Energy Summary for July 14, 2017
WEST TEXAS Intermediate crude for August delivery added 46 cents to $46.54 on the New York Merc, while Brent for September added 49 cents to $48.91 (all figures in this para U.S.). Western Canadian Select traded at a discount of $9.75 to WTI ($36.79), unchanged. Natural gas for August added two cents to $2.98. The TSX energy index added a fraction to close at 169.61.
Colombia-focused Parex Resources Inc. (PXT) added 25 cents to $14.95 on 364,400 shares. It has not released news in two months, but yesterday, a quarterly operational update arrived from its joint venturer at the LLA-34 block, GeoPark. GeoPark is the operator of this block and owns 45 per cent of this block, while Parex owns the rest. The heart of the block is the Tigana/Jacana oil field trend. Yesterday, GeoPark trumpeted further drilling successes along the trend, noting that six new wells came on production during the second quarter and boosted gross output by a total of 5,700 barrels of oil a day. Total quarterly production from LLA-34 averaged about 19,900 barrels a day net to GeoPark. This implies that gross quarterly production from LLA-34 was over 44,300 barrels a day, up from 34,000 a year ago and up from nothing five years ago. The joint venturers are aiming to keep boosting production throughout this year. GeoPark announced yesterday that they have spudded their latest exploration well, Curucuru-1. This well is next to the Jacamar oil field that the joint venturers discovered last month.
Parex’s investors will have to wait a little longer before receiving a Parex-specific update on the second quarter, but the company did take some time this week to give a presentation to Canaccord Genuity. One of Canaccord’s analysts, Jenny Xenos, summed up the meeting in a research note yesterday evening. She praised the “prolific” LLA-34 block and predicted that, thanks to this block, the second quarter will mark Parex’s 20th consecutive quarter of higher production. That, she marvelled, is “an impressive achievement by any measure.”
Meanwhile, elsewhere in Colombia, Parex has finally started drilling its first well at the intrigui ng Capachos block. Over three years have passed since Parex’s May, 2014, farm-in agreement with the state-owned Ecopetrol to acquire a 50-per-cent interest in Capachos. The terms of the agreement require Parex to pay the full cost of two new wells. Drilling was originally expected to begin in the first quarter of 2015, but that quarter passed without the necessary regulatory approval having been obtained, so Parex postponed the drill target to the fourth quarter of 2015. Then it cancelled that plan and decided to give the whole thing a fresh start in 2016, laying aside enough room in its 2016 budget for not two but three Capachos wells. It forecast production from Capachos by mid-2016. That did not end up happening either. In fact, Parex stopped mentioning Capachos at all until late 2016, when it set its 2017 budget and knocked the desired drill program back down to two wells. The first of those wells has, at long last, been spudded. Hopes are high be cause past we lls at Capachos have flowed at over 3,000 barrels a day. Investors should find out how Parex’s well performs fairly soon; Canaccord’s Ms. Xenos said yesterday that results should arrive late in the third quarter or in the fourth quarter. She added that investors should buy Parex for its “stable outlook, rock-solid balance sheet and exploration upside.” Her price target was left at $19.
Another company expanding into new areas is Alberta Montney producer Advantage Oil & Gas Ltd. (AAV), un changed at $8.7 5 on 994,900 shares. Its core producing asset is its Glacier gas project, but lately it has been targeting the nearby Valhalla, Progress and Wembley areas. This is just as well, for investors do not much expect much excitement from Glacier over the rest of this year. Production from Glacier reached 238 million cubic feet equivalent a day during the first quarter, already within Advantage’s full-year production guidance of 230 million to 240 million cubic feet a day. Advantage said this production will likely drop a bit in the second and third quarters because of scheduled maintenance. The larger issue, of course, is that the current production is nearing the capacity of Advantage’s 250-million-cubic-feet a day Glacier processing plant. Plans are under way to expand the plant to 400 million cubic feet a day, but construction is not expected to be finished until the second quarter of 2018. Investors seeking nearer-term excitement are turning to Advantage’s undeveloped areas of Valhalla, Progress and Wembley.
