###4:35: HI JOHN, HAD TO LEAVE EARLY FOR FRIDAY NIGHT ENGAGEMENT, BUT SHOULD BE BACK BY 7 IF NEED BE###
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery added $2.23 to $98.26 on the New York Merc, while Brent for June added $2.20 to $102.78 (all figures in this para U.S.). Despite today's rise, both benchmarks ended the week with their third weekly decline in a row. Western Canadian Select traded at a discount of $12.53 to WTI, down from a discount of $12.51. Natural gas for May lost eight cents to $6.28. The TSX energy index added 4.83 points to close at 232.07.
The big news in the sector was the federal budget released by Ottawa yesterday after the close. Among other things, the government vowed to allocate $2.6-billion over the next five years to a tax credit for companies that invest in carbon capture projects. Companies will be able claim 37.5- to 60-per-cent credits for eligible projects, ranging from direct carbon capture to carbon transportation, storage and use. To encourage companies to invest in projects sooner rather than later, the government noted that it will cut the credits in half in 2031.
(There are exceptions to the types of projects that will be eligible for the tax credits. Enhanced oil recovery -- injecting carbon underground as a means of extracting more oil -- will not be eligible, ruling out credits for projects like Whitecap Energy Inc.'s (WCP: $10.38) Weyburn field in Saskatchewan. Weyburn is technically the largest carbon capture and storage project in the world. Happily, there are other incentives for this kind of work: This is currently the only form of large-scale carbon storage that turns a profit.)
Although the announcement fell short of the 75-per-cent credit for which the industry had been lobbying, the reaction was generally upbeat. "This could be transformational," cheered Martha Hall Findlay, chief climate officer of Suncor Energy Inc. (SU: $41.27), to The Canadian Press. "Incredibly supportive," was the review of MEG Energy Corp. (MEG: $17.56) chief executive officer Derek Evans. National lobby group CAPP (the Canadian Association of Petroleum Producers) dubbed it "an important step," though it added that it wants to do further review "to ensure these federal initiatives will work for the natural gas and oil industry."
Naturally, not everyone shared in the applause. "Carbon capture is not a climate solution, it's a greenwashing strategy," griped the green group Environmental Defence. Greenpeace dubbed the budget "simply shameful" and "another act of the tragically bad play the [federal Liberal] government is trying to put on as a climate leader." The Climate Action Network website helpfully assembled a list of complaints from various green groups, invariably forecasting doom and gloom.
Also causing gloom in some circles was an aspect of the budget overshadowed by the glitzy new tax credit. The government is eliminating the flow-through share deduction for oil and gas companies. This deduction has played a significant role in Canadian energy financing for more than three decades. It allows companies to transfer the corporate tax benefits of drilling over to shareholders (subscribers in a flow-through financing), who can then claim the credits on their personal income taxes. This sweetener has often been a lifeline for junior explorers that would otherwise struggle to raise cash. Yet Ottawa severely weakened the program in 2017 and is now killing it off completely. Starting in 2023, life for juniors will get tougher. (That there are relatively few juniors right now, many having sailed into higher categories with higher prices or gone under during the prior downturn, is cold comfort.)
One of the companies that most recently completed a flow-through financing is Alex Verge's Journey Energy Inc. (JOY), unchanged at $5.70 on 484,100 shares. It raised $12.1-million last month by issuing flow-through shares at $4.25. Not only will subscribers enjoy tax advantages -- though not as many as if the financing had been done prior to 2017 -- they are already sitting on 34-per-cent gains. (Incidentally, the sole underwriter for the financing was Acumen Capital. It just so happens that Acumen analyst Trevor Reynholds released a boosterish research note on Journey on March 23, less than a week after the financing closed, hiking his price target to $5.75 from $3.75.)
More recently, earlier this week, Journey closed an $18-million cash-and-share acquisition of a private company in central Alberta. The target is producing about 700 barrels a day. With the deal now closed, Journey has updated the presentation on its website for the first time in six months. It picked a horse theme and claimed to be "unbridled," as well as "unlevered ... undergoing a transformation ... and uninterested in anything that does not create or preserve stakeholder value." More usefully for investors, it reiterated its guidance of spending $65-million this year (including acquisitions), drilling 16 wells and producing 9,100 to 9,600 barrels a day.
Elsewhere in Alberta, the Montney gas producer Advantage Energy Ltd. (AAV) added 64 cents to $10.17 on 3.11 million shares, its first time above $10 in eight years. Investors liked its announcement of a share buyback program to repurchase up to 18.7 million of its 190 million shares. Advantage has been hinting at plans to "potentially return capital to shareholders" for the past year. It showed little interest in a dividend -- despite having started out as an energy income trust, paying a monthly distribution from 2001 to 2009, the year it converted to a corporation -- but was seemingly on board with buybacks. It confirmed in February that it planned to launch a buyback program in the second quarter. Now, barely a week into the quarter, it has done exactly that.
The program (along with the stock's rise to over $10 from less than $3 over the past year) should contribute to a pleasant mood at Advantage's coming shareholder meeting on May 5. Incidentally, according to the recently filed circular for the meeting, this will be the last one with chairman Ron McIntosh, who does not plan to stand for re-election to the board. The 77-year-old Mr. McIntosh has been on the board since 1998 and has chaired it since 2014. He was previously the president and CEO of Navigo Energy, chief operating officer of Gulf Canada, and COO of Amerada Hess Canada.
Advantage has not said who will be its next chairman. One potential candidate is the 59-year-old Andy Mah, who previously served as the company's president since 2009 and as CEO since 2011, before announcing his retirement at the end of last year. He still sits on Advantage's board. These days, the company's president and CEO is Mike Belenkie, who first arrived as COO in 2018.