by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery edged up three cents to $37.33 on the New York Merc, while Brent for November lost 23 cents to $39.83 (all figures in this para U.S.). Western Canadian Select traded at a discount of $8.66 to WTI, up from a discount of $8.82. Natural gas for October lost five cents to $2.27. The TSX energy index lost a fraction to close at 70.93.
One of Canada's largest gas producers, Mike Rose's Tourmaline Oil Corp. (TOU), lost 21 cents to $15.65 on 1.31 million shares. Yesterday it lost one cent, but on Wednesday it added 37 cents, basking in the warm glow of a sparkling new investment-grade credit rating. DBRS bestowed a BBB rating on Tourmaline with a "stable" trend. The ratings agency also lavished compliments on Tourmaline, praising its "highly integrated and efficient operations" and "successful track record of low-cost reserve additions." The attention thrilled Tourmaline, which put out an entire press release about the new rating. It boasted that an investment-grade rating serves to "validate [its] overall financial health" and "provide confidence to the market."
A good rating also leads to more favourable terms for securing and managing debt. Tourmaline is already in better shape than many of its competitors on that front. Notably, as of June 30, Tourmaline had $1.1-billion available on a $1.8-billion credit facility that is covenant-based , not reserve-based. Reserve-based debt capacity is linked to the value of a company's oil and gas reserves and has therefore taken a nosedive alongside oil prices. New research by Wood Mackenzie, using data from 18 Canadian energy companies, showed that the amount of reserve-based credit has plummeted by $1.8-billion, or 22 per cent, since the start of the downturn.
Wood Mackenzie analyst Mark Oberstoetter, who did the above-noted research, told Reuters today that mergers and acquisitions could be a way for smaller companies to bulk up and potentially rise above the credit crunch. (Bigger companies tend to have an easier time accessing or refinancing debt.) Mr. Oberstoetter added that gas players may have an easier time with this, as gas prices have rallied sharply in recent months. Even so, there are relatively few buyers with strong enough balance sheets to make deals, so consolidation may be limited, he said. A fellow analyst over at Cormark Securities said Tourmaline, along with ARC Resources Ltd. (ARX: $5.89) and Canadian Natural Resources Ltd. (CNQ: $23.63), would qualify as companies that are capable of and probably interested in doing deals. (Canadian Natural would hardly disagree with that; it is currently pursuing a takeover of Painted Pony Energy Ltd. (PONY: $0.68).) Raymond James analyst Jeremy McCrea added that there are plenty of companies that would be open to offers. "It's been six years [of] downturn," said Mr. McCrea, "and some guys are saying, Enough is enough."
Institutional investors are also jockeying for position within their favoured stocks. For example, Jeff Tonken's Alberta Montney-focused Birchcliff Energy Ltd. (BIR), down four cents to $1.41 on 819,900 shares, has seen some heavy volume recently, including one day (Aug. 17) when nearly 15 million shares changed hands. A new filing has come up on SEDAR disclosing that the big buyer that day was the Montreal-based investment manager Letko, Brosseau and Associates. Letko Brosseau says it bought 10.44 million shares on Aug. 17 and now owns 46.62 million of Birchcliff's 265 million shares. Some investors may remember Letko Brosseau from its squabble last year with Ovintiv Inc. (OVV: $11.31). In late 2019, Ovintiv proposed moving its headquarters to Denver from Calgary, and Letko Brosseau, which owned about 4 per cent of Ovintiv's stock, fumed that the U.S. redomiciling would push Ovintiv out of Canadian stock indexes, forcing index-linked Canadian institutions to sell at steep losses. It urged Ovintiv's investors to vote against the move. The vote passed anyway and Ovintiv headed south in January, 2020. Its stock has also headed south, more than halving to around $11 from over $30 since January (and from $130 since 2014), so any investors who had to sell can at least have the comfort of knowing that the losses could have been even steeper.
Elsewhere south of the border, the North Dakota Bakken-focused Enerplus Corp. (ERF) lost eight cents to $2.50 on 3.13 million shares, a rough end to a rotten week. The stock has fallen from $3.17 since Tuesday and from $4.18 over the last four weeks. It had no news during this time, but investors are no doubt watching the legal battle over the Dakota Access pipeline, the largest Bakken oil pipeline in the state. The pipeline hit a setback in July, when a district judge ordered it to be shut down for a lengthy environmental review. The shutdown order was frozen by a higher court that determined that the district judge had not applied the proper legal test. This allowed Dakota Access to keep operating until the higher court decides whether it needs to be closed for the environmental review. The U.S. Army Corps has already started the review, presumably hoping to finish it without needing a full-scale shutdown (which would be costly, both for the pipeline's owners and for producers like Enerplus that use the line). In the meantime, the appeal of the July ruling remains in progress. Reuters quoted representatives from Dakota Access this week claiming that the appeal will be fully briefed by Sept. 30, "with oral argument to be scheduled on an expedited basis."
The pipeline's opponents are also moving on an expedited basis: This week, they renewed their call for the district judge to shut down the line, submitting fresh court filings that tried to spell out how the judge can issue an injunction that will not be frozen by a higher court. Dakota Access has already fired back at this "unnecessary and inappropriate" attempt to sideline the proceedings already in progress. The criticism naturally had no effect on the anti-pipeline activists, for whom time-wasting legal briefs are a time-honoured tradition.
Happily, it was not all bad news this week for pipelines. On Wednesday, Enbridge Inc. (ENB: $41.13) received regulatory and court approvals to reopen the east leg of its Line 5 pipeline in the Straits of Mackinac. Enbridge previously shut down both the east and west legs in June, after discovering that one of the underwater anchor supports had shifted. It soon reopened the west leg, but the east leg, where the shift occurred, stayed closed pending an independent investigation. Opponents of the line seized the moment to demand a full, permanent shutdown of Line 5, apparently heedless of the fact that the line has operated safely in the straits for nearly 70 years and provides a critical supply of fuel for Michigan, Ohio and the surrounding region. The courts and regulators were fortunately more circumspect. Now, following an investigation that turned up "no integrity issues," they have granted Enbridge permission to reopen the rest of the line.