by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added $1.06 to $42.67 on the New York Merc, while Brent for October added 93 cents to $45.43 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.59 to WTI, up from a discount of $11.79. Natural gas for September lost two cents to $2.15. The TSX energy index added 1.63 points to close at 85.74.
The U.S. Army Corps of Engineers has until the end of the month to assess options to resolve the loss of a key permit for the Dakota Access pipeline, a U.S. federal judge has ordered. The pipeline's future was thrown into doubt last month after the same judge ordered a full shutdown by Aug. 5, citing the need for additional environmental review that could last 13 months, while voiding a permit that allowed part of the line to cross federal property. Although the shutdown order was stayed last week by an appeals court, allowing the line to remain open for now -- pending a more comprehensive appellate decision that could arrive any day -- the appeals court upheld the voiding of the permit. The Corps proposed taking two months to determine the next steps. The judge, however, wants to be briefed in about three weeks, on Aug. 31.
A lawyer for the Corps told Reuters that the Corps is exploring four options, including some that would not require the pipeline to be shut down. In the meantime, the pipeline's operator, Energy Transfer, is appealing the decision that voided the permit. Energy Transfer says it could lose billions of dollars if the line were idled for an extended period. Analysts are mixed on whether this will actually occur. "This thing will be operational while the environmental issues are worked out on the back burner," predicted CFRA analyst Stewart Glickman to Barrons, though he acknowledged an "outside chance" of a shutdown. More pessimistic is Morgan Stanley analyst Stephen Byrd, who told Barrons that he foresees a negative court ruling and a shutdown starting in October or November, in which case "the ultimate fate of the pipeline is driven by the presidential election." Toronto-listed producers that could be affected by a shutdown, mainly by facing higher transportation costs for their U.S. Bakken production, include Enerplus Corp. (ERF: $4.09), PetroShale Inc. (PSH: $0.145) and Ovintiv Inc. (OVV: $15.63).
Here in Canada, George Fink's Alberta Cardium-focused Bonterra Energy Corp. (BNE) lost five cents to $.49 on 123,900 shares, after releasing its second quarter financials. The results were better than expected, with production of 10,200 barrels of oil equivalent a day (compared with analysts' predictions of 10,100 barrels a day) and cash flow of 13 cents a share (nicely above analysts' predictions of eight cents a share). Bonterra patted itself on the back for responding quickly to the downturn by suspending its capital spending and its dividend in April. With oil prices now modestly recovering, Bonterra said it is "evaluating the resumption of a limited capital program in the third quarter." (It did not need to say that the resumption of the dividend is a long way off, if ever.)
Investors seemed unimpressed. Its cautious optimism aside, Bonterra remains on a short leash with its bankers, which already snipped its credit facility to $300-million from $325-million last month. The facility matures April 30, 2021 (unless extended). As such, the entire drawn amount of $277.8-million was classified as a short-term liability in the second quarter financials, dragging Bonterra's working capital down to a deficit of $299-million. The deficit would otherwise be around $21-million -- still not ideal. Bonterra said it is "assessing opportunities for short-term or longer-term financing alternatives." As well, it has applied for federal liquidity assistance through Export Development Canada (EDC) and the Business Development Bank of Canada (BDC).
The EDC and BDC programs were announced by Ottawa to much fanfare in April, as part of a stated commitment to "support Canada's energy sector during these incredibly challenging times." The only incredible part is how little support has actually been forthcoming. The programs, which consist of repayable loans and loan guarantees -- especially guarantees on portions of reserve-based lending facilities (such as Bonterra's) that are no longer covered by plummeting reserve values -- have been criticized from the start as overly complex and slow-moving. Only one public company has announced the receipt of any support so far. That would be Pieridae Energy Ltd. (PEA: $0.36), which made a big song and dance last month out of receiving a grand total of $6-million in guarantees from EDC ($6-million being scarcely sufficient to cover quarterly administrative costs, let alone anything else). Others known to have applied to the EDC for help, with no luck as of yet, include Athabasca Oil Corp. (ATH: $0.205), which two weeks ago grumbled that it is "disappointed in the lack of urgency by the federal government to administer the program in an effective manner."
Athabasca's disappointment must pale next to that of Painted Pony Energy Ltd. (PONY), which today stayed unchanged at 68 cents on five million shares, hemmed in by the 69-cent-a-share takeover offer it accepted on Monday from Canadian Natural Resources Ltd. (CNQ: $27.03). This was not the end that Painted Pony had envisioned for itself. Early on in the downturn, Painted Pony was seen as one of the companies with "enough near-term liquidity ... to manage through weak natural gas prices in 2020," as Scotia Capital put it on March 25. This is important because the BDC and EDC programs were not designed to save companies that were already circling the drain. Painted Pony was not among those companies. Despite that, its situation worsened enough that in early May, it announced that it was "actively exploring the opportunity to participate in [the BDC and EDC] programs," which in its view were "intended to provide short-term liquidity to companies like Painted Pony." Its wording suggested that it fully expected to qualify. Today, however, in an interview with the Calgary Herald, Painted Pony's president and chief executive officer, Pat Ward, summed up what happened: "Nothing." He said the company applied to EDC but help never came. In the end, the company had no choice but to seek "alternative financing, everything up to and including the sale of the company," said Mr. Ward. "And what's happened is the sale of the company has won."
Not all companies are finding themselves boxed into a sale; some are on the other side of the table hoping to snap up bargains. Such is the case with Neil Roszell's Headwater Exploration Inc. (HWX), down two cents to $1.26 on 121,100 shares. The drop came in spite of a lovely mention from Desjardins Securities analyst Chris MacCulloch. Starting coverage of the stock this morning, Mr. MacCulluch noted that Headwater is known to be scouting for a "transformative acquisition," adding that "several highly attractive assets will likely shake loose with the passage of time, and at increasingly attractive terms as more companies struggle with liquidity." Headwater currently has just one producing asset, the McCully gas field in New Brunswick, which it acquired through the recapitalization of Corridor Resources earlier this year. Mr. Roszell and his people took over management as part of the recapitalization. Their past promotions, such as Raging River (which they sold to Baytex Energy Corp. (BTE) in 2018), have focused on Western Canada, so the expectation is that they will expand Headwater westward. Nothing has been announced yet, but Mr. MacCulloch reckons that it is a matter of time -- and probably not much time. The analyst sees Headwater as "poised to quickly emerge" as a leading Canadian producer. He set a "buy" rating and a price target of $2, compared with today's close of $1.26.
Mr. MacCulloch had similarly kind words for Rick McHardy's Spartan Delta Corp. (SDE), up one cent to $2.75 on 112,600 shares. Spartan is another stock he started covering this morning, calling himself a fan of the company's "ambitious growth plans, targeting more than 100,000 barrels of oil equivalent a day within the next 24 to 36 months, primarily through acquisitions." Spartan already completed one acquisition this year by acquiring the assets of distressed Alberta gas producer Bellatrix Exploration. These assets were producing 25,000 barrels a day when the deal closed in April. As of early July, Spartan had boosted this figure to 26,000 barrels a day, and it has made no secret of its desire to push its output even higher through further acquisitions, as Mr. MacCulloch noted. The analyst said the current assets provide a "strong foundation" for Spartan's production ambitions and its longer-term goal of starting a dividend. He set a "buy" rating and a target of $6, more than double today's close of $2.75.