Flames owner provides Cardinal Energy a lifeline
Cardinal Energy Ltd. announced Monday it had secured a lifeline from billionaire Murray Edwards, executive chairman of Canadian Natural Resources Ltd. and owner of the Calgary Flames hockey team, which experts say could provide a rare boost for embattled junior companies in Calgary.
Like many small- and midsized oil and gas companies, Calgary-based Cardinal has struggled this year to raise money and attract new investors.
But shares in the light-oil producer jumped as high as 14 per cent, or nine cents per share, to 74 cents each on Monday morning after the company announced it had raised almost $17 million of new convertible debt in a private placement, with more than three-quarters of that money coming from Edwards.
The stock closed up about 12 per cent to 73 cents.
Edwards, considered to be one of the top investors in the Canadian energy industry after founding Canadian Natural, Ensign Energy Services Inc. and Penn West Petroleum, bought up more than $13 million of the new notes, which have a 12-per-cent interest rate and can be converted into shares.
“We welcome Mr. Edwards investment in Cardinal and his confidence in our assets and business plan and look forward to working with him as we build our company's future,” Cardinal CEO Scott Ratushny said in a release, which disclosed that Edwards now owns 9.6 per cent of Cardinal but could increase that stake to 18 per cent if he exercises the options he owns on the company.
Cardinal posted a $4.6-million net loss in the third quarter of this year while producing 17,600 barrels of oil equivalent per day. Roughly 86 per cent of the company's production is oil and liquids from assets in southern Saskatchewan and across Alberta.
Monday's debt deal is a positive milestone for the company as it solves a looming deadline to repay debt that had been due at the end of this month and it brings in “wellknown oilman” Edwards, Stifel FirstEnergy analyst Cody Kwong said in a research note Monday.
Edwards was also among the founding partners of FirstEnergy.
Despite Monday's rally, Cardinal shares are still down 71 per cent this year as the company has suffered alongside many of its small- and mid-cap oil and gas competitors during the coronavirus pandemic and the drop in crude prices.
Cardinal cancelled its dividend in March and also sought extensions on various tranches of its debt, which continues to sit at $204 million as of Sept. 30. Lenders also cut its credit facility by $100 million over the course of the year to $225 million.
Despite Cardinal's challenges, Edwards's investment in Cardinal may have a “Warren Buffett effect” on the stock and in the wider junior energy space, said Michael Zuk, managing partner at Athena Capital Markets in Calgary.
“If someone who's a billionaire like Murray Edwards steps forward, there's going to be generalists that follow suit. I expect other juniors to catch a bit of a rally off of this,” Zuk said, adding that “deep value” stocks in the energy sector are beginning to come back into favour.
In addition, Zuk said Monday's debt-raise with Edwards shows the continued challenges that smaller oil companies have raising money.
Most small- and mid-cap oil and gas companies are now being forced to agree to terms on debt financing deals with a double-digit interest rate and, usually, a sweetener like the option to convert their debt into equity.