from a discount of $12.25. Natural gas for October added seven cents to $4.38. The TSX energy index added a fraction to close at 122.44.
Oil prices drifted downward as markets brushed off the damage from Hurricane Ida. The storm battered the U.S. Gulf Coast over the weekend, knocked out 94 per cent of the region's offshore oil output and damaged onshore refineries. Yet analysts are not expecting lasting effects on prices. Three-quarters of offshore output will resume by the end of the week, predicted the analysts at Facts Global Energy. CIBC Wealth added that refineries' current inventories will keep prices stable unless the outages last longer than two to four weeks. As a result, attention broadly shifted to tomorrow's OPEC+ meeting, the first since the group agreed in July to increase production every month for the next year. The group is expected to adhere to this plan tomorrow in spite of U.S. pressure for larger, faster increases.
Here in Canada, the country's largest gas producer, Mike Rose's Tourmaline Oil Corp. (TOU), added 33 cents to $33.74 on 2.27 million shares. It is tapping its royalty and infrastructure subsidiary for more cash. The subsidiary is Topaz Energy Corp. (TPZ: $15.76), which Tourmaline created in 2019 and took partially public in 2020. By selling shares of Topaz and selling assets to Topaz, Tourmaline has already brought in $650-million. Now Tourmaline has arranged a fresh secondary offering, through which it will pocket $108-million by selling seven million shares of Topaz at $15.45. The sale will reduce its ownership of Topaz to 39 per cent from 45 per cent.
Mr. Rose, Tourmaline's chairman, president and chief executive officer, said the proceeds will be used to reduce debt and "accelerate shareholder returns." He added that Tourmaline will sell additional shares "as Topaz develops and continues to succeed as an independent [company]." Topaz is approaching the first anniversary of its IPO in October. It priced the IPO at $13, which was at the bottom of its marketed range of $13 to $15, but subscribers should be pleased with today's closing price of $15.76. Topaz also pays a 21-cent quarterly dividend that represents a yield of 5.3 per cent.
Tourmaline pays a dividend as well, a 16-cent quarterly one that represents a yield of 1.9 per cent and has already been raised twice in the past year. Mr. Rose's remark about accelerating shareholder returns drew speculation that a third increase is on the way. There is another possibility, according to Raymond James analyst Jeremy McCrea. His research note this morning raised the idea of an imminent special dividend. "We see the special dividend triangulating to between $250- to $450-million, or an implied dividend yield of 2.3 to 4.1 per cent," wrote Mr. McCrea, calculating the implied per-share payout at 77 cents to $1.38. The analyst has a "strong buy" rating on Tourmaline and a price target of $44.50. Investors may wish to note that his employer, Raymond James, has in the past acted as an underwriter of financings for both Tourmaline and Topaz.
From the largest gas producer we turn to the largest condensate producer, ARC Resources Ltd. (ARX), up 25 cents to $9.01 on 10.7 million shares. It has arranged a share buyback program covering up to 72 million shares. The announcement comes one month after ARC promised, in a presentation on its website, to "demonstrate commitment to shareholders by prioritizing growth in per-share metrics" -- or in other words, to buy back shares. The company currently has 724 million shares outstanding. Roughly half of them were issued in April, when ARC closed its all-share merger of equals with Seven Generations (the deal that turned it into Canada's largest condensate producer).
Meanwhile, ARC's vice-chairman is about to embark on a new project. Marty Proctor, who was Seven Generations' president and CEO and joined ARC's board after the merger, is now set to become chairman of the soon-to-emerge Tenaz Energy. This is the new promotion of Tony Marino. As discussed in yesterday's Energy Summary, Mr. Marino, the former CEO of Vermilion Energy Inc. (VET: $8.42), is now overhauling, recapitalizing and rebranding the tiny Alberta producer Altura Energy Inc. (ATU: $0.19). Alongside other former Vermilion executives, and with Mr. Proctor as chairman, Mr. Marino wants to take Tenaz on an international shopping spree and pursue a "growth and income" model. Other incoming directors of Tenaz include Anna Alderson (a former audit partner at KPMG), John Chambers (former vice-chairman and president of GMP FirstEnergy) and Mark Rollins (current chairman of the AIM-listed Advance Energy PLC).
Further afield, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), edged down one cent to $3.32 on 544,200 shares, giving back a small bit of the 25 cents it added over the previous two trading days. As discussed in Friday's Energy Summary, Canacol pleased shareholders by signing a gas sales agreement with Empresas Publicas de Medellin (EPM), Colombia's largest public utilities company. Details were scarce at the time. Canacol provided more of them in a press release yesterday and held a conference call for further discussion yesterday after the close.
As described by management, the contract with EPM will start Dec. 1, 2024, and will last 11 years. Volumes will start out at 21 million cubic feet of gas a day and then rise to 54 million cubic feet a day in December, 2025, where they will stay for the rest of the term. (For context, Canacol's sales in July, 2021, averaged 190 million cubic feet a day.) To move the gas, Canacol will build a 100-million-cubic-foot-a-day pipeline -- with potential to double this capacity -- from Jobo to Medellin. Management chose not to remind shareholders that it has already been trying to build this pipeline for more than two years, without success. Instead it kept the focus on the fact that EPM will be an anchor customer. Definitive pipeline agreements are expected in early 2022, followed by start-up in 2024. "This is a win-win for Canacol and gas consumers," cheered Mr. Gamba, president and CEO, during the call. He said Canacol will immediately start looking for other customers for the pipeline, as well as financiers to help shoulder the projected $450-million (U.S.) cost.
Investors may have been hoping for more definitive news on the pipeline, seeing as definitive agreements were originally promised by the end of 2019. The stock has nonetheless held on to most of its recent gains. Canacol also won a nod of approval yesterday evening from Fitch Ratings, which dubbed the EPM contract "credit positive." Fitch estimated that the contract will contribute $20-million (U.S.) to $25-million (U.S.) in EBITDA each year.
© 2021 Canjex Publishing Ltd. All rights reserved.