by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added 63 cents to $41.46 on the New York Merc, while Brent for December added 54 cents to $43.16 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.70 to WTI, up from a discount of $10.80. Natural gas for November added 12 cents to $2.91. The TSX energy index added a fraction to close at 67.15.
Running counter to reports of just a week ago that Alberta would defer a planned reform of oil and gas property taxation, the provincial government has now granted a three-year property tax vacation on new wells and pipelines. It will also reduce property taxes on existing low-production wells. As discussed in last Wednesday's Energy Summary, high property taxes have long been a complaint for producers, which say the current system unfairly inflates asset values and thus tax bills. (One company, Perpetual Energy Inc. (PMT: $0.07), sold a parcel of assets in 2016 for a nominal $1 because the taxes were eating up 130 per cent of operating netbacks.) On the other side of the issue is the rural municipalities that rely on the taxes for revenue. The idea of reform was causing "tremendous angst," the Rural Municipalities of Alberta (RMA) told CBC News last week. The RMA's argument failed to sway the Canadian Association of Petroleum Producers (CAPP).
Now the province has tried to strike a compromise by enacting the above-noted temporary changes. The industry might have liked more decisive action, but this is as good as it gets in the short term, according to the government. It remains "committed to looking at" the issue over the longer term. In the meantime, CAPP and the RMA continued to snipe at each other. The RMA told The Globe and Mail that the province is ignoring $173-million in back taxes allegedly owed to municipalities by energy companies, many of which "chose not to pay their taxes." CAPP said the RMA is exaggerating and unpaid taxes are primarily related to bankruptcies.
Meanwhile, Canada's second-largest gas producer, Mike Rose's Tourmaline Oil Corp. (TOU), added 82 cents to $17.80 on 3.11 million shares. Its royalty and infrastructure subsidiary, Topaz Energy Corp. (TPZ), went public today on an "if, as and when issued" basis, losing 99 cents to $13.01 on 4.6 million shares. Topaz expects the official completion of its initial public offering next Monday. It filed the prospectus for the IPO in late September, saying it would look to raise $252.5-million at $13 to $15 a share. A further $35-million was to be raised through a secondary offering by Tourmaline. Late yesterday, Topaz firmed up the pricing at the bottom of the range, $13 a share. It also reduced the IPO to $217.5-million, while the secondary offering was more than halved to $13-million.
Even at $217.5-million, this is the largest IPO in the energy sector in three years, and only the fourth energy IPO of significance in the last six years. Energy bulls had hoped for slightly stronger demand. Tourmaline seemed unfazed, however, with one of its in-house analysts, Jamie Heard, telling BNN that the company firmly believes that Topaz is worth more than $13 a share. Mr. Heard said Tourmaline reduced the secondary offering so that it could keep a larger interest in Topaz, and is in "no hurry" to sell.
The idea behind selling shares of Topaz was always to raise money for Tourmaline to pursue acquisitions. The reduced secondary offering means that Tourmaline will not have quite as much ready cash as it thought. Of course, given that Tourmaline had $112-million in working capital and $1.1-billion in available credit capacity as of June 30, it is hardly crying poor.
Another company on the hunt for acquisitions is Rick McHardy's Spartan Delta Corp. (SDE), up five cents to $2.60 on 1.06 million shares, its heaviest volume ever. It did not release news today -- indeed, it has not released news since August -- but it got a lovely (and lengthy) mention this morning from Scotia Capital analyst Cameron Bean. Mr. Bean started covering the stock in a 53-page tome of a research note. He is a fan of Spartan's "consolidation-driven growth strategy." So far the company has done just one acquisition, scooping up the assets of a distressed Alberta gas producer earlier this year, but management has been clear that it wants more. Speaking of management, Mr. Bean noted that Mr. McHardy and his people have sold three companies over the last decade, demonstrating "strong operational acumen." The analyst gave the stock a "sector outperform" rating and a price target of $5.
Further afield, two international producers are worth a mention, one of which went up today and one down. The gainer was Valeura Energy Inc. (VLE), which added seven cents to 38.5 cents on 3.84 million shares, after agreeing to sell its aging conventional gas assets in Turkey for $15.5-million (U.S.). These assets account for virtually all of Valeura's production of around 500 barrels a day. Output is declining as the assets mature, however, so Valeura wants to find something more promotable. It already disclosed in July that it was working with RBC Capital Markets to evaluate "several potential inorganic growth transactions, including mergers and acquisitions." The $15.5-million (U.S.) sales proceeds will add to the $30.5-million (U.S.) in cash that Valeura held as of June 30 and create quite a nice little pile.
Separately, in Namibia, Craig Steinke and Scot Evans's Reconnaissance Energy Africa Ltd. (RECO) lost four cents to 98 cents on 445,100 shares, after providing an update on its very first drill program. It initially hoped to begin this three-well program in October. In August, amid COVID-19-related delays, Reconnaissance pushed back the spud date to early December. Now it is saying late December instead.
This is a small delay, but it could lead to outsized problems. Assuming that Reconnaissance is sticking to what was outlined in its environmental management plan (EMP), the first well of the program is fairly close to a particular river, which does not flow all the time but would presumably flow during the rainy season -- which just so happens to peak from January to March, more or less coinciding with the drill program. The EMP itself noted that the rainy season could make roads "extremely slippery" and hinder site access. It is not the most desirable time to make a drilling debut. Reconnaissance did not seem worried, cheerily predicting "active and highly successful operations in Q4 2020 and Q1 2021" (its only nod to the possibility of further delays). Today's drop aside, investors do seem to be looking forward to the program. Reconnaissance's stock has nearly quadrupled to 98 cents from 26 cents over the last six months.