by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery added $1.20 to $60.23 on the New York Merc, its first time above $60 since November, while Brent for May added 89 cents to $68.59 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.50 to WTI, unchanged. Natural gas for April lost five cents to $2.82. The TSX energy index added 3.10 points to close at 160.46.
Oil bulls were in a fine mood as WTI prices reached their highest level in over four months, thanks to a larger-than-expected drop in U.S. crude supplies. The American Petroleum Institute (API) had reported yesterday that crude supplies fell by about 2.1 million barrels last week. In the more official U.S. Energy Information Administration (EIA) data released today, the drop was actually revealed to be 9.6 million barrels. Such a large discrepancy is unusual and reflects, in this case, high exports and unseasonably strong refinery usage. In general, the weekly API report is a reasonable precursor to the weekly EIA report, but differences do arise, in part because participation in the API's surveys is voluntary whereas companies are required to report to the EIA. In any case, producers in Canada simply enjoyed today's ride. Notable gainers included Bonterra Energy Corp. (BNE), up 60 cents to $6.81, Crescent Point Energy Corp. (CPG), up 38 cents to $4.37, and MEG Energy Corp. (MEG), up 48 cents to $5.53.
Scott Ratushny's Cardinal Energy Ltd. (CJ) also had a good day, winging up 37 cents to $2.70 on 3.87 million shares, after releasing its 2018 financials. The company managed to post a profit for the year of $60.5-million. This was mainly because of a $76.5-million reversal of a 2017 impairment charge on the Alberta South unit, one of Cardinal's four regional units (the others are Alberta North, Alberta Central and Saskatchewan). The Alberta South unit is dominated by the Bantry area, where Cardinal produces about 4,700 barrels of oil equivalent a day (out of its total 2018 production of about 20,800 barrels of oil equivalent a day). During 2018, drilling in the Bantry area led to reserve increases that ultimately helped reverse the impairment charge on Alberta South. Cardinal also picked Bantry as one of its core "focus areas for growth in 2019." Of the eight wells that Cardinal plans to drill this year, six will be at Bantry. The other two will be in the Midale area of southeastern Saskatchewan.
All in all, investors seemed pleased with Cardinal's relatively unsurprising financials. Production in the fourth quarter came to 20,365 barrels a day, as the company had already announced, and quarterly cash flow came to five cents a share, in line with analysts' predictions. The general feeling seemed to be that things could have been worse. Notably, Cardinal was able to keep its operating costs relatively flat year over year, at around $20 a barrel, despite a decrease in production and an increase in regulatory costs. Of course, given that many of Cardinal's competitors are consistently able to keep their operating costs in the $10- to $15-a-barrel range, investors would very much like to see Cardinal's costs go down rather than stay flat. To that end, Cardinal has already promised to reduce these costs by 8 per cent by the end this year.
Other promises for 2019 include a near-term review of Cardinal's dividend. Its current dividend of one cent a month represents a yield of 4.4 per cent. Cardinal cut this dividend from 3.5 cents a month in December, but since then has repeatedly reassured investors that it will conduct a dividend review in April. Interestingly, the new financials did not contain that reassurance, but Cardinal did say that its revenue in 2019 is in line with its forecasts so far, "giving us confidence that both our budget and business plan will set the company up for years of success."
Elsewhere in Alberta, Don Gray's Cardium-focused Petrus Resources Ltd. (PRQ) edged up half a cent to 44.5 cents on 60,900 shares. Yesterday after the close, it published its latest monthly activity update on its website, detailing its production and spending for February. The company spent an estimated $4.4-million during the month and produced an average of 8,494 barrels of oil equivalent a day. That compares with just $883,000 spent in January, but production in January was nonetheless much higher at 8,808 barrels a day. Petrus blamed the drop partly on shut-ins related to workovers and electrical maintenance. It is expecting a production boost in March as more of its wells come on-line. Assuming that Petrus is sticking to the first quarter budget that it laid out in early January, it has roughly $2.7-million to $4.7-million left to spend in March, most of which -- just like in January and February -- will go toward its core assets in the Ferrier Cardium. As for the second quarter, Petrus announced last week that it will spend about $7-million to $8-million. It has yet to release any guidance for the second half of the year.
In British Columbia, Robert Hodgkinson and Sean Sullivan's DXI Energy Inc. (DXI) lost one cent to five cents on 2.71 million shares, after a much-hyped well at its Woodrush project turned up with disappointing results. The well had been targeting the Halfway formation. Although this formation contains both oil and gas, oil would be preferable, for economic reasons. All of DXI's gas production in this area has already been shut in because of weak prices. There remain three oil wells on production, but they are getting on in years, hence DXI's interest in drilling more. Last month, the above-mentioned Mr. Hodgkinson, who is DXI's chairman and until recently was also its CEO (until Mr. Sullivan came along in December), talked up the drill program in an interview with Proactive Investors (a self-proclaimed media and event management firm that seems mostly to provide PR services). Mr. Hodgkinson said DXI recently completed a seismic reprocessing program at Woodrush using a new software that has never before been used in North America. The software found "amazing exploration targets," gushed Mr. Hodgkinson, "and we are going to drill the major one as soon as possible."
Just one month after that interview, the well has been drilled. Unfortunately, its results are not quite as amazing as Mr. Hodgkinson doubtless hoped. Things could have been worse; the well was not dry. Yet the highlight was 19.8 feet of gas pay in the Gething formation. Oil-stained sand in the Halfway formation was intersected, but the interval, unexpectedly, was unconventional. This particular area is in a conventional oil fairway. Conventional oil wells do not need fracking, but unconventional ones do, which adds considerably to their regulatory, environmental and technical complexities. Above all, it adds to their costs. DXI says it is game to at least consider fracking after it examines the well's results in more detail. For now, it is preparing the well as a future gas producer in hopes that gas markets improve.
DXI's president and CEO, Mr. Sullivan, admitted to "disappointment" in the drill result, but argued that all of DXI's other efforts in the last few months have met with success. Notably, in February, the company tidied up its balance sheet by eliminating a nearly $7-million financial contract liability in exchange for non-core assets in Colorado. It also arranged a $1.8-million financing of six-cent shares (later upsized to a $2.4-million financing), of which $1.62-million had been raised as of early March. All of this will help DXI as it pursues its "expanding operational plan in northeastern B.C. to create value for all our stakeholders," promised Mr. Sullivan. Despite his best efforts, investors remained disgruntled. Another, better round of drilling will likely be needed to lure them back. With spring breakup in sight, however, investors are in for a long wait.