by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery lost 95 cents to $68.35 on the New York Merc, while Brent for November lost 53 cents to $71.69 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.05 to WTI, unchanged. Natural gas for October lost 14 cents to $4.57. The TSX energy index lost a fraction to close at 125.40.
Oil prices slid in the wake of Saudi Arabia's decision to slash crude oil prices for Asian customers for the month of October, amid demand concerns. Similar concerns arose in the United States on the back of a bearish jobs report. On the supply side, however, prices got a minor boost from the lingering aftereffects of Hurricane Ida. The storm crashed into the U.S. Gulf Coast on Aug. 29 and idled about 95 per cent of regional oil production. Although analysts expected most of the output to be restored within a week, 79 per cent was still off-line as of today, according to the U.S. government. Now analysts are forecasting that the shutdowns will last for weeks and that a total of 20 million to 30 million barrels will be lost to the market. (For context, the back-to-back hurricanes Katrina and Rita removed about 162 million barrels from the market over three months in 2005.)
Here in Canada, Susan Riddell Rose's Perpetual Energy Inc. (PMT), down 1.5 cents to 34 cents on 18,600 shares, came barreling out of the long weekend with a comprehensive update on Rubellite Energy. This is a new company that Perpetual created to buy all of its assets in the Alberta Clearwater oil play (and thereby soothe a troubled balance sheet).
As outlined in Perpetual's initial announcement on July 16, Rubellite would pay $60-million for the Clearwater assets -- earmarked straight for debt reduction on Perpetual's part -- and would also raise over $70-million through separate equity financings. Rubellite would then focus solely on the Clearwater, allowing Perpetual to prioritize its core assets elsewhere in Alberta. Shareholders of Perpetual would receive shares and warrants of Rubellite. They approved the deal and Rubellite was born last week. (The name seems to be a nod to Ms. Riddell Rose's husband, Mike Rose, the chief executive officer of Tourmaline Oil Corp. (TOU: $35.88). A rubellite is a type of tourmaline.)
Today Perpetual and Rubellite announced that the latter should be ready to start trading this Thursday, Sept. 9, under the ticker RBY. It has already closed a $30-million financing at $2 a share and is expecting to raise another $43-million (or even $53-million) by early October. Then it will start drilling busily away in the Clearwater, where it expects production to "ramp up significantly" to at least 2,000 barrels of oil equivalent a day in 2022 (up from the current level of 350 barrels a day). Rubellite says its plans are "fully funded" -- though it is in the process of securing a credit facility, just in case -- and should provide "significant free funds flow" in 2022.
The plan has received the stamp of approval from Rubellite's new board. This currently has five members, including Ms. Riddell Rose, doing double duty as president and chief executive officer of both Perpetual and Rubellite. Ryan Shay, chief financial officer and vice-president of finance at Perpetual, will hold the same roles at Rubellite and will sit on its board as well. The other three directors are independent. They comprise Holly Benson (the long-time former CFO of Peters & Co.), Tamara McDonald (a former senior vice-president at Crescent Point Energy Corp. (CPG: $4.46) and a current director of Spartan Energy Corp. (SDE: $4.49)) and Bruce Shultz (former president and CEO of the private Huron Resources. Incidentally, before Huron Resources there was Huron Energy, which Mr. Schultz sold to the above-mentioned Tourmaline for $258-million in 2012).
Elsewhere in Alberta, Jeff Tonken's Montney gas producer, Birchcliff Energy Ltd. (BIR), lost five cents to $6.00 on 2.4 million shares. It may have drifted downward today, but it has good news coming up soon. The S&P/TSX Composite Index (which bills itself as "the headline index for the Canadian equity market") announced at the end of last week that it will be adding Birchcliff effective Monday, Sept. 20. Such additions tend to create buying support from index-tracking funds.
This addition is in fact a triumphant return for Birchcliff. The company was unceremoniously booted from the index almost exactly two years ago, on Sept. 23, 2019, when the index was in the grips of another wave of energy deletions. The industry was used to it by then. For perspective, just prior to the oil price crash in late 2014, there were 251 stocks in the index, of which 44 were oil and gas producers (nearly 18 per cent). Today, there are 229 constituents and only 12 are producers (a mere 5 per cent). While deletions can occur for a variety of reasons, including pleasant ones such as juicy takeovers, the exodus of energy stocks largely reflected their drop below the index's minimum capitalization standards. Now Birchcliff has clawed its way back into the index's good graces. With luck, this is just the start of a promising trend.
Fellow Alberta gas producer Peyto Exploration & Development Ltd. (PEY) (which happened to be booted out of the index at the same time as Birchcliff in 2019 -- no luck yet on a return) stayed unchanged at $7.00 on 1.43 million shares. President and CEO Darren Gee tried to excite investors by publishing his latest monthly update on Peyto's website. "We are finally through with all our summer disruptions," he cheered, adding in parentheses, "I hope." Peyto's monthly production slipped from 91,000 barrels of oil equivalent a day in April to 87,000 barrels a day in July as the company struggled with heat waves, forest fires and third party infrastructure outages. The new report showed that production rallied to 88,000 barrels a day in August.
Mr. Gee reiterated his forecast that Peyto will hit 100,000 barrels a day by year-end, for the first time since 2015. Hitting that milestone in 2015 had required "all $600-million of our cash flow in a much larger capital program," he pointed out. "Going forward, it will take less than half that, leaving a lot of free cash flow for debt reduction and dividends."
Peyto's dividend was once as high as 11 cents a month. The company has made four steep cuts since 2018, currently offering a one-cent quarterly dividend, for a yield of 0.6 per cent. Mr. Gee enjoys dropping hints about a future increase. During a BNN appearance in July, he told his interviewer that Peyto could be ready to "look at the dividend" as early as 2022. He acknowledged that it should probably "aggressively" reduce its debt first. As of June 30, Peyto's net debt was $1.14-billion, a figure almost exactly equal to its current market cap of $1.16-billion.