Energy Summary for Jan. 11, 2019
WEST TEXAS Intermediate crude for February delivery lost $1.00 to $51.59 on the New York Merc, while Brent for March lost $1.20 to $60.48 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.16 to WTI, up from a discount of $10.88. Natural gas for February added 13 cents to $3.10. The TSX energy index added a fraction to close at 149.38.
Colombian oil producer Parex Resources Ltd. (PXT) added 70 cents to $18.75 on 2.05 million shares, after announcing an encouraging start to 2019. The company has achieved a goal that it laid out roughly five years ago. In early 2014, its president and chief executive officer at the same, Wayne Foo, told Bloomberg that he wanted to increase Parex’s production — then about 18,000 barrels of oil equivalent a day — to 50,000 barrels a day within five years. Mr. Foo retired in 2017 (though he remains Pa rex’ s chairman ). He was replaced by Dave Taylor, who if anything was even more committed to the 50,000-barrel-a-day milestone, saying it would definitely happen at some point in 2019. Now, with less than two weeks having passed since the start of 2019, Parex has achieved its goal, with current production of 50,500 barrels a day.
Parex also released the results of the Andina-2 well, its fourth well — but only its third successful well — on its 50-per-cent-owned Capachos block. (State-owned Ecopetrol owns the other 50 per cent.) The well tested at a combined 3,801 barrels a day from the Lower Guadalupe and Upper Guadalupe formations. It was drilled 400 metres away from the previous Andina-1 exploration well, which in September tested at a combined 4,952 barrels a day from the Lower Guadalupe and Une formations. Before that, Parex drilled Capachos-2 well in late 2017, testing it at 3,650 barrels a day from the Lower Gua da lupe f orma t i on. Th e Capachos Sur-2 well came along in mid-2018 but flowed at uneconomic rates. Its failure was quickly forgotten, in large part because Parex announced just a few weeks later that it had begun a “review of strategic repositioning alternatives,” a wordy way of saying it wanted to sell most of its producing assets and reinvent itself as a “high-impact exploration”-focused junior. Alarmed investors sent Parex’s stock down to around $14 in mid-December from $25 when the review was announced. Later in December, Parex announced that it had finished the review without securing an acceptable proposal, so it would continue with its current business plan. The stock has since rallied to the current level of $18.75.
Here in Canada, Alberta and B.C. gas producer Tourmaline Oil Corp. (TOU) — which despite the name is predominantly gassy — lost seven cents to $18.18 on 1.32 million shares. A new major
shareholder has come forward. Cambridge Global Asset Management, a unit of the Toronto-based CI Investments, has filed a SEDAR report disclosing its control of 28.03 million shares as of Dec. 31. That represents 10.31 per cent of Tourmaline’s 272 million shares.
This is Cambridge’s first SEDAR report about its shareholdings. Its quarterly market commentaries, however, suggest that it has been a shareholder for a long time, about eight years. These commentaries can be found on CI’s website. Tourmaline is mentioned for the first time and described as a “new holding” in the commentary for the first quarter of 2011. No prices were mentioned, but during that quarter, Tourmaline traded between $21 and $27 and also completed a bought deal at $30 a share (those shares came with tax advantages, hence the premium). The stock went on to reach a high of $59.25 in mid-2014. Around late 2014, Cambridge started to become more talkative about its position in Tourmaline, which by then was a top 10 holding in one of Cambridge’s Canadian equity funds. Various portfolio managers at Cambridge hyped Tourmaline to the Financial Post and BNN from late 2014 to mid-2018. All of this paints a picture of Cambridge as a long-time, steady supporter of Tourmaline, which makes the stock’s drop from its 2014 high of $59.25 to its current level of $18.18 all the more unfortunate. Cambridge, of course, appears to be taking it as a buying opportunity, having now crossed the 10-per-cent shareholding threshold, as noted above.
One event that surely pleased Cambridge was Tourmaline’s introduction of a dividend last year. The company paid an eight-cent quarterly dividend in the first quarter of 2018, then hiked it to nine cents for the second quarter of 2018, and then hiked it again to 10 cents in the third and fourth quarters. Assuming that the dividend stays at the current level in 2019, Cambridge can look forward to $2.8-million in dividend payments every quarter. The total cost of the dividend to Tourmaline will be about $109-million this year, well within its forecast free cash flow of $330-million. The yield is 2.2 per cent.
George Fink’s Alberta Cardium producer, Bonterra Energy Corp. (BNE), added six cents to $6.80 on 526,000 shares, after releasing its 2019 guidance. It is aiming to produce 12,600 to 13,200 barrels of oil equivalent a day on a budget of $57-million to $77-million. This is largely in line with what investors had expected. Put more bluntly, investors were not expecting much and they did not get much. The 2019 production target of 12,600 to 13,200 barrels is not particularly impressive next to Bonterra’s actual 2018 production of 13,200 barrels a day, which just barely met guidance of 13,200 to 13,500 barrels a day. Bonterra has kept its production fairly steady around the 13,000-barrel-a-day mark for the last five years, calling it evidence of a “conservative and consistent operational approach.” Where Bonterra stood out was its generous dividend. This was as high as 30 cents a month in 2014, a year in which Bonterra reached a high of around $66. Unfortunately, both the dividend and the stock have since plummeted. The monthly dividend was most recently chopped to one cent from 10 cents on Nov. 29, 2018, sending Bonterra’s stock that day down to $7.46 from $8.26. It has since edged down even further to $6.80.
Bonterra still has friends among analysts. Scotia Capital’s Patrick Bryden praised the “flexible” 2019 budget and noted that the company could manage to get its produc tion al l the way up t o 14,000 barrels a day by the end of the year. He kept his “sector perform” rating (equivalent to neutral — not a buy, not a sell) and his price target of $9. Meanwhile, Canaccord Genuity analyst Anthony Petrucci said the budget should allow Bonterra to complete its capital program, pay for its newly reduced dividend and pay down some of its net debt (which was $328.5-million as of Sept. 30, 2018, compared with a current market cap of $227-million). Mr. Petrucci even speculated that Bonterra “will look to increase the dividend again should oil prices improve.” He kept his “hold” rating and his price target of $7.50.
Down toward the bottom, Craig Hansen’s Alberta- and North Dakota-focused Zargon Oil and Gas Ltd. (ZAR) added half a cent to four cents on 984,100 shares, after completing a shares-for-debt settlement with the holders of nearly $42-million in debentures. The former debentureholders now own 428.8 million of Zargon’s 459.8 million shares. Previously, the share count was just 30.9 million. The investors who used to own all of those shares now own less than 7 per cent of Zargon.
Zargon is hoping that the elimination of the debentures will give the company a fresh start. Six and a half years ago when it issued the debentures, it was trading at around $13 (or 325 times its current share price) and it had an intriguing new promotion in the form of the Little Bow project in Alberta. That fizzled out when the project failed to produce as hyped, and Zargon was unable to come up with a new promotion to rouse investors’ interest. Instead, it put itself up for sale in August, 2015. It was then trading at just above $2. Forty-one months and a 98-per-cent share price drop later, the review is still in progress. With any luck, it will draw some fresh interest now that the overhang of Zargon’s debentures has been removed.