by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery lost $1.75 to $27.94 on the New York Merc, while Brent for April lost $2.56 to $30.32 (all figures in this para U.S.). Two bearish reports hit the market within hours of each other, one from the International Energy Agency (which warned that the global oil glut will only get worse this year) and one from the U.S. Energy Information Administration (which lowered its oil demand growth forecast for the next two years). Western Canadian Select traded at a discount of $13.75 to WTI ($14.19), up from a discount of $14.20. Natural gas for March lost 4.2 cents to $2.098 The TSX energy index lost 7.16 points to close at 144.41.
Colombia-focused Parex Resources Ltd. (PXT) lost 16 cents to $8.80 on 833,200 shares, after releasing a strong but not surprising reserve report and scaling back this year's budget and drill program. The press release focused mainly on the reserve report. Parex's proven plus probable (2P) reserves were 81.8 million barrels of oil equivalent as of Dec. 31, 2015, in line with analysts' predictions. A year earlier, 2P reserves were just 68.4 million barrels. Investors knew an increase was coming because of the various exploration and appraisal successes that Parex enjoyed in 2015, mainly at the LLA-34 and LLA-26 blocks in Colombia's Llanos basin. This basin accounts for most of Parex's reserves and its 29,000-barrel-a-day production. Parex also has an earlier-stage presence in the Middle Magdalena basin, which (despite being the "next growth platform," as Parex has called it) barely got a mention in the press release. It shows up in more detail in Parex's new on-line corporate presentation. This says that the Aguas Blancas field in the Middle Magdalena basin will be one of three priorities over the next two years, with the other two (the LLA-34 and Capachos blocks) being in the Llanos basin. What exactly will be done with them this year is up in the air. Parex had said in November that it would spend $165-million (U.S.) and produce 30,200 barrels a day in 2016, based on $50 (U.S.) Brent and using cash flow only. It added that $80-million (U.S.) would go toward exploration. Now it has scaled back those plans. It reckons that its cash flow in 2016 will be $40-million (U.S.) to $80-million (U.S.) (based on $30 (U.S.) to $40 (U.S.) Brent) and that the majority of exploration drilling, except for two to four wells, will be deferred until 2017 or later. It did not provide a new production target. Scotia Capital analyst Gavin Wylie (who met with Parex's new president, David Taylor, last month) wrote this morning that he expects Parex to spend $75-million (U.S.) in 2016 to produce 29,000 barrels a day.
Surge Energy Inc. (SGY) lost 17 cents to $2.07 on 7.52 million shares. It too has released its year-end reserve report, showing 2P reserves of 85.8 million barrels of oil equivalent as of Dec. 31, 2015. That is down sharply from 112 million barrels a year earlier, but that decrease partly reflects about $465-million worth of asset sales in the first half of 2015, done to pay down debt. Surge does not even mention the year-earlier reserve figure, instead emphasizing its year-over-year cost improvements. It also says it has completed its three-well drill program for the first quarter of 2016, out of 13 wells budgeted for the year. Two of those wells, in the Shaunavon play in Saskatchewan, are producing at better-than-modelled rates, says Surge, though it does not provide any numbers. The third well is at the Valhalla project in Alberta and is scheduled to start production any day now. Also at Valhalla, Surge is moving toward completion of a new pipeline/compression project that is expected to ease capacity constraints and cut processing fees in half. Surge says this project should be ready by the end of the month. That is a slight delay from what president and chief executive officer Paul Colborne told a Whistler, B.C., conference last month (when he put the completion date at mid-February), but is still good news. All in all, says Surge, it expects to add over 1,200 barrels a day of production from its first quarter program at a cost of less than $6.9-million. For reference, Surge recently set a $50-million budget for 2016 with the goal of producing 14,000 barrels a day. That budget, of course, does not include the 1.25-cent monthly dividend, which costs about $33-million a year and yields a generous 7.2 per cent. Mr. Colborne was a stout defender of the dividend at the B.C. conference, but investors nonetheless seem to expect a cut. The dividend has already been cut twice in the last 13 months.
Madalena Energy Inc. (MVN) was unchanged at 26 cents on 217,500 shares, after arranging to sell its non-core Canadian assets for $5.5-million to the private Point Loma Energy Ltd. The sale comes roughly three years after Madalena acquired the assets for about $20-million. It did so through the November, 2012, takeover of Online Energy Inc., whose assets comprised about 153 net sections of land in the greater Paddle River area of central Alberta, producing roughly 400 barrels of oil equivalent a day. The takeover took Madalena's fourth quarter 2012 production to about 700 barrels a day and gave the company a foothold in North America; previously it had focused entirely on Argentina. By the first quarter of 2014, Madalena had managed to increase its Canadian production to over 800 barrels a day, while the Argentine production had remained fairly steady at a few hundred barrels a day. Then Madalena swung its focus firmly back to Argentina in May, 2014, by buying Gran Tierra Energy Inc.'s (GTE: $2.80) 3,300-barrel-a-day Argentine division for $63-million (U.S.). Madalena's Canadian assets continued to dwindle in importance once oil prices crashed. There were two reasons for this: One, the low prices forced most of the Canadian production to be shut in; and two, Argentina's government sets domestic oil prices and has lately been setting them well above global market prices. (It recently set the 2016 level at $67.50 (U.S.) a barrel, more than double today's WTI and Brent prices.) As a result, in the third quarter of 2015, just 3 per cent of Madalena's 3,500-barrel-a-day production (or a little over 100 barrels a day) came from Canada. Meanwhile, Madalena had been under pressure throughout 2015 from major shareholder Maglan Capital (which owns nearly 89 million of Madalena's 542 million shares) to ignore Canada and properly prioritize Argentina. Maglan is presumably pleased with today's announcement of the sale to Point Loma.
Point Loma does not mind that the assets are currently producing just a little over 100 barrels a day, pointing out that once various constraints are removed, an additional 650 barrels a day could be brought on production. That will be the job of First Mountain Exploration Inc. (FMX: halted at $0.005 -- decidedly non-mountainous). Trading in First Mountain's shares was halted this morning ahead of the announcement that the company will acquire Point Loma as a reverse takeover. Its goal is to expand its Western Canadian operations, which squeezed out just six barrels a day in the third quarter of 2015. There are a number of hoops to jump through before the takeover can close. First Mountain must roll its shares back 1 for 10 and help close Point Loma's $5 147104.5-million acquisition of Madalena's assets by issuing a $3-million debenture and $2.5-million worth of shares (6.24 million shares of First Mountain at 40 cents each). Point Loma must raise $2-million to $5-million in a private placement. Only then can First Mountain buy Point Loma, for which it will pay $8.85-million plus an amount equal to the private placement. It will also replace its management with that of Point Loma and restructure its board to consist of two Madalena nominees, two Point Loma nominees, one First Mountain nominee and one independent. The bulk of this is intended to be done by the end of April.