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Msg  67675 of 68614  at  7/3/2020 9:14:10 PM  by


Energy Summary - 3rd

Energy Summary for July 3, 2020

2020-07-03 20:26 ET - Market Summary

by Stockwatch Business Reporter

U.S. markets were closed for Independence Day. West Texas Intermediate crude for August delivery lost 33 cents to $40.32 in electronic trading on the New York Merc, while Brent for August lost 34 cents to $42.80 (all figures in this para U.S.). Western Canadian Select traded at a discount of $8.88 to WTI, up from a discount of $10.35. Natural gas for August added two cents to $1.75. The TSX energy index lost a fraction to close at 77.32.

Andy Mah's Alberta Montney-focused Advantage Oil & Gas Ltd. (AAV) added three cents to $1.71 on 509,000 shares, on top of the two cents it added yesterday after closing a $100-million infrastructure sale. The sale was announced in mid-April and covers a 12.5-per-cent interest in Advantage's 400-million-cubic-foot-a-day Glacier gas plant. Advantage had not mentioned the buyer at the time, but in yesterday's closing announcement, it identified the buyer as Topaz Energy.

The name Topaz likely rang a bell for energy investors. Topaz is a private -- for now -- subsidiary of Mike Rose's Tourmaline Oil Corp. (TOU), down eight cents to $12.37 on 699,600 shares. Tourmaline created Topaz to hold some of its royalty and non-operated infrastructure assets. In November, it spun out a 26-per-cent interest in Topaz by selling 20.85 million shares at $10. Now Topaz says that in connection with the acquisition from Advantage, it closed a private placement of 13.2 million shares at $11, meaning that investors who participated in the November financing are already enjoying 10-per-cent gains on paper.

Tourmaline will be pleased. It has made no secret of its desire to take Topaz public, and reportedly has its eye on an initial public offering in the third or fourth quarter of this year, according to a research note last week from Scotia Capital analyst Cameron Bean. Mr. Bean estimated that Topaz is worth $1.2-billion to $1.5-billion. This would imply an $800-million to $1.1-billion value for Tourmaline's interest, which at the time was 74 per cent. The above-noted private placement, in which Tourmaline did not participate, will have diluted this to around 63 per cent. Ultimately, Tourmaline wants to get this down to around 20 per cent, according to Mr. Bean. It seems likely that an IPO for Topaz will include a secondary offering on Tourmaline's part. Given the apparently healthy demand for Topaz's shares, Tourmaline no doubt expects to come out of the arrangement with its pockets jingling.

All three of the above companies -- Topaz, Tourmaline and Advantage -- are thought to be on the lookout for acquisitions. Topaz directly confirmed this in its press release: As its private placement was for $145-million and only $100-million was needed for the deal with Advantage, Topaz has plenty left over for "funding additional royalty or infrastructure acquisition opportunities." Tourmaline has also been clear about its acquisitive intentions, both in actions and words. It has closed three noteworthy deals from November through April -- one asset acquisition from Painted Pony Energy Ltd. (PONY: $0.52) and the two takeovers of Chinook Energy and Polar Star -- and in May, it directly referenced its "up to $1.0-billion of Topaz equity that can be realized to fund 2020/2021 acquisition activities." As for Advantage, it has been a little more coy, but on a few different occasions -- including its press release yesterday about the closing of the deal with Topaz -- it highlighted its "ability to executive value-generating capital projects and strategic opportunities."

They are not the only companies hunting for deals. This morning, the private Longshore Resources announced the closing of its "transformational" four-way merger with Rifle Shot, Steelhead Petroleum and Primavera Resources, adding that the combined company is "well positioned to engage in further consolidation." This merger (which was discussed in the Energy Summary for June 8) was announced less than a month ago. Longshore was able to close it quickly because all four companies have the same majority investor, ARC Financial. ARC is Canada's largest energy-focused private equity manager. Its president, Brian Boulanger, headed to BNN last week to opine that merger and acquisition activity will soon be the new normal in the oil patch. "Just sitting around for recovery is not going to do it. You've got to try to get bigger, reduce costs and build resiliency," he said. He added that Longshore is not bluffing when it talks of becoming a consolidator. "That was part of the reason for putting out the release [on June 8]. They want people to know who they are," said Mr. Boulanger, "and they want to play offence."

For some companies, the game of mere survival is challenging enough. Debt-laden Alberta producer Bonavista Energy Corp. (BNP), down a quarter of a cent to 4.75 cents on 18.3 million shares, is preparing to hold a special shareholder meeting later this month to vote on a proposed recapitalization, which would wipe out over half of its debt but dilute shareholders down to 7 per cent. There have been similar recapitalizations over the past year or so, such as those done by Bellatrix Exploration and Delphi Energy -- both of which ended up needing creditor protection anyway -- but Bonavista's proposal has two unusual features. For one thing, it would turn the resulting company private. Bonavista's creditors are key to the deal and have demanded a delisting from the TSX. At this point, there is nothing in the documents to suggest that Bonavista will seek a more junior listing or return to the TSX in the future. As a result, shareholders who remain shareholders after the recapitalization will have limited ability to trade their shares.

That leads to the second unusual feature of the recapitalization: A once major shareholder of Bonavista is offering to buy all of the current shares at five cents, in which case that shareholder would own the 7-per-cent interest after the recapitalization. That would be George Armoyan's G2S2 Capital. Until very recently, Mr. Armoyan controlled 42 million of Bonavista's 260 million shares. This week he filed SEDAR reports disclosing the sale of 14 million of these shares. A look on SEDI reveals that he actually sold significantly more than that, nearly 27 million shares. The average selling price was 5.2 cents. This should put some cash in Mr. Armoyan's pocket in case the other Bonavista shareholders take him up on his offer to buy them out at a nickel, in which case he will be buying back some of the shares he just sold, but at a slightly lower price. These little wins have to count for something, given what a failure the investment looks like over all. Although Mr. Armoyan's exact cost base is not clear, his SEDI filings show that from August, 2019, to last week, he bought 19.7 million shares for about $9.5-million. Selling 27 million shares this week brought in a mere $1.4-million.

Ending on a happier note, the Egypt- and Alberta-focused TransGlobe Energy Corp. (TGL) had a quiet but pleasant end to the week, adding one cent to 81 cents on 3,500 shares. It has risen from 73 cents since providing a production update on Monday. By its estimates, during the second quarter (up to June 19) it produced 14,500 barrels of oil equivalent a day, exceeding its full-year guidance of 13,300 to 14,300 barrels a day. The first quarter average was also higher than guidance, at around 15,000 barrels a day. This means TransGlobe still expects to meet the guidance even though it is still in hunker-down mode with limited planned drilling activity. Initially the company was planning to spend $37.1-million (U.S.) and drill 20 wells. In March, it slashed those figures to just $7.1-million (U.S.) and two wells, being the two that were already spudded during the first quarter.

While TransGlobe is sticking to this plan for now, president and CEO Randy Neely would like to see at least one more well drilled this year, or so he told investors three weeks ago at the Virtual Summer Summit (an on-line conference for small- and microcap companies). Mr. Neely said he is keen to drill another well at TransGlobe's assets in the South Harmattan area of Alberta. This caught the market's attention late last year after TransGlobe drilled an outpost well (similar to an exploration well) that produced 400 barrels a day in its first 30 days, "an exceptional result for this area," gushed Mr. Neely. The downturn scuttled TransGlobe's official plans for an offsetting well, but Mr. Neely is still hoping to drill it before year-end.

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