by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added $2.17 to $57.10 on the New York Merc, while Brent for October added $2.73 to $61.30 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.40 to WTI, unchanged. Natural gas for September added four cents to $2.15. The TSX energy index added 1.16 points to close at 126.31.
Gary Guidry's Colombia-focused Gran Tierra Energy Inc. (GTE) edged up one cent to $1.88 on 1.36 million shares. It tried to get the week off to a good start by presenting yesterday afternoon at EnerCom's 2019 Oil and Gas Conference in Denver. Mr. Guidry was unable to take time away from his chief executive officer duties and deliver the presentation, so Adam Smith, Gran Tierra's treasurer, did the honours. Much of Mr. Smith's presentation was an ode to Colombia. This is a country with proven production and reserves, an established fiscal and regulatory system, and modern technological and infrastructure capabilities, meaning that Gran Tierra does not have spend millions of dollars risking "feast or famine" in frontier basins. Yet Colombia still offers "fantastic" assets such as Gran Tierra's largest producer, the Acordionero field, where Mr. Smith said a sizable reserves increase is expected at the end of this year. Acordionero is in the Middle Magdalena basin. Gran Tierra is also the dominant landholder and producer in the Putumayo basin, where, Mr. Smith noted, the company has over one billion barrels of unrisked prospective resources.
If Mr. Smith had one criticism of Colombia, it would be that Colombians think that fracking is "nasty." (The country is indeed under a provisional fracking ban.) That is not the case in neighbouring Ecuador. As a result, earlier this year, Gran Tierra entered Ecuador's Oriente basin, which is geologically the same as Colombia's Putumayo. Gran Tierra will still keep a close eye on fracking developments in Colombia, where ConocoPhillips, state-owned Ecopetrol and others are currently working on a pilot program to try to boost the practice's social acceptability. Mr. Smith said Gran Tierra is happy to let those companies do the "heavy lifting" in Colombia while it fracks to its heart's content in Ecuador. All in all, Ecuador is a grand addition to Gran Tierra's "high-quality asset base" and should allow the company to continue to "control our destiny."
Despite Mr. Smith's fine words, Gran Tierra's stock continued to languish below $2, down from over $5 less than a year ago. The company has struggled operationally throughout 2019 and even had to reduce its production guidance last week. On Wednesday, while releasing its second quarter financials, Gran Tierra said it now expects to produce 36,500 to 37,500 barrels of oil equivalent a day this year, down from the previous target of 41,000 to 43,000 barrels a day. It also lowered its cash flow forecast to about $345-million (U.S.) from about $385-million (U.S.). That is roughly in line with its budget, but considering that the company had previously expected to underspend its cash flow and thus enjoy free cash flow, investors were disappointed.
Another international producer, TransGlobe Energy Corp. (TGL), added seven cents to $2.01 on 86,200 shares, on top of the six cents it added yesterday after it released its second quarter financials. It did the opposite of Gran Tierra and raised its full-year production guidance. Thanks to better-than-forecast results in Egypt, TransGlobe now expects to produce 15,000 to 16,000 barrels of oil equivalent a day this year, a 1,000-barrel-a-day increase from the previous target. Close to 90 per cent of TransGlobe's production comes from Egypt, with the rest coming from Alberta. The Egyptian assets are more than masking the poor performance of the Alberta ones. According to the more detailed guidance update outlined in TransGlobe's SEDAR filings, TransGlobe has in fact lowered the Alberta assets' production guidance to about 2,150 barrels a day (down from about 2,500), but the Egyptian assets' guidance has gone all the way up to about 13,350 barrels a day (from about 11,950). Worth noting is that, although the overall full-year guidance is now 15,000 to 16,000 barrels a day, year-to-date production has been healthily above that, averaging 16,500 barrels a day for the first half. That partially reflects the fact that TransGlobe completed most of its 2019 drill program in the first half and enjoyed high flush production from new wells. Production will retreat as the new wells stabilize and drilling activity winds down.
Returning to Denver, another presenter at the EnerCom conference was CEO Marty Proctor of Seven Generations Energy Ltd. (VII), up 16 cents to $7.28 on 2.1 million shares. Mr. Proctor presented this morning and described Seven Generations as a "specialized and focused" producer in the "formidable resource" that is the Alberta Montney. He emphasized that Seven Generations' assets are in some of the deepest, highest-pressure and most frackable parts of the play. This has allowed the company to go from a start-up a few years ago (producing under 8,000 barrels a day in 2013) to the largest producer of condensate in Canada (currently producing about 200,000 barrels a day, of which nearly two-thirds is condensate and natural gas liquids). Mr. Proctor added that condensate is "the only hydrocarbon product in the world that is in short supply in Alberta." Alberta's demand for condensate is about 250,000 barrels a day greater than its supply, allowing Seven Generations to command high prices for its main product.
Despite its premium product, Seven Generations consistently spends more money than it takes in. The company is trying to change this in 2019, a year in which it expects to spend $1.25-billion but enjoy $1.4-billion in cash flow. Its efforts to live within its means were on display during the second quarter. According to the company's second quarter financials, issued two weeks ago, Seven Generations spent $311-million during the quarter and took in $355-million in cash flow, leaving $44-million in free cash flow that was directed toward share buybacks. The company has now bought back about 5 per cent of its shares since starting its buyback program last November. With its second quarter financials, it announced that it is expanding the program to 10 per cent of the public float (or about 8.4 per cent of the company). All of this went over nicely with investors. Since the financials were released on July 30, the stock has risen to $7.28 from $6.10.
Elsewhere in Alberta, and in Saskatchewan, Paul Colborne's Surge Energy Inc. (SGY) up four cents to $1.18 on 2.4 million shares, more than regaining the one cent it lost yesterday after releasing its second quarter financials. It patted itself on the back for an "excellent quarter." Production averaged 21,544 barrels of oil equivalent a day, matching analysts' predictions, while cash flow of 16 cents a share was slightly higher than analysts' predictions of 15 cents a share. Surge cheered its latest results in its core Sparky, Shaunavon and Valhalla plays for having "exceeded management's expectations." It also repeated its faith in the safety of its 0.8333-cent monthly dividend, despite the yield of 8.5 per cent. Dividend payments during the second quarter ate up just 15 per cent of cash flow, safely below the 20- to 30-per-cent range in which Surge feels comfortable.
Less happily, Surge's credit facility has been cut to $500-million from $550-million. Surge did not actually mention the $550-million figure, merely saying the facility has been "confirmed at $500-million," so investors would need to be paying attention to catch the reduction. In addition, only $425-million of the facility is readily available to Surge, which will need the full consent of its lenders to get to the full $500-million. In any case, the facility was $319-million drawn as of June 30. That represents most of Surge's total net debt of $391-million as of June 30, up sharply from $276-million a year earlier. Surge's current market cap is $370-million.
Surge is getting a new chief financial officer to help manage the books. Jared Ducs has been promoted to CFO from his previous position as vice-president of finance. The promotion is in some senses just a formality, as Mr. Ducs has essentially already been acting as CFO since his predecessor, Paul Ferguson, left in August of last year. Mr. Ducs has been with Surge in one role or another since it was founded in 2010. Before that, he was a senior accountant at Breaker Energy (another of Mr. Colborne's promotions, sold in late 2009), and before that he was a senior associate at Ernst & Young.