by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery lost 32 cents to $58.34 on the New York Merc, while Brent for March lost 59 cents to $64.59 (all figures in this para U.S.). Western Canadian Select traded at a discount of $23.20 to WTI, unchanged. Natural gas for February lost four cents to $1.90. The TSX energy index lost 2.02 points to close at 140.97.
North Dakota-focused oil producer Enerplus Corp. (ERF) lost 44 cents to $7.96 on 4.39 million shares, failing to impress investors with its surprisingly cautious 2020 guidance and hazy three-year outlook. The company plans to spend $520-million to $570-million this year. That figure is below analysts' forecasts of $630-million, and represents a 13-per-cent decrease (at the midpoint) from the 2019 budget of $625-million. Production is expected to stay relatively flat at 96,000 to 100,000 barrels a day, compared with the 2019 target of 100,000 to 101,000 barrels a day. Analysts had been expecting a more ambitious 2020 target of at least 103,000 barrels a day.
As for the "outlook through 2022" that Enerplus trumpeted in its headline, it lasted all of two sentences. Enerplus is aiming for a "competitive balance of sustainable, high-return growth on a per-share basis, free cash flow generation and low financial leverage." There were no numbers; the closest it got to a quantifiable target was "high single-digit annual liquids production growth." (Enerplus's production is about 60 per cent oil and liquids, with the rest being gas.) This is more or less business as usual for Enerplus and seemed to make little impression on investors.
The reaction from analysts was (not surprisingly) far more favourable. AltaCorp analyst Patrick O'Rourke said Enerplus is in an "enviable position" thanks to its strong balance sheet, which allows it to focus on increasing its Bakken oil production while reducing its share count through buybacks. He viewed the overall press release -- or "event," in analyst-speak -- as "neutral to modestly positive." Meanwhile, Canaccord Genuity analyst Dennis Fong gushed that the 2020 budget will "drive free cash flow generation." By Mr. Fong's estimates, even after doling out the money for its full-year budget and its dividend (a one-cent monthly dividend, for a yield of 1.5 per cent), Enerplus will have about $100-million in free cash flow left over. It will likely use this money for share buybacks. Since the third quarter of 2018, Enerplus has bought back 24.3 million shares, or about 10 per cent of those outstanding.
Baytex Energy Corp. (BTE) lost five cents to $1.74 on 8.41 million shares, despite releasing better-than-expected preliminary results for year-end 2019 and arranging a partial debt refinancing. The company pegged its production for the fourth quarter of 2019 at 96,360 barrels of oil equivalent a day, mostly from the Texas Eagle Ford and the Saskatchewan Viking. This exceeded analysts' predictions of 95,900 barrels a day. It also boosted Baytex's full-year average for 2019 to 97,680 barrels a day, higher than its guidance of 95,000 to 97,000 barrels a day. As well, cash flow of 42 cents a share for the fourth quarter was nicely above analysts' predictions of 38 cents a share. Analysts had also predicted that Baytex would spend $160-million during the fourth quarter; instead, it spent just $153-million. President and chief executive officer Ed LaFehr patted Baytex on the back for its "outstanding capital efficiencies" and vowed to keep "building on this momentum in 2020."
Separately, Baytex arranged a $500-million (U.S.) senior note offering, saying it would use the proceeds (as well as its credit facility) to redeem roughly $630-million (U.S.) in unrelated debt due from 2021 to 2022. The $500-million (U.S.) in new senior notes will not mature until 2027. Rather like MEG Energy Corp. (MEG: $7.17), which announced its own partial debt refinancing last week (as discussed in the Jan. 16 Energy Summary), Baytex has historically had a large appetite for debt and is now trying to distance itself from that reputation. Its net debt was $1.9-billion at the start of 2020, down from about $2.3-billion at the start of 2019. Now the refinancing will provide some extra breathing room. Previously, Baytex was facing a roughly $1.1-billion wall of debt due from 2021 to 2022; now that figure will drop to $300-million, representing a term loan due in June, 2021. Baytex should be able to handle that using free cash flow (estimated at $100-million for 2020) plus its remaining credit facility availability (estimated at around $340-million after the refinancing). Then it will not face any significant debt maturities until a $400-million (U.S.) batch of notes comes due in 2024.
Sadly for Baytex, these figures still look daunting next to a current market cap of $970-million, and many investors are still staying well away. Even the higher-than-forecast 2019 production could not give a boost to the $1.74 stock. By comparison, in the good old days of mid-2014, the stock was worth over $50 and its market cap exceeded $8-billion.
Baytex was not the only one providing preliminary end-of-year updates for 2019. Down in Colombia, Charle Gamba's gassy Canacol Energy Ltd. (CNE) edged down six cents to $4.33 on 311,800 shares, after pegging its fourth quarter sales at 180 million cubic feet a day (equal to about 31,500 barrels of oil equivalent a day). This is up from 146 million cubic feet a day in the third quarter, reflecting the completion of a pipeline expansion at the end of July. Canacol proudly added that its sales have since risen to 208 million cubic feet a day, thanks to new sales contracts that took effect Dec. 1. This fits in with the company's previous announcement of its 2020 guidance last month, in which it said it would aim for full-year 2020 sales of 205 million cubic feet a day.
One notable item missing from the 2020 guidance, and from today's update, was any mention of a definitive agreement regarding the next stage of Canacol's pipeline expansion plans. These are intended to allow Canacol to boost its production to 300 million cubic feet a day in 2023. The company needs to finalize the details of who will build, operate and pay for the pipeline, and previously said it would be able to do this in the third quarter of 2019. That was later pushed back to the fourth quarter, and then into 2020. Investors continue to wait.
Elsewhere in South America, Jose Penafiel's Argentina-focused Centaurus Energy Inc. CTA) stayed unchanged at 9.5 cents on 6,000 shares, after receiving milestone extensions at its 90-per-cent-owned Curamhuele exploration block. Although Centaurus has been trying to obtain extensions for months, the terms leave much to be desired. This is perhaps to be expected given Centaurus's history at the block. The company has not drilled a well at Curamhuele since 2011, preferring to do the bare minimum to keep the block in good standing while it searches for joint venturers. (Centaurus has also been distracted by other assets, particularly its 35-per-cent-owned CASE block, where it is in the middle of a five-well exploration program.) No joint venturers have been found for Curamhuele despite years of marketing, and now even the bare minimum threshold is not being reached. It was Centaurus itself that suggested in 2018 that it could drill a new well at Curamhuele as long as it received a multiyear extension. The regulators accepted this proposal and granted an extension to March, 2021, subject to various milestones. In November, 2019, however, the regulators said Centaurus was falling short of the milestones and was therefore at risk of losing Curamhuele while still being on the hook for $8-million (U.S.) in spending obligations. Centaurus has been scrambling to renegotiate the milestones ever since.
Now Centaurus has succeeded, somewhat. The regulators have told it that they are willing to adjust the milestones, provided that the company can work out a specific, detailed financing plan showing that it will be able to meet the overall deadline of March, 2021. Centaurus has until April 30, 2020 -- just three months from now -- to create that financing plan. It will also have to post a $16.15-million (U.S.) performance bond and will have to submit proof that it is meeting the adjusted milestones (for example, by submitting an invoice once it has secured a drill rig). In short, no more messing around. Centaurus has agreed to these terms and is now doing what it calls "evaluating financing solutions."