Energy Summary for May 25, 2022
2022-05-25 20:18 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery added 56 cents to $110.33 on the New York Merc, while Brent for July added 47 cents to $114.03 (all figures in this para U.S.). Western Canadian Select traded at a discount of $18.00 to WTI, down from a discount of $17.00. Natural gas for June added 17 cents to $8.97. The TSX energy index added 5.31 points to close at 265.01.
Tony Marino's Tenaz Energy Corp. (TNZ) added 17 cents to $2.36 on 329,500 shares, after making its first big move since last year's reorganization. It will buy the AIM-listed SDX Energy for $34.3-million in shares. SDX is an oil producer in Egypt and Morocco, with forecast 2022 production of 3,300 to 3,550 barrels a day (about triple than Tenaz's Alberta-focused production of 1,200 to 1,300 barrels a day).
The deal keeps a promise that Tenaz has been repeasting since last summer. That was when the above Mr. Marino and his people (who previously worked together at international oil and gas producer Vermilion Energy Inc. (VET: $27.79)) recapitalized an Alberta oil junior called Altura Energy, changing its name to Tenaz and vowing to take it on a global shopping spree. They laid out a "vision and strategy" of turning Tenaz into a dividend-paying intermediate producer (like Vermilion). Both the dividend and the intermediate status are still a long way off, but now the shopping is under way.
The target may ring a bell for some energy investors. Up until 2019, SDX was listed on the TSX-V, having made its debut with a 60-cent-a-share IPO in 2008 (when it was a promotion of Vancouver's Parvez Tyab, though he left in 2009). It then spent years deciding which of its Egyptian assets deserved the most hype. This was largely the job of Said Arrata, who came in as CEO in 2009, fresh off the sale of his Centurion Oil in Egypt for $12 a share. He caused a flicker of interest in SDX but could not make it last. In 2013, under new CEO Paul Welch (formerly of Chariot Oil), SDX settled on promoting its "fantastic," "exciting" and even "company-making" South Disouq block. Shareholders got used to such adjectives. They also got used to disappointment and delay. By the time SDX dropped its TSX-V listing in 2019, South Disouq was still not producing. Mr. Welch paid the price, stepping down in 2019 in favour of current CEO Mark Reid.
South Disouq did eventually come on production, joining SDX's producing assets elsewhere in Egypt and in Morocco. Yet the company's overall output remains far short of what its various promoters dreamed of all those years ago. The same is true of the share price. On the TSX-V, the stock peaked at $1.36 in 2018. It was worth 37 cents when it delisted in 2019, and today's deal with Tenaz values its shares at 10 pence -- or about 16 cents -- which is a 28-per-cent premium to yesterday's close.
Naturally, Tenaz is confident that it will have better luck developing the assets. "This transaction is an important step in the execution of our strategy for international growth," cheered Mr. Marino. Pending approval of shareholders of both companies, the deal should close in late July or early August.
Another international producer, Gary Guidry's Colombia-focused Gran Tierra Energy Inc. (GTE), added 15 cents to $2.13 on 3.68 million shares. It is trying to give itself more breathing room on its debt. Last night, it began an exchange offer encouraging holders of $600-million (U.S.) in senior notes, due in equal batches in 2025 and 2027, to switch them for new, higher-interest notes that will not be due until 2029. It will also ask them to eliminate "substantially all of the restrictive covenants and events of default." The offer will expire on June 22, with a premium thrown in for noteholders who tender by June 7.
The move won various nods of approval. Fitch Ratings reacted to the offer by upgrading Gran Tierra's credit rating to B from B- (still deep in junk territory), with a "stable" outlook. Meanwhile, Canaccord Genuity analyst Roman Rossi opined in a research note that the offer "makes sense for Gran Tierra, as the company will materially extend the interest rate ... [and have] greater flexibility to deploy cash."
Unusually for an analyst, Mr. Rossi briefly lowered his pompoms, making several comments that Gran Tierra would have found much less welcome. He noted that Colombia has its first round of presidential elections this Sunday, May 29. Polls show the left-leaning Gustavo Petro in the lead, though not by enough to avoid a second round on June 19. Both dates are within the tender period. A noteholder's choice to delay tendering notes until there is more political certainty "could be an interesting option," Mr. Rossi said delicately. He went on to note that Mr. Petro is "the least desirable winner from an industry perspective" and that "political shifts [from right to left] have led to significant market declines" in the past. For now, though, he appeared relatively unfazed, reiterating his "buy" rating on Gran Tierra and his price target of $3 (up from today's close of $2.13). A disclaimer in the fine print disclosed that Mr. Rossi's employer, Canaccord, is to receive compensation from Gran Tierra for investment banking services within three months.
Here in Canada, Prairie Provident Resources Inc. (PPR) -- a promotion of Tony Berthelet, who happens to have a connection to the above Gran Tierra, where he was chief operating officer until last year -- added 1.5 cents to 21.5 cents on 876,600 shares. It lost one cent yesterday after announcing the sudden departure of two directors. Derek Petrie and Rob Wonnacott had served on the board since 2011 and 2016, respectively. Now Prairie Provident says they have "decided to retire." The decision clearly came up suddenly, as both men were listed as nominees in the circular for the annual shareholder meeting, which is taking place tomorrow morning.
The timing is perhaps no coincidence. Two weeks ago, TransGlobe Energy Corp. (TGL: $5.76) announced that one of its directors, Ross Clarkson, abruptly decided not to stand for election at the annual meeting on May11, reflecting "preliminary voting results of the shareholders." Prairie Provident did not say whether Mr. Petrie and Mr. Wonnacott were similarly worried about their election prospects. This year has brought an unusually high amount of directors who have only barely kept their seats at energy companies. Examples include Don Gray of Peyto Exploration & Development Corp. (PEY: $15.24) (who got just 61-per-cent voting support two weeks ago, down from 95 per cent last year) and Ted Goldthorpe of Crescent Point Energy Corp. (CPG: $10.80) (who squeaked in with 54 per cent last week, down from 82 per cent last year).
At last year's meeting, Mr. Petrie secured 92-per-cent voting support, but Mr. Wonnacott trailed far behind at 63 per cent. Apparently neither of them wanted to take their chances this year. Prairie Provident looked to save face by claiming to feel a sudden urge to "refresh" its board in order to "ensure an optimal mix of competencies and perspectives." It said it would provide more details, and presumably announce more directors, next quarter.
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