En­ergy Sum­mary for Sept. 15, 2017

Stockwatch Daily - - ENERGY - By Stock­watch Business Reporter

WEST TEXAS In­ter­me­di­ate crude for Oc­to­ber de­liv­ery was un­changed at $49.89 on the New York Merc, while Brent for Novem­ber added 15 cents to $55.62 (all fig­ures in this para U.S.). Western Cana­dian Se­lect traded at a dis­count of $12.15 to WTI ($37.74), un­changed. Nat­u­ral gas for Oc­to­ber lost five cents to $3.02. The TSX en­ergy in­dex lost a frac­tion to close at 179.62.

Al­berta Mont­ney pro­ducer Seven Gen­er­a­tions En­ergy Ltd. (VII) reached an in­tra­day low of $18.04 be­fore set­tling at $18.35, down 35 cents, on 11.2 mil­lion shares. Much of the vol­ume came from TD Se­cu­ri­ties, which crossed one block of 6.39 mil­lion shares at $18.21 this morn­ing. RBC Cap­i­tal Mar­kets later crossed an­other block of 906,000 shares at $18.35. Both of those prices are nearly $1 lower than the price at which Seven Gen­er­a­tions be­gan Septem­ber. It has had a rocky time lately, fol­low­ing its Aug. 3 an­nounce­ment that it would be low­er­ing its 2017 pro­duc­tion guid­ance amid worse-thanplanned fa­cil­ity out­ages and higher-than-planned op­er­at­ing costs. In­vestors im­me­di­ately sent the stock down to just $16.35 on Aug. 4 from $20.51 on Aug. 2. Over the fol­low­ing weeks, the stock ral­lied to as much as $19.62 on Sept. 5, but now it is back flirt­ing with the $18 mark.

Seven Gen­er­a­tions has not re­leased any news since the Aug. 3 de­ba­cle, other than a bit of fluff yes­ter­day in which it showed off its char­i­ta­ble side. It talked up its lat­est char­ity golf tour­na­ment, which has raised $1.7-mil­lion since 2013 for re­gional hos­pi­tal ser­vices. Ex­ec­u­tive di­rec­tor Keith Cur­tis of the Grande Prairie Re­gional Hos­pi­tal Foun­da­tion oblig­ingly gushed about Seven Gen­er­a­tions’ “re­mark­able and in­spir­ing” sup­port and said the golfers seemed to view the com­pany as a “friend or fam­ily mem­ber.” The golfers were ev­i­dently in a much bet­ter mood than share­hold­ers, who are await­ing up­dates on the com­pany’s cost-im­prove­ment ef­forts. Pres­i­dent and chief ex­ec­u­tive of­fi­cer Marty Proc­tor told an in­dus­try con­fer­ence in New York last week that the com­pany is hard at work re­duc­ing its op­er­at­ing costs and ex­pects these costs to head back to a nor­mal range “wit hin a quar­ter o r two .” More in­for­ma­tion may ar­rive with the com­pany’s 2018 guid­ance, which Mr. Proc­tor said would be re­leased in mid-Novem­ber.

Fall be­ing a pop­u­lar time for con­fer­ences, an­other one was be­ing held this week, the 18th An­nual Peters & Co. En­ergy Con­fer­ence in Toronto. One of the pre­sen­ters was Bay­tex En­ergy Corp. (BTE), down 15 cents to $3.28 on 5.33 mil­lion shares. P res i dent and CEO Ed LaFehr talked up the com­pany’s op­er­a­tions in the Texas Ea­gle Ford and Western Canada. Each core area con­trib­utes roughly half of Bay­tex’s pro­duc­tion, but the Ea­gle Ford has seen far more at­ten­tion over the last few years; this year it is re­ceiv­ing close to three-quar­ters of Bay­tex’s 2017 bud­get of $310-mil­lion to $330-mil­lion. Mr. LaFehr said the com­pany ex­pects to come in the low end of that bud­get guid­ance while still achiev­ing its pro­duc­tion guid­ance of 69,000 to 70,000 bar­rels of oil equiv­a­lent a day. “We’re click­ing on all cylin­ders,” he de­clared. In­vestors might dis­agree, at least if they con­sider one of the cylin­ders to be Bay­tex’s net debt, which at $1.8-bil­lion is more than dou­ble the com­pany’s cur­rent mar­ket cap of $768-mil­lion. Mr. LaFehr has been try­ing to calm fears about the debt since he took over as CEO in May. Around that time, he said he would like to see Bay­tex take steps to re­duce its debt in 12 to 18 months. Few specifics were pro­vided then, and few were pro­vided at the con­fer­ence, al­though Mr. LaFehr did say that the debt-re­duc­tion ef­forts “will re­quire, over time, some portfolio ma­noeu­vring.” He said he wants to see Bay­tex’s debt-to-cash-flow ra­tio drop to less than two times from the cur­rent level of five to six times. “We don’t have a gun at our head; we’re not com­pelled to do any­thing to­day,” he em­pha­sized, “but I am com­pelled to bring in­vestors back into the stock.”

In case the lure of lower debt was not enough, Mr. LaFehr be­gan mus­ing of even grander things to come. Al­though Bay­tex is not gen­er­at­ing much if any free cash flow at cur­rent oil prices, it ex­pects to have “sig­nif­i­cant” free cash flow if oil prices rise to $55 (U.S.) or above. “At some point in time,” said Mr. LaFehr, “... there’s enough free cash flow in the business to sup­port a div­i­dend.” Such talk is fan­tasy at this point, but it is none­the­less in­ter­est­ing to hear Bay­tex bring it up. The com­pany was once a div­i­dend stal­wart, hav­ing started mak­ing monthly pay­outs in 2003. The monthly div­i­dend got as high as 24 cents in mid-2014 (when Bay­tex’s stock was also trad­ing at highs of over $50, or more than 15 times to­day’s close of $3.28).

