by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery lost $1.30 to $58.33 on the New York Merc, while Brent for August lost $1.25 to $62.01 (all figures in this para U.S.). Global equity and commodity markets were shaken by the rising likelihood of a Greek debt default tomorrow. As well, oil markets were on edge after U.S. and Iranian officials stated that negotiations on Iran's nuclear program -- talks that could pave the way for the lifting of Western sanctions on Iranian crude exports -- will likely be extended past tomorrow's deadline. Western Canadian Select traded at a discount of $11.35 to WTI ($46.98), up from a discount of $11.40. Natural gas for August added 3.2 cents to $2.80. The TSX energy index lost 5.01 points to close at 208.77.
Dr. Richard Walls's Mapan Energy Ltd. (MPG) added 48 cents to $1.37 on 38.2 million shares, after accepting an all-share takeover offer from Tourmaline Oil Corp. (TOU), down $1.19 to $37.41 on 1.84 million shares. Tourmaline will offer 0.0379 of a share for each share of Mapan. Based on last week's average weighted stock price for Tourmaline of $38.78, the deal values Mapan's stock at $1.47, a 65-per-cent premium to Mapan's weighted average over the same period. It is also the second merger for Mapan in less than a year. Last July, the then-private Mapan decided to go public through a reverse takeover of Bob Lamond's public but barely active Paris Energy, in a deal that valued Mapan's soon-to-be-listed stock at $2. Mapan also arranged a $126-million bought deal of subscription receipts at $2. The proceeds were used mainly to buy $132.5-million of gas-weighted assets in the Deep Basin of west-central Alberta and northeast British Columbia from Shell Canada. The assets were producing 7,000 barrels of oil equivalent a day. Dr. Walls, the president, CEO and founder of Mapan, told the press at the time that he had actually started looking at the Shell Canada assets in 2013 and founded Mapan in early 2014 specifically to acquire them. The asset acquisition and reverse takeover of Paris both closed on July 31, 2014. That turned out to be an important day for a different reason: The WTI oil benchmark crossed below $100 (U.S.) that day and has stayed below ever since. Mapan focuses on gas, not oil, but gas prices have also suffered. So has Mapan's production itself. As a result of lengthy infrastructure outages, production averaged 5,781 barrels a day from July 31 to Dec. 31, 2014, and as of early May, 2015, it was just 4,850 barrels a day.
Tourmaline is looking beyond these problems because the assets are in its core Deep basin area. It has expanded considerably in the basin over the last year and a half, with two deals in particular standing out: In April, 2015, Tourmaline bought Perpetual Energy Inc.'s (PMT: $0.92) interest in a joint venture they had in the West Edson area, and in April, 2014, it acquired the publicly listed Santonia Energy. That gives it a connection to Dr. Walls that precedes the deal announced today. Santonia used to be called Fairborne Energy, which was co-founded by Dr. Walls in 2002. He served as president and CEO until 2005, when he began serving as chairman until late 2012. He had retired by the time Tourmaline's offer arrived. In one of those interesting quirks of life, a somewhat similar story can be told about Dr. Walls's most recent company before Mapan, C&C Energia. He helped take it public in 2010 and served as president and CEO until mid-2012. As with Santonia, not long after he stepped down from day-to-day management, C&C received a takeover offer, this time from Pacific Rubiales Energy Corp. (PRE: $4.81) in late 2012. Dr. Walls was still on C&C's board of directors and so gets some of the credit for the sale. In Mapan's case, Tourmaline's takeover offer has arrived while Dr. Walls is still firmly at the helm, which must please him. The takeover is expected to close in August.
The above-mentioned Pacific Rubiales, meanwhile, lost 22 cents to $4.81 on 4.62 million shares, as it continues to battle opposition to its $6.50-a-share takeover offer from Alfa SAB and Harbour Energy. Shareholders, who will vote on the deal on July 7, are now so skeptical of the takeover that the stock has actually gone below $4.83, which was its closing price on May 5, the day before the offer was announced. The takeover is opposed by 19.8-per-cent shareholder O'Hara Administration and has been criticized by proxy advisers ISS and Glass Lewis. Despite this, Alfa and Harbour have firmly stated that they will not raise their price. This puts Pacific Rubiales in a bind. This morning, it found itself in the awkward position of having to denigrate its own prospects, as it released a letter to shareholders urging them to accept the offer. "In making your decision, I urge you to consider the real risk that your common shares will experience a significant decline in value if this offer is not successful," wrote CEO Ron Pantin. "Pacific Rubiales will continue to exist ... but at low oil prices we will have limited growth options and in all probability we will enter into a phase of production maintenance and debt reduction for the foreseeable future." RBC analyst Nathan Piper seems to agree. In a new research note, he discussed the "considerable near-term challenges" that Pacific Rubiales will face if not acquired, and pointed out, "Investors are likely to ask whether a management team that unanimously voted in favour of the deal is the correct group to face those challenges." He advised his clients to sell.
Pat Ward's Painted Pony Petroleum Ltd. (PPY) added 18 cents to $7.59 on 793,300 shares. The B.C. Montney gas producer has reached a roughly 20-year deal with Spectra Energy Transmission for 220 million cubic feet a day of capacity on the T-North pipeline, expected to start operating in late 2016. Securing pipeline capacity is a crucial part of Painted Pony's plan to achieve year-end 2016 production of 40,000 barrels of oil equivalent a day, triple its 2014 average of 13,200 barrels a day. The company already has a processing and marketing agreement with AltaGas (which is building a gas plant that should start operating in mid-2016), and it has the financial capacity (thanks to a novel agreement reached with its lenders last month, under which its credit facilities will gradually climb to $325-million from $175-million, with availability matching the construction schedule for the AltaGas plant). Today's announcement represents one more duck in a row. Of course, there is still a long way to go before the benefits of all these plans may be realized.
Paul Colborne's Surge Energy Inc. (SGY) lost 21 cents to $3.56 on 3.26 million shares. Investors were unnerved by the surprise departure of CFO Max Lof, who had been with the company since it recapitalized and changed its name from Zapata Energy in 2010. A lot has happened since then. Most notably, Surge decided to switch from being a high-growth company to being a moderate-growth-plus-dividend company in mid-2013, with its current monthly dividend of 2.5 cents yielding 8.4 per cent. Surge maintained in a press release last week that it can afford this rather generous payout. The press release revolved around its $42 147104.6-million budget for the second half of the year, which includes a drill program, infrastructure and waterflood projects, and a production boost to 14,500 barrels of oil equivalent a day at year-end from about 14,250 now. For investors, it seems that Mr. Lof's abrupt departure has cast a shadow on all these plans. Surge's brief announcement merely said Mr. Lof is leaving "to pursue other interests." Yet the immediacy of his departure suggests some sort of conflict, seeing as a long, smooth transition is generally the preference when it comes to a job as important as CFO.