by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added 29 cents to $39.60 on the New York Merc, while Brent for November added 28 cents to $41.72 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.85 to WTI, down from a discount of $10.65. Natural gas for October lost one cent to $1.83. The TSX energy index added a fraction to close at 68.56.
George Fink's Alberta Cardium-focused Bonterra Energy Corp. (BNE) edged down two cents to $1.19 on 17,200 shares, after telling its shareholders to ignore the hostile takeover bid from persistent suitor Obsidian Energy Inc. (OBE), unchanged at 54 cents on 14,900 shares. Obsidian has been publicly pursuing Bonterra for weeks. Yesterday it took the offer directly to shareholders with an official takeover circular filed under Bonterra's SEDAR profile.
When Obsidian first made its pitch in August, the offer -- two Obsidian shares for each Bonterra share -- valued Bonterra's stock at just $1.06, whereas the stock was trading at the time at $1.50. The gap between the offer price and the market price has since started to shrink. Unfortunately, the gap is closing mainly because Bonterra's share price is falling. At today's closing prices, the offer works out to $1.08 a share, relative to the market price of $1.19.
As for Obsidian's circular, it repeated the usual talking points, summed up as the belief that everyone will be better off if Bonterra and Obsidian merged and created a "Cardium champion" that will be better equipped to handle each side's financial and operational woes. Obsidian also continued to criticize Bonterra's plan to resolve some of its financial woes through a proposed $45-million debt facility with the Business Development Bank of Canada (as announced by Bonterra on Aug. 20).
Of course, Obsidian's contempt for Bonterra's "debt-funded capital program" belies the fact that Obsidian does not have any near-term capital plans in the works, as it cannot afford to. The circular filed yesterday discloses that Obsidian is facing "uncertainty as to whether [it] has sufficient liquidity over the next 12 months ... [casting] substantial doubt on the company's ability to continue as a going concern." Elsewhere in the circular, Obsidian says it has not developed any specific proposals for Bonterra's assets, business or management if the merger goes through. The issue of management is particularly interesting. Obsidian's interim chief executive officer, Stephen Loukas, has stated (according to the circular) that he "[does] not likely have interest in becoming the permanent CEO of the combined company," while also believing that "it would not be appropriate for Mr. Fink [Bonterra's CEO] to be CEO either." The future CEO is thus one big question mark.
Now it is up to Bonterra's shareholders to decide whether they want to accept the offer. Bonterra, for its part, is advising them to just relax for now, as the offer is open until Jan. 4 and "there is no immediate need for action." It says it will provide a formal recommendation within two weeks.
Further afield, the Lundin family's Africa Energy Corp. (AFE) edged down two cents to 45.5 cents on 700 shares, despite trumpeting a "heavily oversubscribed" financing. It arranged a $25-million (U.S.) private placement yesterday and closed it today for $28-million (U.S.). With this issuance of 81.6 million shares at 45 cents, Africa Energy has 883 million shares outstanding -- for now. This share count does not include the massive block of 509 million shares that Africa Energy will soon issue to a company called Impact Oil, pursuant to an agreement reached last month whereby Africa Energy will double its ownership in a core South African asset. Shareholders will need to approve this deal, as it will turn Impact into a control person. Africa Energy will have 1.38 billion shares outstanding after the deal (with no word yet on a possible rollback) and Impact will own 509 million of them, or 40 per cent. The threshold to be considered a control person is 20 per cent.
Until the Impact deal closes, Africa Energy's three largest shareholders are the Lundin family, Africa Oil Corp. (AOI: $0.96) (a fellow Lundin promotion) and Ashley Heppenstall (Africa Energy's former chairman, who had to step down in June because he was on too many other boards). Prior to today's financing, these investors held about half of Africa Energy's shares. It is not clear what they own now, but Africa Energy had said the three of them were going to subscribe to today's financing for "more than their joint pro rata share."
Another international junior has closed a financing with insiders, namely Abby Badwi's new promotion, TAG Oil Ltd. (TAO), down half a cent to 20 cents on 52,100 shares. Mr. Badwi became TAG's chairman at the beginning of the month. At the same time, TAG appointed Suneel Gupta as its vice-president and chief operating officer, and added Shawn Reynolds and Thomas Hickey to its board. All four of them agreed to participate in a $1-million private placement of 16-cent units. Now a TSX-V bulletin has disclosed that Mr. Badwi and Mr. Reynolds each bought 2.18 million of the units, Mr. Gupta bought 1.56 million, and Mr. Hickey bought 156,250. The financing appears to be primarily a show of confidence. TAG already held $15-million in cash as of June 30, and its cash burn is relatively low since it is mostly ignoring the few assets that it owns. Mr. Badwi has been brought in to change that and give TAG a new focus. He plans to look in the Middle East and North Africa, home of some of his past promotions such as Rally Energy (in Egypt and Pakistan) and Kuwait Energy.
One last international player is worth a mention, namely Colombian oil producer Parex Resources Inc. (PXT), up 41 cents to $15.23 on 1.66 million shares. Parex has not released news since Aug. 5, but it got a lovely mention this morning from Scotia Capital analyst Gavin Wylie, who wrote, "Recent weakness = buying opportunity." The stock has fallen from around $19 over the last five weeks. In Mr. Wylie's view, this drop is "disconnected from the strong fundamentals the company continues to display." Parex is debt-free and has long demonstrated "impressive execution," once boosting its production for 31 quarters in a row. It has also bought back 15 per cent of its shares since late 2017 (with 138 million shares currently outstanding). Mr. Wylie suspects that the market is worried about Parex's aging oil assets in Colombia. He is unfazed, estimating that the assets could still produce at plateau rates for the next three to five years, which "leaves time for Parex to construct and demonstrate its next phase(s) of growth." He called Parex "our top pick" and reiterated his price target of $24. That would be a nearly 60-per-cent gain over today's close of $15.23.