by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added 59 cents to $47.98 on the New York Merc, while Brent for September lost 17 cents to $53.30 (all figures in this para U.S.). Western Canadian Select traded at a discount of $15.85 to WTI ($32.13), unchanged. Natural gas for August added 3.2 cents to $2.821. The TSX energy index added 3.54 points to close at 177.72.
Husky Energy Inc. (HSE) added 95 cents to $23.52 on 2.63 million shares, after releasing second quarter financials that were weak, but still better than analysts predicted. In particular, cash flow came to $1.20 a share, well above predictions of 98 cents a share. This was not because of Husky's production, which, at 337,000 barrels of oil equivalent a day, was roughly in line with predictions. Mainly Husky benefited from its refining operations. (Low commodity prices can benefit refiners by increasing their margin, which is the difference between the cost of raw material and the cost of wholesale gasoline. MJ Ervin & Associates, a division of The Kent Group, wrote in its Second Quarter 2015 Report on Petroleum Pricing in Canada that refinery margins are currently at an eight-year high.) Refining operations are not generally in this much favour, so Husky's press release and conference call put more emphasis on its producing operations, particularly its Sunrise oil sands project, its fields in Atlantic Canada and its thermal projects in Saskatchewan. These together are expected to add 85,000 barrels a day by the end of next year. The conference call touched on various other points as well. On future oil and gas prices, CEO Asim Ghosh said pessimistically, "I'm a member of that LL camp, which is the lower-for-longer camp." Because of the current price volatility, Husky has not settled on any plans for 2016, as it is too "difficult to take a view on where to peg the tent," said Mr. Ghosh. He said Husky will release its 2016 guidance in November or December.
MEG Energy Corp. (MEG) added 24 cents to $13.61 on 1.98 million shares, after releasing its own results for the second quarter. The thermal oil sands producer patted itself on the back for achieving production of 71,376 barrels of bitumen a day, "ahead of plan." It had not actually specified the plan, but management said during a conference call this morning that the second quarter target was 68,000 to 70,000 barrels a day. It added that production continued to increase through July and MEG is thus very confident in its full-year guidance of 78,000 to 82,000 barrels a day. There were a few other things discussed in the conference call that are worth a mention. One is that MEG enjoyed "very very positive" results from its capacity tests of the phase 2B plant at the Christina Lake oil sands project, according to CEO Bill McCaffrey. He explained that the plant, which was originally designed to have capacity of 35,000 barrels a day, can actually handle over 75,000 barrels a day. This bodes well for MEG's hoped-for brownfield expansions. The press release merely hinted at such expansions, but Mr. McCaffrey provided more details during the call: Scoping work is already under way, and the first two brownfield developments are each expected to contribute 10,000 to 20,000 barrels a day and take 12 to 18 months to build. A decision on whether to do the expansions will be made by year-end and released with the 2016 budget, said Mr. McCaffrey. Another interesting development is that MEG has started a review of "deleveraging options" that could include selling its 50-per-cent interest in the Access pipeline in Alberta. This decision is a "top priority" and should be made by yearend, said Mr. McCaffrey. MEG had long-term debt of $4.7-billion as of June 30.
Cardinal Energy Ltd. (CJ) added 41 cents to $12.11 on 402,200 shares. It too had good news in its second quarter results, including production of 11,294 barrels of oil equivalent a day (ahead of analysts' predictions of around 11,100) and cash flow of 51 cents a share (ahead of predictions of 47). On top of that, unlike Husky and MEG, Cardinal actually saw its net earnings rise compared with the same period last year. It earned $21.68-million, up from $3.78-million a year earlier. This was largely thanks to acquisitions. Cardinal, which was producing just 1,500 barrels a day before it completed its December, 2013, IPO at $10.50 a share, used its IPO proceeds to buy $210-million of assets in Southern Alberta, where it expanded twice more in 2014 by buying another $400-million of assets. A summer financing at $18.50 a share and a fall financing at $19.75 a share helped finance the two latter purchases. Cardinal's share price has fallen hard since those financings, closing today at $12.10, but IPO investors are still up and the company is still pursuing its acquisition strategy. Its most recent acquisition -- the $23.5-million takeover of Pinecrest Energy in April -- was not particularly exciting, so investors may be hoping for some more drama soon. Until then, Cardinal is staying conservative with its guidance, forecasting year-end production of just 11,200 barrels a day (below the second quarter average of nearly 11,300). Investors can enjoy the dividend in the meantime. Cardinal recorded a 77-per-cent total payout ratio in the second quarter, an impressively low figure in today's market, which bodes well for the seven-cent monthly dividend and its yield of 6.9 per cent.
Michael Greenwood's PRD Energy Inc. (PRD) was unchanged at 7.5 cents on 1.78 million shares. After a nearly five-year effort to become a major producer in Germany, the company has given up, shut down all of its German operations and put itself up for sale. This was not the end it had envisioned for itself. PRD and its predecessors have been around in one form or another for over 30 years. For many of those years, PRD (then called Pacific Rodera Energy) focused on the Northwest Territories under the leadership of David (Tiger) Williams, a hockey player turned stock promoter whose claims to fame include holding the NHL all-time record for penalty minutes. Pacific Rodera failed to make much use of its Northwest Territories assets (partly because of a lack of infrastructure) and Mr. Williams retired in 2010. A few years before he did that, though, he recruited a new name to Pacific Rodera: Mr. Greenwood, the former president and CEO of Canaccord Capital. Mr. Greenwood joined Pacific Rodera just months after retiring from Canaccord in 2006, and became the chief promoter when Mr. Williams left in 2010. By the end of 2010, Pacific Rodera had changed its name to PRD and set up German subsidiaries, ultimately picking up 13 licences, where it planned to use modern technology to coax production out of old, abandoned fields.
Work did not go as planned. German environmentalists went on the attack, PRD did not get around to drilling its first well until mid-2013 (about a year and a half behind schedule), and the well faced mechanical problems and an out-of-control budget. The stock, which had spent most of 2013 rising to about $1.50 from 60 cents, fell apart. Some observers still had high hopes, at least for a while. Marin Katusa, who formerly wrote for Casey's Energy Report (which he left earlier this year), began likening PRD's assets to the North American Bakken in early 2013, when the stock was around 60 cents. He faithfully pumped the stock throughout its rise and fall in 2013 and 2014, and although he does not seem to have mentioned it this year, he did tell The Energy Report newsletter last December, "I wouldn't be surprised if, within 36 months, Vermilion [Vermilion Energy Corp 147104. (VET: $43.00)] buys out PRD." PRD's stock was then around 25 cents. An offer from Vermilion was not entirely implausible given the larger company's existing presence in Germany (where it actually expanded today, farming into 19 licenses controlled by Exxon and Shell), but obviously, no takeover came to pass. Perhaps PRD is hoping that this will change now that it is officially up for sale.