by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery lost $1.84 to $44.48 on the New York Merc, while Brent for November lost $1.58 to $46.07 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.35 to WTI ($30.13), unchanged. Natural gas for October lost three cents to $2.96. The TSX energy index lost 3.19 points to close at 189.18.
EnCana Corp. (ECA) lost 46 cents to $11.99 on 12 million shares, after closing its $1-billion (U.S.) public offering of 107 million shares at $9.35 (U.S.). This will boost its share count to about 957 million. The offering, announced on Tuesday, attracted attention for several reasons, such as the low underwriting fee (less than half of the typical fee of 4 per cent, according to The Globe and Mail) and the fact that EnCana plans to use more than half of the proceeds for drilling. It will focus specifically on the West Texas Permian basin. This became a core area two years ago, when EnCana acquired Athlon Energy Inc. for $7.1-billion (U.S.). Athlon was producing about 30,000 barrels of oil equivalent a day at the time. EnCana has since boosted production to around 50,000 barrels a day and says it has reduced well costs to as little as $4.3-million (U.S.) from the 2015 average of $7.1-million (U.S.), making it a "basin-leading operator." Its Permian program this year calls for 60 to 70 net horizontal wells to be brought on stream, along with 20 to 25 net vertical wells. EnCana plans to use the proceeds from its $1-billion (U.S.) offering to double the year-over-year number of wells brought on stream.
Some analysts speculate that EnCana could also look into acquisitions to boost its Permian output. Desjardins analyst Kristopher Zack, noting that EnCana does not have any debt maturities until 2019, wrote, "In our view, this increases the incentive to improve the balance sheet through cash flow growth -- both organically and possibly through acquisitions." Many other producers seem to share EnCana's Permian bullishness. This month alone, the New York-listed Callon Petroleum agreed to buy $327-million (U.S.) worth of Permian assets, and the New York-listed EOG Resources Inc. agreed to a $2.5-billion (U.S.) merger with Yates Petroleum Corp. for reasons that included an expanded Permian position. Chief executive officer Scott Sheffield of Pioneer Natural Resources, one of the largest producers in the basin, told Bloomberg at the beginning of this month that Permian oil wells are profitable even at crude prices of less than $30 (U.S.) a barrel, and told an industry conference this week that he sees the basin's production "really taking off" in the first half of 2017. An analysis of recent deals in the Permian shows that land prices have roughly doubled since mid-2014 even though oil prices have roughly halved. "There's a party going on in the Permian," is how FirstEnergy Capital analyst Michael Dunn put it to The Globe and Mail this week, adding, "and EnCana's starting to participate in it." Not all investors seem to be in the partying mood. EnCana closed today at $11.99 in Toronto and $9.10 (U.S.) in New York, below the offering price of $9.35 (U.S.).
B.C. Montney producer Painted Pony Petroleum Ltd. (PPY) lost 44 cents to $7.55 on 1.97 million shares, a rough end to what it had likely hoped would be an exciting week. On Monday evening, the company announced that its production had reached 30,000 barrels of oil equivalent a day, nearly double the second quarter average of 16,634 barrels a day, thanks to the earlier-than-forecast start-up of the Townsend processing plant. The plant will be able to handle even more of Painted Pony's production starting in early October. This gives the company more confidence than ever in its goal of producing 40,000 barrels a day by year-end.
Shortly after Monday's announcement came Tuesday's publication of a boosterish interview with Pat Ward, Painted Pony's president and CEO, with Keith Schaefer, publisher of the Oil and Gas Investments Bulletin. "Does This Man Run The Best Natgas Company in North America?" wondered Mr. Schaefer's headline. There is an adage, sometimes called Betteridge's law of headlines, that asserts that any headline ending with a question mark can be safely answered with the word no. Mr. Schaefer is no Ian Betteridge and used the interview to ask Mr. Ward how Painted Pony became "such a technical success, and a stock market darling to boot." Mr. Ward explained that the company is built to last rather than built to sell. "... [If] you're building to sell," he said, "you're always worried about ... what are they [potential purchasers] going to want? ... It's kind of like getting a pig ready for the sale. You put some lipstick on it, but you don't want to put a tattoo on it, because the buyers don't like tattoos on their pigs." It is important to Mr. Ward to be able to tattoo his pig however he wants. Put less colourfully, his goal is a "good stand-alone company" focusing on low-cost gas production in the B.C. Montney. Painted Pony is now well into its five-year plan to reach production of 100,000 barrels a day in 2019, said Mr. Ward, "and it's going better than we ever thought." One challenge is persistently low gas prices. Although Painted Pony can survive at "very low gas prices -- lower than anybody, we think," Mr. Ward would like to see an improvement in commodity markets and an expansion in Canada's pipeline capacity so that Canadian resources can fetch better prices. Still, he is planning for Painted Pony to gallop ahead regardless. He said the company is now working on its next five-year plan, involving "significant production," and expects to provide more details with its forthcoming budget.
Colombia-focused Canacol Energy Ltd. (CNE) lost eight cents to $4.19 on 388,400 shares, more than giving back the five cents it added yesterday after clarifying the costs of this year's expanded drill program. The company had initially planned to drill three gas exploration wells this year, following on the results of its previous gas drilling and infrastructure program, which allowed it to boost its gas production to over 90 million cubic feet a day in April from just 20 million a year earlier. The next ambition is to boost gas production by another 100 million cubic feet a day by the end of 2018. With that in mind, Canacol said in April that it would drill the three gas wells mentioned above and would potentially drill one oil well. The budget for the full year was set at $58-million (U.S.). In mid-August, after completing a $46-million private placement at $4.08 a share, Canacol expanded the gas program to include one extra exploration well and one development well, and also said it would definitely drill the oil well. One more gas development well was added to the program in late August. These two August expansions had the effect of doubling the overall gas program to six wells from the original three. Canacol did not say at the time how much the additional gas and oil wells would cost, but this week it officially boosted the budget to $92-million (U.S.). Its press release, headlined, "Canacol Energy Ltd. Doubles Natural Gas Drilling Activity in Colombia," may have suggested another doubling of the gas program, an incorrect interpretation that was surely not helped by analyst reports suggesting the same thing (for example, Scotia Capital analyst Gavin Wylie wrote yesterday that Canacol "announced the expansion of its 2016 drilling program ..."). Really, the press release was primarily about the cost of the program for which expansions were already announced.
Canacol also predicted that its oil and gas sales in the third quarter will average 18,200 barrels of oil equivalent a day. That is slightly below its second-half guidance of 18,500 to 19,000 barrels a day, but the company evidently reckons that it can catch up in the fourth quarter with the remainder of the wells to be drilled. So far this year, just three of the six planned gas wells have been drilled (one of which was spudded on Sept. 13), leaving the other three for the fourth quarter. The oil well is scheduled for next month.