by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery added $2.22 to $51.43 on the New York Merc, while Brent for May added $2.71 to $59.19 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.85 to WTI ($38.58), up from a discount of $13.30. Natural gas for April lost 5.1 cents to $2.67. The TSX energy index added a fraction to close at 218.55.
Energy markets roiled after Saudi Arabia and other Gulf states launched air strikes at Shia rebels in Yemen, raising concern of supply disruptions. Yemen is not a large producer of crude -- it produced about 133,000 barrels of oil a day in 2013, according to the U.S. Energy Information Administration (EIA) -- but its location on the narrow Bab el-Mandeb Strait, an important chokepoint in international shipping, puts it near the centre of the global energy trade. Over 3.8 million barrels a day of crude oil and refined petroleum products passed through the strait in 2013. Its closure would keep Persian Gulf tankers from reaching the Suez Canal and SUMED pipeline, forcing them to go all the way around the southern tip of Africa instead.
There are few Toronto-listed producers operating in Yemen. Ross Clarkson's TransGlobe Energy Corp. (TGL: $4.54) has had a bit of production there for years, but last year it wrote its assets there down to zero and put all its focus on Egypt. Yemen is much more important to Edmund Shimoon's Calvalley Petroleum Inc. (CVI), down a cent to 69 cents on 103,200 shares. It has been in the country since 1997, working on its 50-per-cent-owned block 9, its only asset. Production began in late 2005. Calvalley was thrilled, noting that while output was initially limited to 1,000 working-interest barrels a day, it should quintuple in two months once transportation bottlenecks eased. This sent the stock to a high of $9 in April, 2006, from around $3.20 in December, 2005. Although the quintupling goal was never accomplished, production did go up, reaching over 3,500 working-interest barrels a day by the end of 2006. Full-year 2006 production came to 2,117 working-interest barrels a day. The year 2007 was even better, at 2,639 working-interest barrels a day, but from then on production largely declined, hovering between 2,100 and 2,500 from 2008 through 2013. This was one of the reasons why, in the summer of 2012, Norway's DNO International launched a hostile takeover bid so it could expand its own Yemeni position. It offered $2.30 a share, about $1 more than Calvalley's share price at the time. Calvalley swallowed a poison pill and DNO backed off.
The year 2014 was the worst for Calvalley. A shut-down field, worker strikes, pipeline ruptures, local blockades and a total lack of drilling took a toll on production, which averaged just 1,430 working-interest barrels a day for the year. The number is not much higher for January and February, so 2015 is not getting off to a good start. There is one exception to that statement. Good news arrived last month after the ASC dismissed insider-trading charges it had laid in 2011. CEO Shimoon, other current and former executives, and Calvalley itself (through a share buyback program) were accused of buying shares in 2009 before the company's 2008 reserve report was made public. The ASC dismissed all those charges, although it did find Mr. Shimoon guilty of making untrue statements during the investigation by downplaying his role in the buyback program. Now it must figure out what if any sanctions should be imposed on Mr. Shimoon. Its website says submissions are pending and a hearing will take place on April 7.
Trent Yanko's Legacy Oil + Gas Inc. (LEG) lost 12 cents to $1.74 on 14.7 million shares, after releasing its financials for 2014 and lowering its guidance for 2015. Loss for the year came to $128-million, compared with a loss of just $12-million in 2013. The 2014 results included $185-million in impairment charges related to lower commodity prices. (There was also a separate, $4.4-million impairment charge on Legacy's investment in its 18-per-cent-held LGX Oil + Gas Ltd. (OIL: $0.055), a company discussed in more detail in yesterday's Energy Summary.) Legacy had already announced its fourth quarter production of 27,475 barrels of oil equivalent a day. It was a quieter-than-usual quarter for the company, which drilled just 10 (7.4 net) wells, compared with 22 (17.8 net) wells in the fourth quarter of 2013. This was done so Legacy would spend less than cash flow. Some of the money went toward repaying net debt, which edged down to $856-million as of Dec. 31, 2014, from $878-million three months earlier. That is still high. Legacy says it should remain within its debt covenants even if WTI averages $52 (U.S.) for this entire year. Next year could be a different story, however. President and CEO Yanko said during a conference call this morning that under the $52-(U.S.)-a-barrel assumption, "we start getting close" to the debt-to-EBITDA limit this time next year. The company is taking steps to improve its finances. As mentioned above, it has lowered its 2015 guidance, which previously called for production of 24,500 barrels a day on a budget of $238-million. Legacy now expects to produce 23,300 barrels a day and spend $182-million.
Legacy has appointed a new CFO to help with its plan. Curt Ziemer, formerly vice-president of accounting, is replacing Matt Janisch, who had been CFO since mid-2009. Mr. Janisch's sudden exit was not explained in the press release. It got more curious during the conference call when Mr. Yanko said, "Matt's departure is obviously not something you want to see, but ... the company is very serious about effecting change and moving the company in a positive forward direction ... and it was determined that there may not be a fit." Mr. Janisch had also been CFO of the above-mentioned LGX Oil since mid-2012. (That was when the two companies began sharing management, after Legacy acquired shares in LGX through an asset sale.) Although LGX has not put out a press release about Mr. Janisch, the Legacy/LGX office told Stockwatch he is no longer there either.
Jake Ulrich's Sterling Resources Ltd. (SLG) added half a cent to 16.5 cents on 864,900 shares, its heaviest volume since October. It spent that month falling to 30 cents from 50 cents as investors fretted over its finances. Its main asset, the 30-per-cent-held Breagh gas field in the North Sea, had faced a delayed start-up, unexpected shutdowns and lower-than-modelled production over the past year. This was a problem because Sterling had issued $225-million (U.S.) of bonds in 2013 with the expectation that Breagh would do better. The bondholders cut the company some slack at a bondholder meeting last December, but a $32.7-million (U.S.) payment remained due to them at the end of this April, so Sterling began casting about for money. Options included the sale of part of Breagh or of non-producing assets in Romania. Today, Sterling announced that it had found a buyer for its Romanian assets, Carlyle International Energy Partners, which will pay $42 147104.5-million (U.S.). This would be very heartening but for two things: One, Sterling has to pay a $10-million (U.S.) termination fee to a energy fund because of a 2007 investment deal, and two, the sale will likely not close until after April, so the bondholders may not see their money on time. Sterling is "considering options" for short-term liquidity. For the long term, it is still mulling a sale of part of Breagh, as well as potential financings. It can take heart that Breagh is getting better. Year to date, the field has produced about 38 million net cubic feet a day, slightly ahead of analysts' predictions. Meanwhile, elsewhere in the North Sea, the Cladhan field remains on schedule to start production in the third quarter.