by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery lost 46 cents to $53.99 on the New York Merc, while Brent for April lost 59 cents to $55.99 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.10 to WTI ($39.89), unchanged. Natural gas for March added one cent to $2.63. The TSX energy index lost 6.50 points to close at 196.85.
Li Ka-shing's Husky Energy Inc. (HSE) lost 90 cents to $15.50 on 4.16 million shares, after it released its year-end financials and reportedly began to weigh asset sales in Atlantic Canada. The financials held few surprises given that Husky said in December that its 2016 program was on track. It also announced its 2017 guidance at that time, calling for production of 320,000 to 335,000 barrels of oil equivalent a day on a budget of $2.6-billion to $2.7-billion, and that guidance was unchanged today -- despite the fact that Husky is reportedly looking to unload some of its assets. Anonymous sources were quoted in Reuters as saying that the company could sell up to several billion dollars worth of assets in Atlantic Canada. According to SEDAR, Husky's assets in Atlantic Canada include eight production licences, eight exploration licences and 23 "significant discovery areas," with total forecast production of 42,000 to 46,000 barrels a day in 2017. The rest of Husky's production is set to come from Canada and the Asia-Pacific region. The sources said Husky could use the proceeds from any East Coast sales to expand in Asia or possibly head to South America or Africa.
Asked about potential sales during a conference call this morning, new chief executive officer Rob Peabody (who succeeded Asim Ghosh in December) replied, "I can't comment on that rumour, but we continue to move forward with our business plan in the Atlantic." The rumours continue to swirl. Sharp-eyed investors may already have spotted an intriguing new line in Husky's latest SEDAR filings, referring to a desire to see the Atlantic portfolio "rejuvenated." Husky has sometimes used that word to mean "trimmed." For example, in late 2015, the company started talking about "accelerating the rejuvenation of [its] Western Canada business," and by year-end 2016 it had sold nearly $3-billion worth of upstream and mid-stream assets in this area, including about 32,000 barrels a day of production. The sales allowed Husky to pay down debt and narrow its focus on the Western Canadian assets that it really likes, such as its thermal projects in Saskatchewan and the oil sands.
For now, Husky's long-term intentions in the East Coast must remain unclear, but investors should get an update in May, when the company has said it will hold an analyst day and release its plans for the next five years. Many analysts expect the plans to include an update on Husky's suspended dividend. The company had been paying a 30-cent quarterly dividend, but halted it in January, 2016. Some analysts have been predicting a reinstatement since last summer.
BlackPearl Resources Inc. (PXX), a Lundin company, lost five cents to $1.60 on 236,100 shares, after releasing its year-end financials, setting a $200-million budget for 2017 and giving the go-ahead to phase 2 of its Onion Lake thermal project in Saskatchewan. Phase 2 will double the project's capacity to 12,000 barrels a day. By comparison, BlackPearl's total production in the fourth quarter of 2016 was about 10,500 barrels of oil equivalent a day (in line with analysts' predictions, as was cash flow of five cents a share). About 6,100 barrels a day came from the first phase of Onion Lake. Now BlackPearl says it is ready for the second phase, which it expects to finish building by mid-2018. This suggests that full capacity will be reached in mid-2019. John Festival, BlackPearl's president, says the company has already signed a contract to build the phase 2 facilities.
There is, of course, one minor detail to attend to: BlackPearl needs more money to build phase 2. The capital cost of phase 2 has been pegged at $180-million. BlackPearl is forecasting cash flow of about $100-million over the next 18 months, and it has undrawn credit facilities of $117.5-million, but it cannot use up all of those sources of cash or it will have nothing left for its other projects, which are estimated to need $70-million over the next 18 months. BlackPearl plans to rely on a $75-million to $100-million term debt financing to fill the gap. It has not actually arranged one yet, but will do so "shortly," said Mr. Festival.
This will be Mr. Festival's second time trying to arrange a debt financing for Onion Lake. In mid-2013, he announced that he would pursue a $350-million (U.S.) term loan facility that was expected to cover both phases of Onion Lake. That plan fell apart in less than a month, as a result of what BlackPearl deemed "volatile debt markets." The company ended up issuing 33.3 million shares at $2.65 in early 2014 (nearly $1 above today's close), which, along with the existing credit facility, helped cover much of the cost of phase 1. It also helped boost the share count toward the current level of nearly 336 million. Mr. Festival has said that he would like to avoid issuing shares to pay for phase 2.
Tamarack Valley Energy Ltd. (TVE) lost 12 cents to $2.97 on 1.79 million shares, closing below $3 for the first time in over a year. It has slipped from nearly $3.50 since the start of the year as it digests its $407.5-million takeover of Spur Resources, which closed on Jan. 11. The deal added 6,600 barrels of oil equivalent a day of production from the Viking play, which Tamarack first entered in 2012 through a different takeover. Now Tamarack produces about 7,750 barrels a day from the Viking, out of its total production of around 18,000 barrels a day. Most of the rest comes from the Wilson Creek/Alder Flats Cardium. There, too, acquisitions have been one of Tamarack's favourite ways of expanding. The company more than doubled its land position there when it acquired 44 net sections from Suncor Energy Inc. (SU: $41.24) in late 2014. Since then it has increased that position to nearly 230 net sections, most recently picking up assets there in July. These acquisitions have taken a toll on the share count, however, which has risen to nearly 227 million now from less than 115 million last June. Over the same period, the stock has fallen to less than $3 from over $4.
President and CEO Brian Schmidt tried to reverse the decline yesterday with a boosterish interview given to EnerCom's Oil & Gas 360 website. For one thing, he implied that the shopping spree will be put on hold for a bit. "We've made sure the guys are all focused on execution, not looking at other acquisitions, not being distracted," he declared. The "guys" will have plenty to do at Tamarack's new Spur assets. These have "lots of running room," said Mr. Schmidt, adding "... We could easily double production and hold it there for several years with that kind of inventory." He noted that Tamarack has already begun to drill its newly acquired assets. Getting familiar with the assets did not take long, said Mr. Schmidt, because several of Tamarack's people had already worked on them, back when the assets were owned by Apache rather than Spur. (Former Apache executives that now work for Tamarack include Mr. Schmidt himself, who was Apache Canada's president for three years. Kevin Screen, Tamarack's vice-president of production and operations, and Scott Reimond, vice-president of exploration, also spent years at Apache Canada.)
One major insider seems confident in Tamarack's plans. Thomas Claugus's GMT Capital bought 1.17 million shares in January, boosting its holdings to 16.14 million shares. GMT is also a significant shareholder of Blackbird Energy Inc. (BBI: $0.68), Gran Tierra Energy Inc. (GTE: $3.42) and Granite Oil Corp. (GXO: $5.76).