by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery lost 24 cents to $54.85 on the New York Merc, while Brent for November lost 16 cents to $60.22 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.15 to WTI, up from a discount of $13.50. Natural gas for October added four cents to $2.61. The TSX energy index added a fraction to close at 135.29.
Alberta Montney producer Birchcliff Energy Ltd. (BIR) added three cents to $2.33 on 7.94 million shares. President and chief executive officer Jeff Tonken has been making the promotional rounds this week, participating in a panel at the 2019 Peters & Co. Energy Conference in Toronto on Tuesday, followed by an interview yesterday on BNN. A few key themes emerged, particularly on what Mr. Tonken sees as the "complete disconnect" between Birchcliff's share price and the health of its business. "Our company has never been stronger, it's never had more cash flow, we've never had more upside -- and we've never had less interest in the stock," Mr. Tonken lamented on BNN. He noted that Birchcliff is currently producing about 80,000 barrels of oil equivalent a day and expects to generate $100-million in free cash flow this year.
(Investors may wish to note that Birchcliff's forecast cash flow this year is only $52-million higher than its total budget, not $100-million. Birchcliff prefers not to look at its total spending when calculating free cash flow and to use only its F&D (finding and development) budget, for the actual work on its properties. That method of calculation leaves $96-million in adjusted free cash flow, hence Mr. Tonken's figure.)
In any case, Birchcliff's business and margins "have never been better," declared Mr. Tonken, performing a bemused shrug as he pointed to a share price barely above a toonie. Part of the problem for Birchcliff, and the rest of Canada's energy producers, is that Canada's energy industry has been "badly beaten down" by unfounded eco-attacks and unhelpful government policies. To that end Birchcliff recently helped produce a pro-Canadian-energy video released about two weeks ago by a new group called Canadians for Canada's Future. (The video is about 2-1/2 minutes long and features such lines as, "Today we say enough is enough," as music swells in the background to images of hardworking field hands, smiling executives, beautiful landscapes and -- for good measure -- children playing hockey. It is a slick little number, to be sure, but it makes its point.) As for the government, Mr. Tonken said the current group in Ottawa has been "limiting our ability to sell our energy around the world." He is hopeful that next month's election will bring a welcome change. "We need to change the regulations, we need to change the narrative," he concluded, "so that we gain confidence back in what's probably the most responsibly produced energy in the world."
Mr. Tonken was not the only one looking to sell his story in Toronto. One of the presenters at the above-mentioned Peters conference was president and CEO Jim Riddell of Paramount Resources Ltd. (POU), up 14 cents to $7.10 on 273,500 shares -- its first time above $7 in over a month. It started this month closer to $5.50. The rise doubtless helped Mr. Riddell's mood as he talked up Paramount's "very deep portfolio of opportunities." Much of his presentation centred on the company's "engine of growth," the Grande Prairie area of Alberta, specifically the Karr and Wapiti Montney plays. Current production from Grande Prairie is about 25,000 to 30,000 barrels of oil equivalent a day. Mr. Riddell is aiming to boost that to a range of 80,000 to 85,000 barrels a day "in the next couple years." For context, Paramount's total guidance for 2019 (from all of its assets) is 81,000 to 85,000 barrels a day.
Mr. Riddell said Paramount's focus on increasing production sets its apart from other companies, which in today's environment have generally tried to hunker down, cut costs and prioritize free cash flow. Paramount does not generate free cash flow and tends to spend well above its means to support its production plans. (This no doubt plays a role in the stock's collapse to around $7 from its 2014 high of nearly $67.) To close the gap between its spending and cash flow, Paramount tends to rely on asset sales. It recently sold a mid-stream asset to CSV Midstream Solutions for a price that included $330-million cash. Mr. Riddell said this cash is "prefunding" next year's overspending. Ultimately, and sooner rather than later, Mr. Riddell's goal is to develop Wapiti and Karr enough that they become a "free cash flow engine" capable of generating $350-million to $500-million of free cash flow a year. The recent performance of Paramount's stock suggests that the market's reaction is one of mixed intrigue and skepticism.
Down in South America, Colombian gas producer Canacol Energy Ltd. (CNE) edged up one cent to $4.63 on 74,400 shares. It got a lovely mention in a research note this morning by Scotia Capital analyst Gavin Wylie, who reminded readers that Canacol recently finished a 100-million-cubic-foot-a-day pipeline expansion, allowing its gas production to reach 215 million cubic feet a day last month. This is a "positive" development, cheered Mr. Wylie -- or, for those who prefer analyst jargon, it is "a material inflection point in FCF [free cash flow] that could imply significant returns to shareholders." Now the question on Mr. Wylie's mind is how Canacol will spend its extra cash. In the near term, meaning by the end of the year, he expects an increase in share buybacks. Canacol's board approved a buyback program last year of up to 14 million shares (about 10 per cent of the public float), but since then the company has repurchased just 435,000 shares (about 0.3 per cent). This program will expire on Nov. 19 but could certainly be renewed.
Moving on to next year, Mr. Wylie noted that Canacol's most recent on-line presentation forecasts a budget of $120-million and estimated free cash flow of about $80-million. This "could imply a potential dividend or buyback (equivalent) yield of 6 per cent," mused Mr. Wylie. The word "dividend" appears 15 times in the 12-page report. (In fairness, Canacol's management has dangled the dividend carrot several times this year, most recently stating during a conference call last month that the "commencement of a dividend program [is] contemplated for later this year.") Mr. Wylie does not necessarily expect Canacol to give all $80-million to shareholders, but a return in the order of $40-million to $50-million should be "fairly easily managed," in his view. He has a "sector outperform" rating on the stock and a price target of $6.50.
Back in North America, Wyoming oil producer Cuda Oil and Gas Inc. (CUDA) shot up 10 cents to 48.5 cents on 40,500 shares, after trumpeting a "major operating milestone" in the Powder River basin. The Wyoming oil and gas regulator has finally approved Cuda's application for a gas flood (secondary recovery) program at the Barron Flats project. Barron Flats accounts for most of Cuda's production of about 300 barrels of oil equivalent a day. Since Cuda entered Wyoming last year through a $37-million (U.S.) asset acquisition, it has had its eye on boosting production through gas flooding. A neighbouring field is already under gas flood and saw its production more than triple to 12,500 barrels a day (from 3,500) within three months of injection. This does not mean that Cuda will show similar gains -- and indeed, it cautions that it might have to wait six to 12 months to see a "positive response" in production -- but hopes are high. Cuda was originally hoping to receive regulatory approval in April or May, followed by starting the program in June. It has had to be patient, but now the long-awaited regulatory approval has finally arrived.
This news comes just a week after another happy development for Cuda, which allowed it to rid itself of the albatross known as its legacy assets in Quebec. These were taken on by the company as part of its go-public transaction last year, a reverse takeover of a Quebec-focused junior called Junex. Both Quebec and Wyoming were supposed to be high-potential assets for the resulting company. Unfortunately, political developments in Quebec put paid to anyone's hopes for those assets, which in turn added pressure to Cuda's balance sheet, due to the millions of dollars in restricted cash that could not be spent anywhere but Quebec. Cuda ended up finding a buyer for the assets. The $10.5-million sale closed last week. Of that price tag, over half was simply the release of legal, environmental and other liabilities.