by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added 41 cents to $42.15 on the New York Merc, while Brent for January added 76 cents to $44.96 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.70 to WTI, down from a discount of $11.55. Natural gas for December added six cents to $2.65. The TSX energy index added a fraction to close at 82.08.
U.S. shale producer Ovintiv Inc. (OVV) lost 32 cents to $15.92 on 1.09 million shares. As discussed in yesterday's Energy Summary, the company has been making headlines as a result of Kimmeridge Energy Management, a U.S. activist investor that has acquired about five million shares of Ovintiv and is threatening a proxy fight. This has overshadowed another reason that Ovintiv has been in the news recently: a potential asset sale. Various media outlets, beginning with the Daily Oil Bulletin late last week, have started reporting that Ovintiv is trying to sell its Eagle Ford assets in Texas. The Eagle Ford contributed 24,300 of the 510,000 barrels a day that Ovintiv produced in the third quarter of 2020. This is down from about 50,000 barrels a day from the Eagle Ford in the same period two years earlier, showing how little of the budget has gone to the play lately. When Ovintiv released its third quarter financials last month, it said one of its near-term priorities would be debt reduction -- specifically, reducing debt by $1-billion (U.S.) from mid-2020 to the end of 2021. (Net debt as of June 30 was $7.3-billion (U.S.).) Exiting the Eagle Ford could go a long way to achieving this goal while shedding what are clearly non-core assets.
Ovintiv has declined to confirm that it is marketing the Eagle Ford assets. The rumours nonetheless caught the eye of Scotia Capital analyst Jason Bouvier, who in a research note this week mused that the assets could fetch $575-million (U.S.) to $725-million (U.S.). He seemed unenthusiastic about the prospect of a sale. "Given the pandemic's impact on global oil prices, we do not view the timing of a sale as ideal," he wrote. On the other hand -- analysts tend to be blessed with an abundance of hands -- he said he considers it "worthwhile" for Ovintiv to take "any effort ... to streamline its business ... and reduce debt in the process." Mr. Bouvier has a "sector outperform" rating on Ovintiv and a price target of $11 (U.S.). That target is below today's close of $12.20 (U.S.).
Here in Canada, preparations continued on the multibillion-dollar merger of Cenovus Energy Inc. (CVE), up 12 cents to $6.16 on 12.5 million shares, and Husky Energy Inc. (HSE), up 12 cents to $4.97 on 3.96 million shares. The companies announced today that they have firmed up the postmerger management. Some of the roles were already announced when the companies proposed their merger last month, such as the decision that Alex Pourbaix, president and chief executive officer of Cenovus, would stay on as president and CEO of the combined company. Now a total of 11 executives have been confirmed. Of the 11, nine are current executives of Cenovus (including Mr. Pourbaix), with Husky executives taking only two of the top jobs (including chief financial officer Jeff Hart). The rest of the Husky executives will apparently have to find something else to do. In the case of Husky's CEO, Rob Peabody, he says he is retiring once the deal closes early next year. This assumes that the deal is approved by shareholders at Husky's and Cenovus's upcoming special meetings, both of which will be held on Dec. 15.
Further afield, Craig Steinke and David Elliott's Reconnaissance Energy Africa Ltd. (RECO) added 10 cents to $1.70 on 2.76 million shares, a pleasant end to a delightful week. The stock has added 59 cents since Monday and has nearly doubled from 88 cents since the start of the month. It enjoyed a particularly large jump of 26 cents yesterday. This raised eyebrows at IIROC, which, in its usual fashion, demanded and received a vague and narrowly worded statement that Reconnaissance is "not aware of any undisclosed material information."
It is of course no secret that Reconnaissance is about to start its very first drill program, targeting the Namibian side of the unexplored Kavango basin. The company previously estimated that the three-well program will begin in late December. Yesterday, according to an article in the local Namibian Sun, this plan was firmed up following a five-hour meeting with government officials and environmentalists (who had initially opposed the program because they mistakenly believed it would involve fracking). "While many stakeholders said they did not understand the process as they only read negative headlines about the project in the media, ReconAfrica deputy general manager Yuri Martinez and [Mines Minister Tom] Alweendo's delegation schooled the concerned groups on what the project entails," reported the article. It added that the program "will continue as planned." This likely accounts for yesterday's trading excitement. As for the other trading activity this month, Reconnaissance has been basking in analyst attention (with Haywood Securities launching coverage of the stock with a $2.50 price target on Nov. 5) and tooting its own horn at presentations (such as an event hosted by the American Petroleum Institute's Houston chapter on Nov. 10).
Back in Canada, Rob Zakresky's B.C. Montney-focused Leucrotta Exploration Inc. (LXE) lost two cents to 73 cents on 287,900 shares, after releasing its third quarter financials. They were more or less what investors were expecting, but with one twist. For context, about two years ago Leucrotta adopted a conservative approach of trying to keep its spending low and its production relatively stable (at around 3,000 barrels a day), all while maintaining a (mostly) debt-free balance sheet. The pandemic gave it no reason to deviate from this pattern in 2020. Alas, the pandemic has made it impossible to stay debt-free, and as of Sept. 30, Leucrotta had $5.5-million drawn on a $20-million credit facility -- a facility that was subsequently reduced to just $12-million. This -- or perhaps the recent rally in gas prices -- may have lit a bit of a fire under Leucrotta, which showed a spark of ambition in its new financials as it declared that it is "working on several initiatives to help accelerate the development of its large Montney resource base in 2021." It promised to provide details "in the near future."
One analyst seemed intrigued. This morning, Industrial Alliance Securities analyst Michael Charlton opined that Leucrotta needs to start "pumping more barrels and generating higher cash flows" if it wants to impress investors. "While the company does look to have survived the downturn, it is becoming clearer to us that the company will need to be creative if it is going to find a way to accelerate developments and get bigger," he mused. He kept his "speculative buy" rating on Leucrotta and hiked his price target to 85 cents from 70 cents. The stock closed today at 73 cents.