by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery added $1.74 to $60.72 on the New York Merc, while Brent for July added $1.51 to $66.54 (all figures in this para U.S.). Western Canadian Select traded at a discount of $9.90 to WTI ($50.82), down from a discount of $9.75. Natural gas for June added 3.4 cents to $2.94. The TSX energy index added 4.94 points to close at 225.50.
Pacific Rubiales Energy Corp. (PRE) added 10 cents to $6.29 on 29.2 million shares, after receiving and accepting an official takeover offer at $6.50 a share from Alfa SAB and Harbour Energy. The parties started exclusive talks about the $6.50-a-share proposal two weeks ago. Alfa, a Mexican conglomerate, already owns 59.89 million shares or 18.95 per cent of Pacific Rubiales, for which it paid as much as $22.30 a share last year. Harbour is a 2014 creation of Asian commodity trader Noble Group and private equity firm EIG Global. Shareholders of Pacific Rubiales will vote on the takeover in early July. As well, bondholders are being asked to accept various amendments in relation to the deal, including the waiver of a requirement for a change-of-control offer. They will get something in return, such as $5 (U.S.) cash for every $1,000 (U.S.) principal amount of their notes if they submit their consents to all the amendments by June 4 (and if the takeover closes). A Bloomberg article today worried that "that payment may not be enough to satisfy some bondholders." It seems more likely, though, that most bondholders will be too grateful for Alfa's rescue to put up a fight. (One set of notes -- the 5.375-per-cent notes due 2019 -- reached a low of 60 cents on the dollar in January; now they are closer to 95 cents, thanks to Alfa's interest.) The more vocal opposition to the takeover comes from major shareholder O'Hara Administration. Along with affiliates, O'Hara owns 19.49 per cent of Pacific Rubiales, and announced on Tuesday evening that it may take "any and all actions" to prevent the takeover. It said it has no current plans to make its own bid, but "may reconsider doing so if circumstances change." This may simply have been a ploy (although a rather last-minute one) to try to get an offer price higher than $6.50. The circumstances have certainly changed now that the offer has been officially accepted, but based on today's below-offer closing price, investors do not seem to expect a rival bid.
Montney gas producers in British Columbia and Alberta continued to climb today, following yesterday's announcement that the B.C. government signed a development agreement on the Pacific Northwest LNG (liquefied natural gas) project led by Malaysia's Petronas. The agreement spells out the rules on royalties and taxes for decades. This should put Pacific Northwest one step closer to a "commercial final investment decision," which would be the first such decision in British Columbia and which Petronas previously promised to reach in June. Of course, it would not be the final "final" decision, because the project will still need environmental approvals that are not expected until the fall. Ultimately it will be at least four years before the project can get going. Producers in the Montney play, which are hoping to become important suppliers to the LNG industry, still took the development deal as a good sign. On the B.C. side of the play, Painted Pony Petroleum Ltd. (PPY) rose by a total of 65 cents yesterday and today, closing at $7.97, while Crew Energy Inc. (CR) rose by 27 cents to close at $6.01 -- its first time above $6 in three months. On the Alberta side, Advantage Oil & Gas Ltd. (AAV) rose by 29 cents yesterday and today to close at $6.01, and Birchcliff Energy Ltd. (BIR) rose by 44 cents to close at $8.18. None of those four had any news in the last few days except about shareholder meetings, at which all of them except Crew expanded (or are planning to expand) their boards of directors. The most interesting board addition is that of David Cornhill to Painted Pony. Mr. Cornhill is the chairman and CEO of AltaGas, which signed a 15-year supply and marketing agreement with Painted Pony last summer and then began picking up shares. It held a 4.4-per-cent interest as of Dec. 31, the bulk of which cost it $12 a share, much higher than today's price. Mr. Cornhill is no doubt interested in boosting the value of that investment.
Granite Oil Corp. (GXO) and Boulder Energy Ltd. (BXO), spinouts of what used to be DeeThree Exploration, began their new lives on the exchange this morning and garnered very different reactions. Granite opened at $7.75 and closed at $6.35. It holds DeeThree's Alberta Bakken assets and plans to pay a three-cent monthly dividend, which based on today's close yields 5.6 per cent. The Bakken assets have historically had a high decline rate of around 40 per cent, which is not good for a company trying to support a dividend. Granite's challenge will be proving to the market that its EOR (enhanced oil recovery) projects can bring the decline down to its target of 22 per cent. In addition to EOR, Granite plans to drill seven wells in the second half of this year and 10 new wells in each of 2016 and 2017, so as to produce 4,000, 4,500 and 5,100 barrels of oil equivalent a day in each respective period. Current production is 3,900 barrels a day. Meanwhile, Boulder opened at $8.50 and closed at $11.75, as investors showed far more confidence in its plan to become a non-dividend-paying, growth-only producer in the Alberta Belly River. DeeThree was one of the first companies in the Belly River, producing less than 1,000 barrels a day there in the second quarter of 2011. Current production is over 8,000 barrels a day, a 700-per-cent increase in four years. In 2017, Boulder expects to be producing 10,768 barrels a day. That is an unusually specific number, particularly given DeeThree's old habit of using wide, forgiving ranges as its production targets. (Its year-end target for 2014, for example, was 13,000 to 13,500 barrels a day.) Boulder is also acquiring DeeThree's old Peace River properties in Northern Alberta, which are producing less than 400 barrels a day, but they will likely be sold. DeeThree hired Macquarie in March to help sell them.
Besides Boulder, there are relatively few companies in the Alberta Belly River (something DeeThree used to complain about because there was no one to help it with promotion). One of the few is Striker Exploration Corp. (SKX), up a pleasing 16 cents to $2.05, although on low volume of just 69,800 shares. Striker lost nine cents in the previous two trading days after announcing that it is expanding in the Belly River for the second time in three months. In February, it bought $1.75-million of Belly River land, signalling a possible shift in preference for that play over its others. Less than a year ago, the company (then called Elkwater Resources) said its main focus was the Viking. Then the Cardium, Belly River and Lloydminster plays started getting more mentions (largely because late last year, the company acquired Exoro Energy, which was producing nearly 2,000 barrels a day primarily from the Cardium and the Belly River) 147104. Now Striker firmly says its focus is the Belly River. It plans to buy $3.87-million of assets in the Wilson Creek area, with current production of 145 barrels of oil equivalent a day. This should take its total 2015 production to around 2,500 barrels a day. Striker has not provided official guidance since January, before the two new Belly River acquisitions, so it is not clear what activity they will see. The company's website does say that at least two Belly River wells will be drilled in the Pembina area (just north of Wilson Creek) this summer.