Energy Summary for April 22, 2022
2022-04-22 20:15 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery lost $1.72 to $102.07 on the New York Merc, while Brent for June lost $1.68 to $106.65 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.30 to WTI, down from a discount of $12.20. Natural gas for May lost 42 cents to $6.53. The TSX energy index lost 4.57 points to close at 231.24.
Though oil prices notched a weekly decline, oil companies strove to keep a smile on in celebration of Earth Day, the annual feel-good or feel-frantic fest, depending on one's mood. The doomsday crowds busied themselves at rallies across Canada, the United States and Europe, marching and preaching with gusto. Meanwhile, Suncor Energy Inc. (SU: $41.10) chose today to publish a research report on four decades worth of oil sands reclamation, confirming that the vegetation on reclaimed sites is looking "increasingly similar" to never-disturbed sites. Separately, Cenovus Energy Inc. (CVE: $21.96) (perhaps not checking its calendar properly) announced yesterday that it has made a $3-million (U.S.) donation to the Nature Conservancy of Canada.
For most of the sector, it was another ordinary day. Don Gray's Alberta- and Saskatchewan-focused Gear Energy Ltd. (GXE) lost six cents to $1.48 on 5.17 million shares. Its president and chief executive officer, Ingram Gillmore, has published his latest monthly letter to shareholders on Gear's website. A chart in the letter noted that Gear's production in the first quarter averaged 5,700 barrels a day. This is down from the fourth quarter average of 6,100 barrels a day, partly reflecting limited drilling activity and cold weather in January and early February. In addition, Mr. Gillmore noted that Gear will take a hedging loss in the first quarter of $7.2-million.
A happier number in the letter was $6.7-million. That is the amount of net debt that Mr. Gillmore said Gear had on its balance sheet as of March 31, down from $15.8-million at the start of the year and from $42.9-million on March 31, 2021. Mr. Gillmore has previously predicted that Gear will achieve net-debt-free status by the end of this quarter, becoming one of the first companies in the sector to do so. He has also dropped hints about starting a share buyback program or a dividend once this happens. In his new letter, he reminded investors of Gear's "zero net debt" target, though not the expected timing or the potential for shareholder returns.
Another Alberta producer, Brian Schmidt's Tamarack Valley Energy Ltd. (TVE), lost 17 cents to $4.95 on 8.31 million shares. The drop came in spite of a barrage of boosterish research notes from analysts reacting to yesterday's news of an acquisition and a dividend hike. As discussed yesterday, Tamarack is planning to buy Rolling Hills Energy, a private junior in the Clearwater oil play, for $93-million (bringing its total Clearwater purchases over the last year and a half to about $400-million). It is also boosting its monthly dividend to one cent from 0.83 cent, for a yield of 2.4 per cent.
National Bank analyst Dan Payne wrote today that he likes Tamarack's "pro-active approach" to expanding in the Clearwater, where it is becoming "the absolute standout value player." He hiked his price target to $8.50 from $8. Meanwhile, ATB Capital's Patrick O'Rourke hiked his price to $6.75 from $6.50, while a trio of analysts -- breaking what seems to be the unofficial code -- all hiked their targets to and from the exact same amount. Jeremy McCrea of Raymond James, Jamie Kubik of CIBC and Luke Davis of RBC all had $7 price targets on the stock, which they have now all hiked to $7.50. (Every single one of the above-mentioned banks has acted as an adviser or underwriter to Tamarack in at least one acquisition or financing, or both, within the past year.)
Investors have been lukewarm on the deal. Tamarack declined to update its guidance in yesterday's announcement, saying it would wait to do so until it releases its first quarter financials on May 3. Management did provide some clues during a conference call about Rolling Hills yesterday. "We'll add a little bit of capital ... I would say it's going to be around $15-million to $20-million of incremental capital that's going to go along with this acquisition for the remainder of the year," said Mr. Schmidt, Tamarack's president and chief executive officer. (The current full-year budget is $250-million to $270-million.) Mr. Schmidt noted that the current goal for the Rolling Hills assets is to hold production steady rather than "grow on it hard." Yet he also sees "significant further exploration potential upside." More details, he promised, will arrive in the coming weeks.
In the B.C. Montney, Rob Zakresky's Leucrotta Exploration Inc. (LXE) stayed unchanged at $2.03 on 561,900 shares, after releasing its year-end financials (at a time when most other companies are preparing their first quarter financials). It trumpeted full-year net earnings of $95-million. Seeing as this was double its oil and gas sales of $40.2-million, there was unsurprisingly some accounting magic at play, namely a $90.1-million impairment reversal. Yet the more important future for investors was $477-million, the size of the takeover offer that Leucrotta accepted from Vermilion Energy Inc. (VET: $25.57) last month. This understandably overshadowed the financials. Leucrotta will ask shareholders to vote on the deal at a special meeting on May 20.
Back in Alberta, Don Simmons and Charlie O'Sullivan's Hemisphere Energy Corp. (HME) lost two cents to $1.55 on 142,100 shares, after it too released its year-end financials. It boasted of full-year revenue of $43.1-million and a net profit of $5.9-million (with only $1.9-million coming from impairment reversals). Production averaged 1,800 barrels a day in 2021, and subsequently "climbed to new highs" of 2,900 barrels a day in March, cheered CEO Mr. Simmons. The company is coming ever closer to a goal that Mr. Simmons has been nursing for about five years: 3,000 barrels a day.
Long-term investors may recall that Mr. Simmons set the 3,000-barrel-a-day goal in 2017, after Hemisphere took out a loan from a U.S. lender called Cibolo Investments. Short-term investors may recall seeing Cibolo's name in a SEDAR filing just this week. Although the loan does not exist anymore (Hemisphere replaced it with a lower-cost credit facility), Cibolo received over 13 million warrants in 2017 as partial consideration, and now it has exercised the last 10 million of them. Hemisphere triggered the forced-acceleration clause after its share price reached $1.40. The strike price of the warrants was 28 cents, but rather than pay that price, Cibolo opted for a cashless exercise and a lesser amount of shares. Following this and a separate cashless exercise last year, Cibolo now owns zero warrants and 10.6 million of Hemisphere's 100 million shares. It says it will quickly sell 750,000 of them so it will not have to adhere to 10-per-cent insider reporting requirements.
Another major shareholder of Hemisphere is the above-mentioned Mr. O'Sullivan, who founded the company way back in 1977. He has taken it into various industries over the decades (including a memorable stint as a Far North gold explorer with Vancouver's Frank Callaghan as CEO), but seems to have settled quite happily into Alberta oil since 2007. He is now 79 and still serves as Hemisphere's chairman.
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