by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added 36 cents to $47.77 on the New York Merc, while Brent for October added 47 cents to $49.63 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.65 to WTI ($33.12), down from a discount of $14.55. Natural gas for September added eight cents to $2.76. The TSX energy index added a fraction to close at 200.96.
Colombia-focused Parex Resources Inc. (PXT) added 31 cents to $15.82 on 487,800 shares. It did not release any news, but one of its joint venturers, GeoPark, has declared another victory at their LLA-34 block in the Llanos basin. Their Jacana-5 appraisal well has been drilled to 11,467 feet, has tested at 2,500 barrels of oil a day and has been placed on production. The results are significant for two reasons. One, the well expands the known size of the Jacana field, given that it was drilled 780 metres north of the Jacana-3 well, which itself had extended the field to the northwest. Two, like Jacana-3, the Jacana-5 well was drilled below 11,000 feet without finding the oil-water contact (the lowest point at which hydrocarbons occur). Parex's reserves evaluator had expected the contact to be found around 11,000 feet. The fact that none has been found is a good sign for future reserve additions. Certainly Parex should be able to upgrade the field's existing reserves thanks to the results of Jacana-3 and Jacana-5, as well as Jacana-4 (which was drilled before Jacana-5 and extended the field to the west). Scotia Capital analyst Gavin Wylie, in a research note two weeks ago (before the Jacana-5 results arrived), estimated that five million to 10 million barrels of net possible reserves could be moved into the proven or proven plus probable category by year-end. Given that Parex expects to produce a total of 11 million barrels this year -- its full-year target is 29,000 barrels of oil equivalent a day -- "... the success at Jacana alone implies nearly 100-per-cent production replacement," marvelled Mr. Wylie. He added that Parex still has plenty of wells left in this year's program that could further boost reserves. These include three development wells at the Tigana field right beside Jacana, up to seven potential wells at the Aguas Blancas field, which is in the Magdalena basin, and a total of eight exploration wells in various areas. Excitement about this year's program has helped Parex's stock more than double to $15.82 from a mid-January low of $7.73.
Alberta oil producer Gear Energy Ltd. (GXE) lost two cents to 69 cents on 244,800 shares, despite giving itself a pat on the back for reaching the halfway point in this year's drill program. This morning, president and chief executive officer Ingram Gillmore published his monthly update to shareholders, in which he noted that six of this year's 12 planned wells have been drilled. Three targeted the core Wildmere Cummings heavy oil pool to follow up on a particular well drilled last year, and "... on average they encountered 30 per cent more reservoir than last year's well, which is encouraging," said Mr. Gillmore. The other three wells were at another core heavy oil pool, Paradise Hill, and Mr. Gillmore would say only that they were drilled "successfully." The rig at Paradise Hill is now taking a break and will resume drilling another three wells this fall. Two additional wells are scheduled for drilling early in the fourth quarter in the Belly River light oil play at Wilson Creek. This is a brand new area for Gear, which entered the Belly River just four weeks ago, when it closed its all-share takeover of Striker Exploration Corp. This was an interesting move for Gear, which in the past has focused on heavy oil, but Mr. Gillmore says Gear can use its "existing horizontal resource play execution ability" -- meaning its knowledge of drilling horizontal wells -- "on a new low-risk, high-netback oil prospect." Speaking of low risk, Gear is planning one final well this year, an exploration well that (according to Gear) has high odds of success and will be drilled within the existing heavy oil area. Between the new wells and the addition of Striker, which was producing about 2,000 barrels of oil equivalent a day at the time of the takeover, Gear expects to produce an average of 6,000 barrels a day during the second half of the year. Mr. Ingram says guidance for 2017 will arrive in November.
While Gear happily digests Striker, two other Alberta companies are facing a much bigger battle to close their proposed merger. Marquee Energy Ltd. (MQL), unchanged at 22 cents on 523,000 shares, has dropped from 28 cents since Friday's announcement of a planned merger with Alberta Oilsands Inc.(AOS), unchanged at 12.5 cents on 1.33 million shares. This was not the outcome that investors of either company had hoped for. This time last year, Marquee was plugging its plans to develop its Michichi light oil assets in Southern Alberta, where it had just concluded a two-year shopping spree. The acquisitions had more than doubled Marquee's production to around 5,000 barrels of oil equivalent a day, and president and CEO Richard Thompson was optimistic that production could be doubled again "very quickly," as he told an industry conference in Colorado last summer. He estimated that the next doubling would cost about $55-million. That was far more than Marquee was willing to spend in today's price environment, however, particularly given its roughly $50-million in bank debt. Far from increasing, Marquee's production, as a result of non-core asset sales and shut-ins, dropped to around 2,600 barrels a day. In late June, Mr. Thompson told the Daily Oil Bulletin that the big problem was a lack of financing. "We are working on initiatives that will help us fund a bigger program," he said. He noted that if the company started drilling in September, it could do six wells this year, a program that "has the capability of adding 1,000 [barrels of oil equivalent] a day ... and the economics and payouts are strong."
Now Marquee has found a source of cash: Alberta Oilsands. For about three years now, Alberta Oilsands' story has revolved around what it would do with the cheque it received from the Alberta government in compensation for some cancelled oil sands leases. The cancellation occurred in mid-2013 and Alberta Oilsands began mulling its options in early 2014, although the cheque -- for $35-million -- did not actually arrive until May, 2015. By early 2016, some investors' patience was wearing thin. In February, activist investor Smoothwater Capital (which owns 31.2 million of Alberta Oilsands' 212 million shares) publicly urged the company to make a 15-cent-a-share cash distribution and then wind down. Two other shareholders, including Bruce Mitchell (who controls 33.7 million shares), also supported the dividend idea. The letters from Smoothwater grew increasingly testy as the months wore on. Eventually, in June, Alberta Oilsands promised that if it could not find a worthwhile transaction by the end of August, it would make arrangements for a distribution. Now, with just days to spare before its self-imposed deadline, Alberta Oilsands has decided to use its cash to recapitalize Marquee. Under the terms of their proposed arrangement, 1.67 shares of Alberta Oilsands will be issued for each share of Marquee, so that Alberta Oilsands' existing shareholders will hold about 51 per cent of the combined company's 418 million shares. The combined company will focus on Michichi, starting with an eight-well drill program this winter. It will have just $16-million in net debt, and it will be led by Marquee's management and a board comprising equal numbers of Marquee and Alberta Oilsands directors. The rationale is that Marquee will use Alberta Oilsands' money to become, as Mr. Thompson put it, "a top-tier oil-weighted company with a clear path towards repeatable and sustainable growth."
Smoothwater is livid. "Why would [Alberta Oilsands] shareholders trade a certain cash distribution of about 15 cents per share for a highly speculative, volatile junior oil stock?" demanded its CEO, Stephen Griggs, in the latest public letter, published Sunday. He further fumed that the arrangement, as currently laid out, apparently does not need the approval of Alberta Oilsands' shareholders, which shows a "complete lack of respect" and contradicts "a basic corporate law and governance expectation." Smoothwater's lawyers have contacted the TSX Venture Exchange and also plan to appear before an Alberta court to ask that the approval of Alberta Oilsands' shareholders be required. Assuming that a meeting is held, Smoothwater will be voting no, it vows. It also says it is "considering other legal action, including against the board, the chair and CEO of [Alberta Oilsands], for breaches of their fiduciary duties to shareholders and oppressive actions."