En­ergy Sum­mary for Jan. 11, 2019

Stockwatch Daily - - ENERGY - By Stock­watch Busi­ness Re­porter

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.


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