By the end of 2014, the monthly div­i­dend had been chopped to 10 cents, and in the sum­mer of 2015, it was elim­i­nated. Bay­tex used to talk of re­in­stat­ing it once oil prices re­cov­ered, but then stopped men­tion­ing it at all, un­til now.

Al­berta oil pro­ducer Ob­sid­ian En­ergy Ltd. (OBE) added two cents to $1.27 on 1.23 mil­lion shares, de­spite re­ceiv­ing its third non-com­pli­ance warn­ing from the New York Stock Ex­change in just two years. Once again, the com­pany’s share price has fallen be­low the min­i­mum level of $1 (U.S.). Al­though the stock closed in New York to­day at ex­actly $1 (U.S.), its av­er­age clos­ing price for the 30 trad­ing days lead­ing up to Sept. 12 was just 99 U.S. cents, prompt­ing the ex­change to send its let­ter on Sept. 14. The let­ter gives the usual warn­ing that Ob­sid­ian must re­gain com­pli­ance within six months or face a pos­si­ble delist­ing. Ob­sid­ian will be very fa­mil­iar with this warn­ing. It re­ceived sim­i­lar ones on Sept. 4, 2015, and again on Jan. 4, 2016. Af­ter each of those let­ters, it re­gained com­pli­ance be­fore the six-month dead­line was up. Both re­cov­er­ies saw plenty of drama. About a month af­ter Ob­sid­ian re­ceived its Septem­ber, 2015, let­ter, Sun­cor En­ergy Inc. (SU: $41.55) made a takeover of­fer for Cana­dian Oil Sands, prompt­ing a wave of spec­u­la­tion that Ob­sid­ian could be next. It was not, but its shares hap­pily rode the wave up to around $2 in early Novem­ber from around 60 cents in early Oc­to­ber. By the end of Novem­ber it had re­gained NYSE com­pli­ance. That did not last, how­ever, and in Jan­uary, 2016, Ob­sid­ian got an­other NYSE let­ter. At the 11th hour, it man­aged to snatch its im­per­iled list­ing back to safety for the sec­ond time, af­ter ar­rang­ing $1.1-bil­lion worth of as­set sales in June, 2016.

Now, surely much to its frus­tra­tion, Ob­sid­ian’s NYSE list­ing is in trou­ble again. In­ter­est­ingly, there is one no­tice­able dif­fer­ence in Ob­sid­ian’s press re­lease to­day com­pared with its press re­leases af­ter the pre­vi­ous two warn­ings. Nei­ther of the older press re­leases ex­plic­itly men­tioned the pos­si­bil­ity of a roll­back. Cer­tainly there were vague men­tions of “eval­uat[ing] all avail­able op­tions” and po­ten­tially tak­ing “ac­tion[s] that could re­quire share­holder ap­proval,” but that was as de­tailed as Ob­sid­ian got. This time, how­ever, Ob­sid­ian specif­i­cally says it could re­gain com­pli­ance by de­cid­ing to “con­sol­i­date its out­stand­ing eq­uity float to a level more suit­able to the cur­rent size of the com­pany.” Ob­sid­ian cur­rently has 504 mil­lion shares out­stand­ing.

If Ob­sid­ian de­cides to roll back, it will be fol­low­ing in the foot­steps of Al­berta gas pro­ducer Bel­la­trix Ex­plo­ration Ltd. (BXE: $3.45), which did a roll­back this past July in or­der to save its NYSE list­ing. It de­cided to roll back 1 for 5. This de­ci­sion was an­nounced in April, when Bel­la­trix’s stock was trad­ing at around 80 U.S. cents. At that price, a 1-for-2 roll­back would have been enough to push the stock back over $1 (U.S.), but Bel­la­trix aimed for a 1-for-5 roll­back in­stead, some­thing cyn­ics took as ev­i­dence that: (a) Bel­la­trix ex­pected its stock to keep fall­ing af­ter the roll­back; and (b) the roll­back would have to be sig­nif­i­cant or the stock would quickly fall back be­low $1 (U.S.), ren­der­ing the en­tire ex­er­cise point­less. The 1-for-5 roll­back was com­pleted on July 6. Bel­la­trix opened that day at $2.83 (U.S.) (its stock hav­ing fallen fur­ther since the April an­nounce­ment) and did in­deed plunge over the next sev­eral days to just $2.24 (U.S.). Since then, how­ever, it has re­cov­ered to its cur­rent level of $2.83 (U.S.), or $3.45 in Toronto. It of­fi­cially re­gained NYSE com­pli­ance 30 trad­ing days af­ter the roll­back.

The roll­back was doubt­less an ef­fec­tive method of sav­ing Bel­la­trix’s NYSE list­ing. Yet for some other com­pa­nies, the list­ing does not seem to be worth tak­ing such dras­tic ac­tion to save. Pen­growth En­ergy Corp. (PGF: $0.77), which re­ceived a NYSE non-com­pli­ance warn­ing this past May, said last month that it is not con­sid­er­ing a roll­back. If its stock does not get above $1 (U.S.) by mid-Novem­ber, it ex­pects to re­ceive a NYSE delist­ing no­tice.


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