by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery lost 84 cents to $56.78 on the New York Merc, while Brent for September lost 69 cents to $63.66 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.60 to WTI, up from a discount of $11.98. Natural gas for August lost one cent to $2.30. The TSX energy index lost 1.82 points to close at 137.75.
Alex Verge's Alberta-focused Journey Energy Inc. (JOY) stayed unchanged at $2.47 on no volume. It has always been a thin trader; 23 million of its 39 million shares are held by institutions and its own directors and management. Even so, it was likely hoping for a more enthusiastic reception to what it hyped as its "excellent early results" in the emerging East Duvernay shale play. It thumped itself on the back for officially bringing its first two East Duvernay wells on production.
Almost a year has passed since Journey buckled down in the East Duvernay by bringing in a joint venturer, Pat Carlson's private Kiwetinohk Resources Corp. (KRC), in August of last year. (Kiwetinohk is a Cree word meaning "up north." Native themes seem to appeal to Mr. Carlson, whose previous promotion, Seven Generations Energy Ltd. (VII: $6.49) -- of which he was the founder and chief executive officer until 2017 -- got its name from an Iroquois principle that we should make decisions based on whether those decisions will benefit our descendants seven generations from now.) Although Journey and KRC quickly got to work drilling the Duvernay last year, their wells were not ready for testing until this year, so updates have been scarce. Journey released the test results of its first two wells in April. Now it has finished testing a third well and brought the first two wells on production, all with "encouraging" and "excellent" results.
Notably, the two producing wells, over their first two months on stream, produced at respective averages of 638 and 820 barrels of oil equivalent a day. These numbers are somewhat difficult to put in context because the East Duvernay is highly underdeveloped compared with the more famous Kaybob Duvernay to the northwest. Drilling activity in the East Duvernay only really started to pick up in mid-2017, and given that exploration wells stay on confidential status for a year (for competitive reasons), there are almost as many confidential wells as there are public ones. Yet Journey's wells do seem to be stacking up nicely against the data available so far. Last March, in a Duvernay-focused advisory publication, the analysts at BMO Capital Markets pegged the average initial 30-day production rate for wells in Journey's general area (based on limited data) at 527 barrels a day. Given that Journey's two new wells have shown higher rates over longer periods, the company is understandably gleeful about its "transformational" activities. It has additional drilling plans with KRC this year and is aiming to reach the commercial development stage next year.
Another Duvernay driller -- though it is better known for its assets elsewhere -- is Baytex Energy Corp.(BTE), down three cents to $1.84 on 5.84 million shares. Baytex acquired its Duvernay assets through its all-share takeover of Raging River Exploration last August. Raging River itself was fairly new to the Duvernay; its main assets were in the Saskatchewan Viking. The Viking is now a core play for Baytex and will receive just under half of this year's budget of about $600-million. Most of the rest will go to Baytex's other core area, the Texas Eagle Ford. These two plays, as well as Baytex's heavy oil assets in Peace River and Lloydminster, make up virtually all of Baytex's production of around 95,000 to 100,000 barrels of oil equivalent a day, and tend to grab most of the market's attention. Still, given the leisurely pace of work in the East Duvernay, Baytex has quietly managed to become one of its largest landowners and most active explorers. It is planning to drill four to six wells there this year (out of its total planned well count of 316 to 318). Two of those wells were drilled during the first quarter. Baytex told investors in May that it would complete these wells in the second quarter to "confirm well productivities," but so far there has been no update. The company may have something to say when it releases its second quarter financials on Aug. 1.
Investors seem to be bracing for glum financials, given that Baytex's $1.84 stock has lost about $1 in the last two months. President and CEO Ed LaFehr told the Calgary Herald recently that the situation is not as bleak as the market thinks. "This is a good economic environment," he said in an interview last week, adding that Baytex and other producers are enjoying "good pricing, and we're all generating free cash flow." His take is that the market's moodiness is due in part to pipeline politics. "I think the political climate is still very challenging. What's it going to be in the future? That's the real challenge," he pondered. His interviewer did not appear to press the matter, but long-time investors of Baytex would no doubt argue that pipelines are far from the only reason for the stock's five-year plunge to under $2 from over $50. The heaviest anchor is affixed to Baytex's balance sheet, which showed net debt of $2.17-billion as of March 31 (compared with a current market cap of $1.02-billion). Mr. LaFehr has previously said that "a top priority" for 2019 is to reduce that debt using the aforementioned free cash flow.
In west-central Alberta, Point Loma Resources Ltd. (PLX) -- a sizable holding of Ottawa-based private investor Bruce Mitchell, who owns 11.7 million of its 75 million shares -- edged down half a cent to 14.5 cents on 2,000 shares. It has hired Mackie Research Capital to help sell its Wizard Lake oil interest. The move comes about a year after Point first entered this area. It acquired a 70-per-cent interest, with the rest held by the private Salt Bush Energy.
The magic of Wizard Lake lies in the Rex oil play (on trend with Altura Energy Inc.'s (ATU: $0.38) Rex play at Leduc). In late 2018, Point Loma and Salt Bush drilled their first horizontal well at Wizard Lake and tested it at a pleasingly high 340 barrels of oil equivalent a day, including 90 per cent oil. This well was brought on production during the second quarter. Also during the quarter, the companies tweaked their ownership arrangement by adding a farm-in element, whereby they will become 50-50 owners after Salt Bush pays for a two-well 2019 drill program that is expected to start at the end of this month. The farm-in agreement and the start of production from Wizard Lake were a "material change" for Point Loma, declared president and CEO Terry Meek during a conference call last month. He emphasized that the new Wizard Lake well has essentially tripled Point Loma's oil production (the company's older assets are primarily gassy) and helped the company outline about 18 follow-up opportunities. All of this has Mr. Meek "very excited."
That brings the story to today. Point Loma evidently reckons that if Salt Bush is willing to pay for a greater share of Wizard Lake, others might be, too. It has hired Mackie to help find them. Mackie and Point Loma have long had a friendly relationship. Since December, 2016, Mackie analyst Bill Newman has been recommending Point Loma to investors, generally with a price target of $1. The stock has never reached that height -- it peaked at 75 cents in early 2017 -- but considering that it was worth around 40 cents when Mr. Newman first drew attention to it, there was a brief window of opportunity for profit. Since then, alas, the stock has crumpled to its current level of just 14.5 cents. Undeterred, Mr. Newman wrote as recently as a month ago that Point Loma is showing "excellent" results at Wizard Lake and may indeed be eyeing a potential "game-changer." If others show as much enthusiasm for Wizard Lake as Mr. Newman, Point Loma should have little trouble arranging an asset sale. It could certainly use some cash fast. As of March 31, 2019, it had a working capital deficit of $5.28-million and its total liabilities exceeded its total assets by $2.32-million.