Energy Summary for Nov. 8, 2022
2022-11-08 20:35 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery lost $2.88 to $88.91 on the New York Merc, while Brent for January lost $2.65 to $95.36, sliding on Chinese COVID concerns and U.S. midterm jitters (all figures in this para U.S.). Western Canadian Select traded at a discount of $29.22 to WTI, up from a discount of $29.56. Natural gas for December lost 80 cents to $6.14. The TSX energy index lost 2.70 points to close at 268.87.
Canadian energy stocks fell with commodity prices. Stephen Loukas's Alberta Cardium-focused Obsidian Energy Inc. (OBE) lost $1.71 to $11.86 on 1.65 million shares, after releasing its third quarter financials. It touted an "active" quarter of "strong" production. Despite the apparent activity and strength, Obsidian's production slipped to 30,000 barrels a day in the third quarter, compared with 31,600 in the second quarter. Weaker prices and higher spending also took a toll on the results, cutting cash flow to $1.27 a share in the third quarter from $1.85 a share in the second quarter.
Even harder for investors to swallow was Obsidian's updated full-year guidance. As a result of what management called "several strategic and investment decisions," the company increased its budget to $325-million (from $300-million) yet lowered its production target to 31,000 barrels a day (from 32,000). It also slashed its cash flow forecast. This leaves less cash for debt repayment, causing management's estimate of year-end net debt to balloon to a range of $320-million to $335-million (compared with the prior range of $132-million to $257-million).
None of the above bodes well for Obsidian's 2023 guidance. A preliminary version of the 2023 guidance in July called for production of about 37,500 barrels a day on a budget of $265-million. Management now says it is "reviewing" these numbers, something investors are taking as a warning of an imminent cut. They will find out when Obsidian releases the formal guidance next month. As if to bolster their spirits, management dangled a bevy of buzzwords, saying next month's update will include "our intentions regarding our shareholder return-of-capital plans."
South of the border, Brett Herman's U.S. Bakken-focused Lucero Energy Corp. (LOU) lost two cents to 60 cents on 288,400 shares, after it too released its third quarter financials. Production averaged 10,900 barrels a day and cash flow came to six cents a share, in line with analysts' predictions. Management left its 2022 guidance unchanged. It also cheered a psychologically pleasing debt milestone: Net debt fell below $100-million during the quarter, reaching $99.2-million as of Sept. 30. That compares with $107.5-million as of June 30 and $185.9-million a year ago.
Lucero is separately approaching a different milestone: Nearly a full year has passed since it underwent a recapitalization and management overhaul, bringing in Mr. Herman and his people last January. They sold their previous promotion, TORC Oil & Gas, to Whitecap Resources Corp. (WCP) for $565-million in 2021. Before that, they built up and sold TriStar Oil & Gas and Result Energy. All three of those companies were active in Alberta and Saskatchewan. Based on that record -- and the fact that the new management rebranded the company as Lucero rather than keeping the old name, PetroShale -- investors and analysts have been expecting it to broaden beyond U.S. shale and look northward. It has yet to announce any Canadian deals.
Speaking of overhauls, the quiet Samoth Oilfield Inc. (SCD) shot up 15 cents to 19 cents on 56,300 shares, after announcing a "transformative" merger with the private Chronos Resources. The deal will serve as Chronos's go-public transaction. Chronos's management will stay in charge of the resulting company, which will be rebranded as Lycos Energy. A planned private placement of $65-million will put money in Lycos's pocket to pursue "consolidation of high-quality assets at attractive acquisition values ... [with a] focus on predominantly heavy oil opportunities in Alberta and Saskatchewan."
Investors seem intrigued. The combined company will barely crack 1,000 barrels a day in production (almost entirely thanks to Chronos), but has secured some high-profile promoters. The founder and chief executive officer of Chronos is Dave Burton, a long-time associate of Saskatchewan oil man Neil Roszell. Both were co-founders of Raging River Exploration and Wild Stream Exploration, which were sold to Baytex Energy Corp. (BTE: $7.44) in 2018 and Crescent Point Energy Corp. (CPG: $11.21) in 2012. Mr. Roszell then moved on to Headwater Exploration Inc. (HWX: $7.13) and Mr. Burton to Chronos. The two have clearly kept in touch, as Mr. Roszell will serve as a special adviser to Lycos's board. Members of the board will include Kevin Olson, Bruce Beynon and Ali Horvath, all with varying levels of involvement in the Raging River/Wild Stream/Headwater series of watery-themed promotions. Other directors will include Don Cowie, founding partner and former president of JOG Capital, and Ian Atkinson, CEO of Southern Energy Corp. (SOU: $0.96).
Samoth and Chronos expect to complete the merger and give rise to Lycos in mid-December, listing it under the ticker LCX. They are valuing Lycos's shares at 28 cents (taking into account the above financing, the planned all-share merger and a related 1-for-8 rollback). The company expects to have $63-million cash once the dust settles. Management wasted no time hopping aboard an increasingly trendy bandwagon, claiming that in addition to its "aggressive growth" plans, it will also make sure to look into "potential dividends."
© 2022 Canjex Publishing Ltd. All rights reserved.