by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery added 54 cents to $48.62 on the New York Merc, while Brent for July added 26 cents to $48.61 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.05 to WTI ($36.57), up from a discount of $12.10. Natural gas for June lost 7.5 cents to $1.98. The TSX energy index added 1.08 points to close at 184.75.
Oil sands producers around Fort McMurray have been cleared for re-entry into work camps that were evacuated because of a massive wildfire. The fire is estimated to have cut Canadian output by over one million barrels a day. Around 8,000 workers were forced to flee the flames last week, on top of the nearly 90,000 residents of the city of Fort McMurray who were evacuated earlier this month. Authorities began lifting the evacuation orders for some of the oil sands work camps late Friday. For the remaining camps, a "phased re-entry" was authorized yesterday. Suncor Energy Inc. (SU:$35.39), north of Fort McMurray, says it has started moving employees back to the Wood Buffalo region to support a "staged restart" of operations. Syncrude and ConocoPhillips have also started the process of bringing back workers, spokesmen told Bloomberg. South of Fort McMurray, sites belonging to Athabasca Oil Corp. (ATH: $1.35) and Japan Canada Oil Sands Ltd. have been scheduled for re-entry, said authorities, though they did not specify which sites. Athabasca later clarified that it has resumed operations at its Hangingstone project (which had been shut down since May 5) and expects to reach normal operating levels "over the next several weeks." It remains unclear when other affected sites will resume full production. There have been no reports of any major damage to production facilities, meaning that repair times should be minimal, but ramp-up times could take one to three weeks or more, depending on the type of operation. The sites must also be inspected by forestry and health officials before all the workers can return.
Long Run Exploration Ltd. (LRE) lost 1.5 cents to 45.5 cents on 751,400 shares, after announcing another delay to its proposed takeover by China's Sinoenergy. Sinoenergy had agreed in December to pay 52 cents a share for Long Run's shares and to acquire its roughly $670-million net debt, for a total transaction value of $770-million. Investors were skeptical from the start. Long Run's stock has never touched the 52-cent offer price; the highest it has gone is 49.5 cents (a far cry from its mid-2014 level of over $6). As well, the deal has now been postponed twice. It was originally supposed to close in late April, but on April 25, Long Run pushed the date out to May 30, citing its continuing review under the Investment Canada Act. On Friday evening, after many had already left for the long weekend, Long Run said it is still awaiting Investment Canada approval and pushed the closing date even further out to June 29.
Besides Investment Canada, the other potential stumbling block for the deal is financing. Sinoenergy announced on April 22 that it wants to raise up to 2.3 billion yuan (about $460-million) to help finance the Long Run deal. Over the weekend, it announced that the financing had been approved by its shareholders at a special meeting on May 20. Long Run's shareholders still seem anxious. If the deal does not close, Long Run will be entitled to a $20-million non-completion fee, but that is just a pittance next to what it would need to repay its debt and continue its operations. Failure to close the deal would trigger an event of default under Long Run's credit facilities and would entitle the lenders to accelerate the repayment of the outstanding bank debt of about $580-million.
Another debt-laden company facing financial pressure is Niko Resources Ltd. (NKO), which lost 1.5 cent to 19.5 cents on 457,400 shares today, after being told by a Texas court to cough up $20-million to drilling contractor Diamond Offshore Drilling. The court case revolves around the companies' December, 2013, settlement agreement regarding Niko's contractual commitments for two of Diamond's drill rigs. The settlement agreement allowed for a mutual release of claims if Niko paid $80-million (U.S.). Niko paid $25-million (U.S.) right away and agreed to pay the rest in instalments up until Sept. 30, 2017. In June, 2015, however, it struck a separate agreement with the lenders of its $340-million (U.S.) loan facilities, and this agreement restricted Niko from making any payments to Diamond. Diamond had a problem with this. It filed a lawsuit shortly after Niko skipped a $5-million (U.S.) payment due on June 30, 2015. Niko has since skipped three other $5-million (U.S.) payments, due on Sept. 30, 2015, Dec. 31, 2015, and March 31, 2016. The court has now ordered Niko to pay $20-million, as well as interest and legal costs. Niko is considering an appeal. Though the outcome of this case could have been a lot worse for Niko (whose SEDAR filings had pegged the maximum potential claim at up to $220-million (U.S.)), the company does not have $20-million lying around. Its financial situation is so tight, in fact, that two months ago it proposed a restructuring agreement that will essentially delay its payment obligations to its institutional lenders and its noteholders by at least two years. All of the institutional lenders had signed support agreements as of April 25. Niko now needs two-thirds support from its noteholders. Sixty per cent had already shown support by the time Niko made the proposal in March. Niko said today that on May 31, it will begin soliciting the consents to amend the indenture governing the notes.
Saskatchewan oil producer Rock Energy Inc. (RE) had a nice day, adding 20 cents to 90 cents to 698,700 shares. It had no news to explain the rise, but it had lost 40 cents over the last seven trading days -- after releasing disappointing first quarter financials -- so investors may simply have seen it as oversold. Another explanation is that some pleasing news has leaked. Rock could use some good news. Its shares have fallen from nearly $8 in mid-2014, leading the company to put itself up for sale in mid-December, 2015, with president and chief executive officer Al Bey telling BNN at the time that Rock is "not up against any walls" but merely wants to maximize shareholder value. He added that Rock was producing up to 4,000 barrels of oil equivalent a day, was enjoying low costs and decline rates, and was generally in a "very solid" position. The stock was around $1.30 when the for-sale sign was hung out on Dec. 15. On May 11 (long after some observers had expected the company to attract an offer), the stock plunged to 84 cents from $1.10 after Rock's first quarter financials showed that production had fallen to 2,893 barrels a day as the company pinched every penny, spending just $800,000 in the quarter. This was less than its cash flow of $2.1-million, allowing Rock to nibble away at its debt, which edged down to $58.3-million as of March 31 from $59.5-million on Dec. 31 -- still high next to a market cap of $42-million. Rock says it will limit itself to a cash-flow-based budget so as not to increase debt. It has not set a production target, but to put things in perspective, it said last November that it would need to spend $20-million to produce 3,800 to 4,000 barrels a day.