by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery edged down 11 cents to $53.13 on the New York Merc, while Brent for March edged up two cents to $56.10 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.65 to WTI, unchanged. Natural gas for February lost five cents to $2.49. The TSX energy index lost 1.52 points to close at 97.40.
Yesterday's retroactive revocation of TC Energy Corp.'s (TRP: $57.23) presidential permit for the Keystone XL pipeline continued to draw complaints and confusion throughout the oil patch. "Just because you have an approval doesn't mean you have approval -- it's bizarre," Chris Bloomer, chief executive officer of the Canadian Energy Pipeline Association (CEPA), grumbled to the Calgary Herald. He added that the "ping-pong" journey of this permit, which was rejected by one U.S. president before being granted by another and then yanked away by another after that, sets a worrisome precedent. Already anti-pipeline activists are calling for similar cancellations of other projects such as Enbridge Inc.'s (ENB: $44.32) Line 3. "They [at Enbridge] are in more trouble than they were yesterday," gloated Greenpeace senior energy strategist Keith Stewart.
Others were sanguine. "[Keystone XL] is a loss, it is problematic, but there are alternatives," opined president Tristan Goodman of the Explorers and Producers Association of Canada. The perception is that Line 3 is less likely to be cancelled because it is already built and is just being upgraded. Meanwhile, former TC Energy CEO Hal Kvisle said no one should be too quick to write off Keystone XL. "I'd argue Keystone XL will come back at some point," he stated, "because it just makes perfect sense." The lesson of the Keystone XL saga may simply be to bide one's time and wait for the right president.
Meanwhile, Canada's largest gas producer, Mike Rose's Tourmaline Oil Corp. (TOU), lost 66 cents to $20.25. It has arranged its very first note offering. In the 13 years since its founding, Tourmaline has preferred to do its borrowing through the banks, relying on its credit facility or term loans. Last September, however, it hinted that it might start to approach the market for debt, as it had just obtained a shiny new investment-grade credit rating from DBRS. Now the company is going ahead with a $250-million offering of seven-year notes bearing interest at 2.077 per cent. It will use the proceeds to refinance existing debt (presumably to repay some of what it owes to the bank) and for general corporate purposes (presumably to continue its busy streak of takeovers and asset acquisitions).
Tourmaline is the second energy producer to announce a note offering this week. Two days ago, oil sands producer MEG Energy Corp. (MEG: $5.10) said it would raise $600-million (U.S.) by issuing eight-year notes bearing interest at 5.875 per cent. With gas prices having been a lot sturdier lately than oil prices, borrowing costs are considerably higher in the oil sands than the gas industry. MEG is also a non-investment-grade (junk) issuer, while Tourmaline, as it once again reminded investors today, has a sparkling BBB rating with a "stable" trend from DBRS.
Another gas producer, Jeff Tonken's Montney-focused Birchcliff Energy Ltd. (BIR), edged down one cent to $2.14 on 3.65 million shares, after releasing formal 2021 guidance and a new five-year plan. The 2021 guidance is largely in line with the preliminary version that Birchcliff put out in November. It said at the time that it would look to spend $200-million to $220-million and produce 78,000 to 80,000 barrels of oil equivalent a day. Not only would this spending be well within cash flow, said Birchcliff, but it should generate $140-million in free cash flow to repay debt and support the dividend (half a penny quarterly, for a yield of 0.9 per cent). The formal guidance updated the budget to a range of $210-million to $230-million, while the production target remained the same and the free cash flow forecast was updated to a range of $130-million to $150-million.
The five-year plan is more interesting. One year has passed since Birchcliff last released a five-year plan, and the two of them look quite different. The company was previously unfazed at the thought of outspending its cash flow, saying it would push hard to boost production to 96,500 barrels a day as early as 2022, and then keep it there for a few years while it focused on paying down debt. Investors were not happy with this and sent Birchcliff's stock down to $1.79 from $2.05. The stock then got as low as 56 cents during the worst of the COVID-19 downturn last March. More recently, it has climbed back above $2, and today brought a much more measured reaction to a much more conservative five-year outlook. The new plan for 2024 (which is now the second-last year of the plan, not the last) sees Birchcliff producing just 87,000 barrels a day, on significantly lower annual budgets from 2021 through 2024. By 2025, Birchcliff even expects to be debt-free with a cash surplus, while still having increased production to 91,000 barrels a day.
One thing was true this year and last: The five-year plan was liked by analysts. Today, Canaccord Genuity analyst Anthony Petrucci applauded Birchcliff for coming up with a plan that shows "steady growth and [a] wall of free cash flow." He hiked his target to $3 from $2.75. Meanwhile, Scotia Capital analyst Cameron Bean opined that Birchcliff offers "sustainable production and attractive free cash flow profiles," and kept his price target at $4.50. The stock closed today at $2.14.
We end with a brief update on a company discussed earlier this week. Gary Guidry's Colombian oil producer, Gran Tierra Energy Inc. (GTE), added one cent to 65 cents on 917,300 shares, on yet another announcement about its investment in Peruvian oil junior Petrotal Corp. (TAL: $0.26). As discussed in the Energy Summary two days ago, Gran Tierra holds 246 million of Petrotal's 816 million shares and was previously going to sell 218 million of them for $37-million. The shares were actually worth $45-million at the time the sale was announced in December. The steep discount suggested that Gran Tierra wanted the cash, likely for debt repayment. (It owed over $780-million (U.S.) as of Sept. 30.) Gran Tierra cancelled the sale earlier this week for unexplained reasons. Now it has reached a different agreement with new counterparties to sell 109 million of the shares -- half of what it was previously going to sell -- for about $18.8-million. This is still well below their market value of $28-million, suggesting that Gran Tierra is still eager for quick cash. It will, however, hold onto a larger percentage of the remaining shares, at least for now.