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Energy Summary - 23rdEnergy Summary for Feb. 23, 2018 2018-02-23 21:28 ET - Market Summary by Stockwatch Business Reporter West Texas Intermediate crude for April delivery gained 78 cents to $63.55 on the New York Merc, while Brent for April gained 92 cents to $67.31 (all figures in this para U.S.). Western Canadian Select traded at a discount of $28 to WTI ($35.55), unchanged. Natural gas for March lost one cent to $2.63. The TSX energy index gained 3.24 points to 177.03. Alberta producer Obsidian Energy Ltd. (OBE) gained four cents to $1.27 on 715,900 shares, after boosting its reserves and appointing Jay Thornton as its chairman. First, the reserves boost: Obsidian's proved plus probable reserves were 131 million barrels of oil equivalent at year-end 2017, up from 128 million barrels at year-end 2016. Although the percentage increase is small, president and chief executive officer David French was delighted to point out that "2017 was the first time in five years we replaced produced reserves." Obsidian's full-year production in 2017 was 12 million barrels, and it managed to book more new reserves than that during the year, thanks in part to a recently added core area for the company, Alberta's Deep basin. Mr. French also gave partial credit for the reserves boost to the company's waterflooding program in the Alberta Cardium. Scotia Capital analyst Patrick Bryden is pleased by Obsidian's operations in the Deep basin and the Cardium. He looks forward to March 7, when the company will release its full-year financials. He maintains his rating of "sector perform" and his price target of $2. Meanwhile, Canaccord Genuity analyst Sam Roach is also pleased by the Cardium waterflooding program. He maintains his rating of "speculative buy" and his price target of $1.80. Canaccord's Mr. Roach welcomes Obsidian's choice to appoint a chairman from among its existing directors. He says the internal appointment will help "maintain Obsidian's existing strategic vision." Mr. Thornton has been a director of Obsidian since 2013, when the company was still called Penn West Petroleum. He is also a director of an oil sands construction company, North American Energy Partners Inc. (NOA: $6.36), and a private oil field remediation services provider, Tervita. When Mr. Thornton first joined the board of Penn West, the company's chairman was Rick George, former CEO of Suncor Energy Inc. (SU: $43.60). Mr. George died of leukemia in August, 2017. Obsidian then appointed an acting chairman, George Brookman, who is also the CEO of a digital printing company in Calgary. Mr. Brookman will remain on the board of Obsidian. It is possible that a dissident shareholder prevented acting chairman Brookman from becoming Obsidian's full-fledged chairman. Last month, the hedge fund FrontFour Capital, which owns nearly 28 million of Obsidian's 504 million shares (5.5 per cent), aired its frustrations in a press release. One of its gripes was that "certain directors are entrenched, which is surprising given their aversion to share ownership." Mr. Brookman has sat on the company's board since 2005, while all other directors joined in 2013 or later. He is one of the highest-paid directors, earning $89,125 in 2016. He holds 30,000 shares. In response to FrontFour's public venting, Obsidian noted that it had already appointed a director on FrontFour's private recommendation. That director, Gordon Ritchie, joined the board in December. Mr. Ritchie retired as the vice-chairman of RBC Capital Markets in 2016, after 37 years of working there. One of FrontFour's co-founders is Zach George, son of the late Rick George. FrontFour bought its first one million shares of Penn West in February, 2013, three months before Mr. George Sr. joined the company. When FrontFour bought its first shares, Penn West was trading around $10. Bloomberg reports that when Mr. George Sr. joined Penn West as chairman, FrontFour tightened its compliance rules such that Mr. George Jr. no longer had any say in the fund's Penn West holdings. As well, FrontFour's partners were not allowed to speak with Mr. George Sr. about any Canadian oil and gas producer. In 2014, Penn West fell along with the rest of the sector, to about $2 from over $10. In 2015, as Penn West traded between 60 cents and $3.45, FrontFour took the opportunity to boost its position to 19.7 million shares from 3.1 million. Since then, Penn West has remade itself, narrowing its focus to Alberta, changing its name and reducing its debt to $410-million from about $1.9-billion. Nonetheless, its stock has not recovered. There have been no further updates from either FrontFour or Obsidian about the hedge fund's demand for a board overhaul. The season for year-end reserves updates approaches its end, as the season for full-year financials begins. Oil and gas investors, however, are not doing much trading, not even with all the news, as the general sentiment on Canadian energy remains bearish. Nevertheless, today was a day of small rallies for many oil and gas stocks, despite (or perhaps because of) the low trading volumes. Clay Riddell's Alberta gas producer, Perpetual Energy Inc. (PMT), gained eight cents to 83 cents on 54,700 shares, after releasing its full-year financials. It highlighted its adjusted cash flow per share of 54 cents in 2017, up from two cents in 2016, but this adjusted figure is likely not what investors are paying attention to. They are likely keeping a closer eye on the company's net debt, which rose to $106-million at the end of 2017 from $38-million at the end of 2016. To keep the company's debt from climbing much further, and to cope with persistently low gas prices, Perpetual has now decided to reduce its 2018 capital budget to a range of $23-million to $27-million from its previously announced budget of $37-million. Investors probably appreciate this. The company aims to produce 11,500 barrels of oil equivalent a day in 2018, up from 9,876 barrels a day in 2017. Despite the eight-cent rally to 83 cents today, Perpetual has fallen from about $1.65 in the past year. Alberta- and Saskatchewan-focused BlackPearl Resources Inc. (PXX), a Lundin promotion, gained four cents to $1.14 on 154,300 shares, after releasing its own fourth quarter and full-year financials. Among the results, BlackPearl had fourth quarter cash flow per share of six cents. At least one person is quite pleased by this: Scotia Capital analyst Jason Bouvier notes that the result is 20 per cent higher than analysts' average prediction of five cents. He maintains his rating of "sector perform" and his price target of $1.50. For his part, Canaccord's Mr. Roach was more interested in the operations update that came with the financial results. BlackPearl has begun steam injection at phase 2 of its Onion Lake thermal oil project in Saskatchewan, four months ahead of schedule. The phase 2 work will double Onion Lake's production to 12,000 barrels of oil a day, though not until next year when the ramp-up is complete. Mr. Roach maintains his buy rating and his price target of $1.75. |
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