by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery lost nine cents to $58.52 on the New York Merc, while Brent for May lost seven cents to $67.16 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.67 to WTI, up from a discount of $10.70. Natural gas for April lost six cents to $2.80. The TSX energy index lost a fraction to close at 155.87.
The big news today in the oil patch was Imperial Oil Ltd.'s (IMO: $36.39) announcement of a roughly year-long (or longer) delay to its Aspen oil sands project. The $2.6-billion, 75,000-barrel-a-day project was originally expected to start production in 2022, according to the final investment decision that Imperial announced a mere four months ago. Imperial now says that too much has changed in these four months. In particular, the Alberta government introduced mandatory production cuts effective Jan. 1, 2019, in a bid to ease the province's crude oil glut and bolster prices. Imperial has criticized the curtailments from the beginning, and is now blaming them and other "industry competitiveness challenges" for Aspen's postponement.
Aspen is just the latest oil sands project to face a slowdown. Last week, MEG Energy Corp.'s (MEG: $4.99) chief executive officer, Derek Evans, told investors that MEG is no longer likely to give the go-ahead this year for a planned expansion of its Christina Lake project. To be clear, he did not officially postpone the 13,000-barrel-a-day expansion, but said the "probability of [it] going ahead this year has decreased." Two other oil sands producers, Canadian Natural Resources Ltd. (CNQ: $37.00) and Cenovus Energy Inc. (CVE: $11.69), have also made noises about potentially delaying output from planned oil sands expansions, although in their cases the work is much further along. Cenovus has been working on the 50,000-barrel-a-day phase G expansion of its own Christina Lake project (not the same as MEG's, though they are within about six miles of each other). Cenovus's president and CEO, Alex Pourbaix, said last week that the expansion is essentially ready to start production next quarter, but "... we have flexibility for when we bring on incremental volumes depending on market access." Meanwhile, Canadian Natural has been working on two expansions, known as Primrose (26,000 barrels a day) and Kirby North (40,000 barrels a day). Both are targeted for start-up later this year. When asked about potential delays during a conference call earlier this month, president and CEO Tim MacKay demurred, "It's really too early to say."
Down in South America, Frontera Energy Corp. (FEC) added 41 cents to $12.98 on 336,800 shares, more than regaining the three cents it lost yesterday after releasing its fourth quarter financials. These included the announcement of a dividend. Frontera does not pay regular dividends, but said last December it might pay them during periods when Brent oil prices stay above $60 (U.S.). That was the case during the fourth quarter of 2018 (when Brent averaged about $67.50 (U.S.)), so Frontera has declared a quarterly dividend of 16.5 cents. If this dividend stays in place all year, the yield based on today's close is 5.1 per cent.
As for the rest of the financials, they were relatively unsurprising, given that Frontera already announced in January that its fourth quarter production averaged about 71,900 barrels of oil equivalent a day. That was up from about 58,500 barrels a day in the third quarter. The fourth quarter benefited in part from an expansion of water-handling capacity at the Quifa field in Colombia, Frontera's largest producing asset. This allowed the company to boost production by reactivating previously shut-in wells. In turn, this helped offset a production decrease in Peru, where Frontera's block 192 had to be shut down in December because of a pipeline attack by local protesters, known also as vandals. News outlets began reporting early last week that the pipeline had been repaired and that block 192 would be able to resume production. Frontera has now confirmed this. During a conference call yesterday, CEO Richard Herbert said block 192 is not running at full capacity yet, but should return to its preattack levels (about 9,800 barrels of oil equivalent a day) by the end of the month. He added that, contrary to rumours that Frontera is considering exiting Peru, the company may actually expand in the country. It certainly plans to rebid on block 192 after the current contract expires later this year.
Other tidbits during the conference call had to do with Frontera's recently announced entries into two new countries, Guyana and Ecuador. The Guyanese venture was announced in December and is being done with CGX Energy Inc. (OYL: $0.275), a long-time investment but first-time joint venturer for Frontera (which owns 157 million of its 232 million shares, including 101 million acquired just yesterday through a rights offering). Mr. Herbert said during the call that the companies have yet to receive the Guyanese government's approval for the joint venture, but they expect to hear from the government "in the near future or otherwise there potentially will be some delay." Meanwhile, the Ecuadorean entry was announced just three days ago, when Frontera and new joint venturer GeoPark Ltd. (U:GPRK: $18.69) said they won two blocks at the country's recent onshore auction. Mr. Herbert opined that these two blocks had "the best prospectivity" of all the blocks offered, and that Frontera would provide more detail on planned exploration programs at these blocks after they are ratified by the Ecuadorean government.
Back in Alberta, two gas producers drew different reactions to their year-end financials. Montney-focused Delphi Energy Corp. (DEE), which released its financials on Wednesday after the close, added half a cent yesterday and another half a cent today, closing at 36 cents. Its financials held few surprises given that Delphi already provided its year-end production figures last week. Investors were thus more interested in the operational update that accompanied the financials. Delphi said it expects to spend $26-million in the first half of 2019 to complete and start production from a recent four-well pad at its core Bigstone asset, specifically West Bigstone. Delphi's Bigstone wells are becoming more liquids-rich as the company moves from east to west. This created some issues figuring out the right drilling "recipe," said president and CEO David Reid in a conference call yesterday, but he reckons that Delphi is getting a good handle on the best techniques. Delphi's neighbours have apparently taken notice. Nearby, Exxon's XTO Energy is drilling a 16-well pad at a cost of about $130-million, which is twice Delphi's market cap. This represents a "big commitment" from a company that has not been very active at Bigstone but now seems to be taking a renewed interest, said Mr. Reid. As for Delphi's drill plans after the four-well pad, Mr. Reid declined to say. The company is not planning to release its 2019 guidance until after it sees the results of its four-well pad.
Southeast of Delphi, in the Spirit River and Cardium plays, Bellatrix Exploration Ltd. (BXE) dropped six cents to 54 cents on 1.13 million shares. Its year-end financials were largely as expected, and the accompanying reserve report showed decent year-over-year increases at low costs. The problem, as ever, was the hulking shadow of debt, looming ever larger. Bellatrix's total debt was $443-million as of Dec. 31, 2018, more than 10 times its current market cap of $43.7-million. The next big maturity, involving $145.8-million (U.S.) worth of senior unsecured notes, is May 15, 2020 -- a mere 15 months away. In fact, Bellatrix may not even have the full 15 months. A separate set of notes, for $137-million, does not technically mature until 2023, but that maturity will be accelerated to March 15, 2020, if more than $25-million (U.S.) of the above-mentioned senior notes is still outstanding as of March 14, 2020 -- just one year away. Bellatrix is aware of the ticking clock and says it is busily "evaluating potential alternatives to optimize its capital structure." In the meantime, however, it has been forced to add a new cautionary note to its financials, saying its situation raises "substantial doubt about whether the company will continue as a going concern."