En­ergy Sum­mary for July 14, 2017

Stockwatch Daily - - ENERGY - By Stock­watch Busi­ness Re­porter

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.


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