by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery lost 88 cents to $56.35 on the New York Merc, while Brent for January lost $1.22 to $61.74 (all figures in this para U.S.). Western Canadian Select traded at a discount of $21.88 to WTI, unchanged. Natural gas for December lost three cents to $2.83. The TSX energy index lost 2.25 points to close at 130.52.
Gary Guidry's Colombian oil producer, Gran Tierra Energy Inc. (GTE), reached an intraday low of $1.27 before recovering slightly and closing at $1.40, down 13 cents, on 4.62 million shares. Investors found little to like in its third quarter financials. There were plenty of signs that the quarter would be a rough one. Notably, late in the second quarter, Gran Tierra announced that it was experiencing some "temporary operational issues" and would soon be "revisiting" its production guidance. The cut (a revisit almost always means a cut) came in August, when Gran Tierra lowered its full-year guidance to a range of 36,500 to 37,500 barrels of oil equivalent a day from a range of 41,000 to 43,000. The stock has fallen from about $2.60 since the "issues" were first announced in June. At $1.40, it is now trading near all-time lows.
The third quarter financials did not soothe investors' concerns. Production in the quarter averaged 32,918 barrels a day, below the revised guidance and below analysts' predictions of around 34,200 barrels a day. Cash flow of 16 U.S. cents a share missed analysts' predictions of 18 U.S. cents a share. Mr. Guidry, president and chief executive officer, did his best to reassure investors that Gran Tierra's difficulties are now in the past. Not only has production rallied to 34,000 barrels a day (still below guidance), but the company has completed "key investments required to underpin significant expected future free cash flow for shareholders," declared Mr. Guidry. He noted that Gran Tierra is forecasting $75-million (U.S.) to $100-million (U.S.) in free cash flow in 2020. The money will be used to pay down debt and buy back shares.
Scotia Capital analyst Gavin Wylie sounded a note of caution on Gran Tierra's "aggressive" free cash flow target. By Mr. Wylie's estimates, Gran Tierra will be able to generate just $18-million (U.S.) in free cash flow next year. "The material difference in our estimate versus guidance leaves us cautious," said Mr. Wylie, ever so diplomatically. He added that Gran Tierra is likely to face "negative near-term catalysts," such as tax-loss selling and the threat of deletion from the TSX Composite Index. He downgraded the stock to "sector perform" from "sector outperform" and slashed his price target to $2.25 from $3.50.
Here in Canada, Alberta-focused Bonavista Energy Inc. (BNP) -- a sizable investment of Clarke Inc.'s George Armoyan, who controls nearly 42 million of Bonavista's 260 million shares -- lost five cents to 53 cents on 977,000 shares, after it too released disappointing third quarter financials. Its efforts to use hedges to cope with weak oil and gas prices could only go so far. On gas prices, for example, Bonavista gave itself well-deserved credit for posting an average realized price of $2.02, more than double the Alberta AECO benchmark of around 90 cents (representing the worst quarter for AECO in at least 20 years). That was one reason why Bonavista's quarterly cash flow of 13 cents a share was in line with analysts' predictions. Yet Bonavista could not prevent a commodity-price-linked impairment charge of $278-million that pushed its quarterly net loss all the way to $307.5-million. On top of that, production of 62,437 barrels of oil equivalent a day (69 per cent gas) was below analysts' predictions of 64,300 barrels a day, and Bonavista has decided to lower its production guidance for the year. It will now aim for a range of 62,000 to 63,000 barrels a day rather than a range of 65,000 to 69,000.
Bonavista had a separate announcement to make, concerning the above Mr. Armoyan. He has just joined the board of directors. Mr. Armoyan has been an "ardent supporter of Bonavista for many years," claimed the company -- in which case he must also be a pained one, as Bonavista's stock has tumbled to 53 cents from its 2014 high of nearly $18. Stockwatch first took note of Mr. Armoyan's rising position in Bonavista when he crossed the 10-per-cent threshold about three months ago. Now he owns over 16 per cent. A new SEDAR filing shows that the holding company through which he controls most of the shares, G2S2 Capital, has reached a standstill agreement whereby it will (among other things) vote in favour of Bonavista's board at the 2020 shareholder meeting as long as Mr. Armoyan is part of the board. Bonavista did not mention the standstill agreement in its press release, instead gushing over Mr. Armoyan's "extensive experience" and "common-sense approach to create shareholder value."
There was another notable omission from Bonavista's press release: an update on its negotiations with its lenders. Months ago, Bonavista planted the "going concern" red flag in its first quarter financials and entered negotiations for covenant relief, lest it breach its covenants within 12 months. The company's net debt is around $800-million (next to a market cap of $138-million). These negotiations went unmentioned in the press release, but in the third quarter SEDAR filings, Bonavista said it is still in talks with its creditors and expects to secure "successful and suitable terms for covenant relief." The creditors may well have their eye on rising gas prices, which should work in Bonavista's favour. AECO prices have rallied significantly heading into winter and are now approaching $3. Alberta's gas storage levels are also extremely low, adding to producers' hopes that prices will keep heading up.
Rising gas prices will also be good for Alberta Montney producer Advantage Oil & Gas Ltd. (AAV), whose production is around 90 per cent gas. Although the stock edged down seven cents to $2.38 on 2.6 million shares today, it is still up from $1.90 a week ago, on gas price optimism and the release last Thursday of its third quarter financials (which showed production of 42,080 barrels of oil equivalent a day and cash flow of 15 cents a share, in line with analysts' predictions). President and CEO Andy Mah tried to keep the excitement going during a BNN appearance yesterday. He said the Alberta gas sector is seeing "green shoots" of interest from investors. This is partly thanks to recent changes to TC Energy's NGTL system, the largest gas pipeline network in the country, which put in place a new TSP (temporary service protocol) that eased storage restrictions as of Oct. 15. The effect was immediate: AECO gas prices, which began October at 90 cents, shot up to an average of $2.60 over the last two weeks of the month. Mr. Mah noted that NGTL is scheduled to undergo an expansion next summer, which should provide further price support.
All in all, Mr. Mah expressed optimism about Advantage's ability to meet its production and spending targets. His interviewer, who in typically friendly BNN fashion was eager to show Advantage to its best advantage, asked whether the company would consider launching a dividend or a share buyback program. Mr. Mah responded that as the company looks ahead to late 2020 and into 2021, "those options become quite more realistic and quite more open to us."
One last Alberta gas junior is worth a mention, namely Pine Cliff Energy Ltd. (PNE), up 1.5 cents to 14 cents on 1.43 million shares. (Pine Cliff is a sizable investment of Vancouver broker Robert Disbrow, who controls about 40.9 million of its 327 million shares, including 300,000 shares bought on Oct. 10.) The company released its third quarter financials last night. Production averaged 19,033 barrels of oil equivalent a day (91 per cent gas), below analysts' predictions of around 19,500 barrels a day. Cash flow of negative one cent a share was in line with analysts' predictions. Despite the negative cash flow disappointment, Pine Cliff got a pleasing mention this morning from Canaccord Genuity analyst Anthony Petrucci, who predicted that Pine Cliff "stands to be the biggest beneficiary" of rising AECO prices. Mr. Petrucci also praised Pine Cliff for lowering its net debt to $64-million at the end of the third quarter from its 2015 peak of over $150-million, despite the low-cash-flow environment. "A winter of healthy gas prices could serve to lower the company's debt level and materially improve [Pine Cliff's] financial liquidity," he noted. He has a "hold" rating on the stock and a price target of 20 cents.