The most advanced of these areas is Valhalla. Advantage announced its entry into Valhalla in early 2014, drilled a total of three evaluation wells in 2014 and 2015, and brought them on production in late 2016. That is a decidedly unhurried pace, but once Advantage got the initial wells on production, it liked the results enough to commit to drilling four more wells in the second half of 2017. Public data show that it started drilling these wells last week. One well was spudded on July 6, and a second well was spudded this past Tuesday. Meanwhile, the Progress and Wembley ar eas have see n no drilling so far, but Advantage says it will spud delineation wells in both of these areas during the fourth quarter. Observers have high hopes for all three of the areas. Last May, TD Securities analyst Aaron Bilkoski mused that Advantage’s expansions beyond Glacier could “unlock significant value.” The areas are close enough to Glacier to use the Glacier processing plant.
Elsewhere in the Alberta Montney, Blackbird Energy Inc. (BBI) lost one cent to 31.5 cents on 2.66 million shares, as a whiff of
scandal began to emanate from the $84.8-million public offering that it conducted last March. The offering consisted of 148 million shares issued at prices ranging from 55 cents to 64 cents (with the range reflecting tax advantages carried by some of the shares). Blackbird paid a total of $3.81-million to the offering agents, which included, among several others, TD Securities. Yesterday, an article appeared in Reuters alleging that a senior adviser at TD had left the bank after an internal investigation revealed that he had placed shares of Blackbird with clients who were not suited to investing in high-risk stocks. The adviser, Jeff Ber, allegedly received an unauthorized payment from Blackbird for about $100,000 one week after the financing, according to Reuters. TD was reportedly unaware of this payment. The bank confirmed to Reuters that Mr. Ber is no longer in its employ, although it would not comment on related rumours that he is facing an investigation by the Investment Industry Regulatory Organization of Canada (IIROC).
Blackbird strongly denies that anything improper took place. In a statement yesterday after the close, it said it indeed made a payment of $104,000 to an individual involved in the offering (whom it did not name), but said the payment was unrelated to the offering. Rather, the payment was for consulting services provided by the individual over three years, said Blackbird. (The Reuters report had said Mr. Ber joined TD in November, 2016.) Blackbird added that the individual had been advised to disclose the payment in accordance with any applicable rules. It promised to investigate the matter further and to inform investors if anything important turns up.
Whatever happens next, the Reuters report is surely dredging up ill feelings about the financing, which had already caused plenty of grumbling. The day the financing was announced in late February, Blackbird’s stock fell to 56 cents from 66 cents. Given that Blackbird had recently started production from its core Pipestone/Elmworth asset, and that president and CEO Garth Braun had repeatedly emphasized the company’s ability to “grow organically ... just from our cash flow,” investors were not expecting a financing, and certainly not one so large ($84-million being nearly equal to the total amount that Blackbird had raised since it first took flight in 2009). Blackbird was unfazed. It wanted the money so it could pursue a larger drill program at Pipestone/Elmworth. From 2014 to the time the financing was announced, the company had drilled six wells. The financing would let it drill another 12 from the second half of 2017 through the first half of 2018. Blackbird undoubtedly hoped that the results from these wells would soothe any ruffled feathers. Yet before that could happen, bad news arrived in May, when Blackbird announced that it would have to recomplete some of its older wells because of mechanical problems. Since that announcement, the stock has fallen to 31.5 cents from nearly 50 cents. This will put even more pressure on the next set of wells to be impressive. Investors should not have to wait long to start finding out. According to a presentation published this week on Blackbird’s website, one new well has been drilled and is awaiting completion in August. The presentation also mentions two other wells on the near-term drilling agenda. Public data show that one of those wells was spudded on Tuesday.