by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost 10 cents to $58.33 on the New York Merc, while Brent for February added 39 cents to $63.39 (all figures in this para U.S.). Western Canadian Select traded at a discount of $21.16 to WTI, unchanged. Natural gas for January added three cents to $2.43. The TSX energy index lost a fraction to close at 130.57.
Oil prices had a choppy day as traders awaited the outcome of the widely anticipated OPEC meeting today in Vienna. The meeting culminated with OPEC and its Russia-led allies -- known collectively as OPEC+ -- reportedly agreeing to one of the steepest production cuts this decade. The existing cuts of 1.2 million barrels a day are due to expire in March. A panel of energy ministers, including those from Saudi Arabia and Russia, recommended today that OPEC+ deepen the cuts to 1.7 million barrels a day (equal to nearly 2 per cent of the global supply). This is a change in position for Russia, which had previously opposed larger cuts. Saudi Arabia had been pushing harder for cuts to support its continuing IPO process for state oil company Saudi Aramco. (As an aside, the IPO will officially be the largest in history. The shares were priced today at 32 riyals or about $8.53 (U.S.), with a 1.5-per-cent stake on offer, for a total IPO value of $25.6-billion (U.S.) -- surpassing Alibaba's $25-billion (U.S.) IPO in 2014. The total implied value of Aramco is $1.7-trillion (U.S.). For some context, Microsoft is worth about $1.1-trillion (U.S.) and Apple is approaching $1.2-trillion (U.S.).)
Not all the news from Vienna was good for the oil bulls: The cuts are still only good through the first quarter of 2020, a much shorter period than desired by some OPEC representatives, who had wanted to see the cuts extended until June or December, 2020. Amrita Sen, co-founder and chief oil analyst of the Energy Aspects consulting firm, speculated to Reuters that the time frame reflects Saudi Arabia's frustration with OPEC+ members that are cheating on their production quotas. "Saudi Arabia is pushing for deeper cuts to try to shore up prices. However, deeper compliance is imperative," explained Ms. Sen, "and hence the deal will last only for one quarter so that they can assess compliance then."
Here in Canada, Jim Riddell's Paramount Resources Ltd. (POU) added 24 cents to $6.49 on 508,000 shares, after selling some non-core gas-weighted assets in west-central Alberta. It put the sales price at approximately $55-million cash. The assets produced about 8,500 barrels of oil equivalent a day (60 per cent gas) in the third quarter, so their sale, which is effective Nov. 1, will reduce Paramount's fourth quarter production by an average of 2,500 barrels a day. This means that Paramount is now aiming for a total fourth quarter average of 84,500 to 87,500 barrels a day. It was previously aiming for 87,000 to 90,000, but either way, this will represent a nice bump up from the third quarter level of just 81,000 barrels a day.
Paramount did not disclose the buyer of the assets, but it is surely no coincidence that Bonavista Energy Corp. (BNP), up one cent to 49 cents on 1.04 million shares, announced this morning (within 20 minutes of Paramount's announcement) that it is buying assets in west-central Alberta for $53.5-million. The two companies chose slightly different numbers to emphasize. Paramount pegged the price tag at "approximately" $55-million, compared with Bonavista's $53.5-million. Paramount noted the assets' third quarter production of 8,500 barrels a day, while Bonavista pointed to the monthly level in August of 8,900 barrels a day. Paramount described the assets as "gas-weighted" (as their production is 60 per cent gas), while Bonavista emphasized the "oil- and liquids-rich" nature of the production (for the remaining 40 per cent). Yet both companies maintained, almost word for word, that the transaction is consistent with their strategy to "concentrate" or "rationalize" their portfolios. The overall differences in the numbers were minor, and RBC analyst Michael Harvey confirmed that these are indeed the two parties to the transaction.
The deal went over better with Paramount's investors than Bonavista's. Paramount has now sold about $525-million worth of assets so far this year, using the proceeds to prop up its balance sheet. It says it will use the latest proceeds to repay amounts under its $1.5-billion credit facility, which was $720-million drawn as of Sept. 30. Bonavista's debt situation is considerably more precarious. It even had to plant the "going concern" red flag in its first quarter financials earlier this year, as well as enter negotiations with its lenders to try to avert a covenant breach within 12 months. The last update on the matter was in the third quarter financials and merely stated that Bonavista is still confident that it can secure "successful and suitable terms for covenant relief." Given all that, investors were likely not expecting Bonavista to go into acquisition mode. Bonavista claimed today that the acquisition will actually be "accretive to its debt leverage." The deal apparently "enhances the quality, efficiency and sustainability" of Bonavista's existing assets in west-central Alberta, leading to "heightened profitability in this unpredictable commodity price environment." In a more concrete display of confidence, Bonavista predicted that it will generate $80-million in adjusted funds flow from the new assets over the next two years, while spending just $30-million to $35-million on them.
In other spending news, Baytex Energy Corp. (BTE) stayed unchanged at $1.45 on 8.35 million shares, after laying out its plans for 2020. It is aiming to produce 93,000 to 97,000 barrels of oil equivalent a day on a budget of $575-million. This is right in line with analysts' predictions, but some investors were likely hoping for a slightly more ambitious production target, given that Baytex expects to end 2019 producing 95,000 to 97,000 barrels a day. Baytex has been favouring conservative targets lately. Its original guidance for 2019 called for full-year average production of approximately 95,000 barrels a day, but Baytex has tweaked it twice since then and recently boasted that it will probably surpass 97,000 barrels a day. Of course, that is largely thanks to the timing of its activity in the first quarter of 2019, when production was over the 100,000 mark. It has gone down each quarter since. In any case, given the relatively cautious target for 2020, Baytex's cheerleaders have room to hope that further guidance increases could be on the way.
Meanwhile, a different set of cheerleaders' ears perked up on the news that Neil Roszell, Baytex's chairman, has decided to step down. Mr. Roszell became chairman in August, 2018, when his Saskatchewan Viking promotion, Raging River Exploration, merged with Baytex in a deal valued at $2.8-billion. (The Viking now makes up about one-quarter of Baytex's production and is set to receive nearly half of the 2020 budget.) Raging River was the fourth company that Mr. Roszell and his people had sold in the last 14 years. Some of those people, such as Kevin Olson, Bruce Beynon and Jason Jaskela, initially joined Baytex but subsequently left. With each exit, speculation grew louder as to whether they will reunite at another new promotion. Mr. Roszell's departure to "pursue other business opportunities" has that speculation at fever pitch. Given that their previous companies were called Raging River, Wild Stream, Wild River and Prairie Schooner, they seem to like their water themes. We will see where they next try to make a splash.
As for Baytex, it is getting a new chairman, Mark Bly. He joined the board in 2017. Before that, Mr. Bly spent most of his career at BP, including as vice-president of exploration and production, with responsibility for about 800,000 barrels a day. Following the Deepwater Horizon oil spill in the Gulf of Mexico, Mr. Bly was promoted to BP's newly created position of executive vice-president of safety and operational risk. His duties included leading the internal investigation into the spill. This culminated in what became known as "the Bly Report" and the establishment of many new operating practices for BP, before Mr. Bly retired in 2013. In addition to serving on the board of Baytex, Mr. Bly is a director of the New York-listed Vista Oil & Gas SAB de CV (U:VIST: $7.25), a shale producer in Argentina. He is also an adviser to the board of Ayata, a software developer focused on artificial intelligence.