by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery added $1.07 to $73.30 on the New York Merc, while Brent for November added $1.06 to $77.25 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.65 to WTI, down from a discount of $11.45. Natural gas for October added 17 cents to $4.98. The TSX energy index added 3.72 points to close at 136.59.
Winter is coming, and a colder-than-usual one could push oil prices above $90 (U.S.) a barrel, according to a new forecast from Goldman Sachs. The bank's head of commodities research, Jeff Currie, made the prediction yesterday during a Bloomberg Television interview. "Supply chains are so severely depleted that the system cannot accommodate any type of disruption," said Mr. Currie. He was referring not just to low oil inventories, but also tight gas supplies. Higher gas prices are already causing havoc in Europe and will boost demand for oil as an alternative fuel.
Here in Canada, the country's largest gas producer -- and a big beneficiary of rising gas prices lately -- is Mike Rose's Tourmaline Oil Corp. (TOU), up $1.77 to $42.87 on 7.7 million shares. The stock has nearly tripled from about $15 over the last year. It continued to please investors yesterday by announcing its guidance for 2022 and a "free cash flow allocation strategy," which will include a one-time special dividend of 75 cents. The company is also hiking its regular quarterly dividend to 18 cents from 17 cents (for a yield of 1.6 per cent).
This is the third time in 10 months that Tourmaline has increased its dividend. Mr. Rose, chairman, president and chief executive officer, has been hinting for the last couple of months that an increase was on the way. "As we look out to 2022 ... the vast majority of [our] free cash flow will be returned to shareholders," he said during a conference call in July. He added that the "mix of the return opportunities" would include "sustainable base dividend increases, special dividends and share buybacks where appropriate." Today it knocked out all three in one press release. In addition to the above dividend announcements, Mr. Rose said the board has approved allocating up to $1-billion in share buybacks over the next two years.
Analysts were in spasms of elation. Desjardins analyst Justin Bouchard marvelled at Tourmaline's "good planning and good fortune," hiking his price target to $52 from $46. Raymond James analyst Jeremy McCrea toasted Tourmaline as a "shareholder-friendly ... best-in-class operator," as he increased his price target to $50 from $44.50. BMO's Randy Ollenberger dubbed Tourmaline a "top recommendation" and hiked his target to $50 from $41. Other analysts boosting their targets -- all following an unspoken, but rarely broken rule, to move in the same direction but never the same amounts -- included ATB's Patrick O'Rourke (up to $55 from $50), RBC's Michael Harvey (to $46 from $44) and National Bank's Dan Payne (to $45 from $40). Worth noting is that every single one of those analysts' employers, the financial institutions, has acted as an adviser, underwriter or agent in a transaction involving Tourmaline within the last year.
Over in the oil sands, Cenovus Energy Inc. (CVE) added 51 cents to $12.13 on 21.3 million shares. It is increasing a previously announced note tender offer to $1.25-billion (U.S.) from $1-billion (U.S.). The new amount matches the $1.25-billion (U.S.) in fresh notes that Cenovus issued earlier this month. As these notes have a lower interest rate and a longer term than the ones involved in the tender offer, Cenovus is taking advantage of a favourable debt market to do some refinancing.
Cenovus's near-term debt-related goal is still to get its net debt down to $10-billion by the end of 2021 (compared with $13.1-billion at the start of the year and $12.4-billion by the middle of the year). Cenovus's president and CEO, Mr. Pourbaix, has been dropping hints since May that the achievement of this target could create "opportunity to consider incremental shareholder returns," such as a higher dividend. The current quarterly dividend of 1.75 cents represents a yield of 0.6 per cent. With Tourmaline hiking its higher dividend, barely a week after Crescent Point Energy Corp. (CPG: $5.16) did the same, Cenovus's investors seem to be hoping that their company is next in line. The stock headed past $12 today for the first time in months.
Two smaller Alberta oil producers are also reshaping their balance sheets. The Gray family's Petrus Resources Ltd. (PRQ), up one cent to 76 cents on 32,200 shares, announced yesterday after the close that it has closed its previously announced "transformative transactions." These include the full settlement of a $39.3-million term loan for $15.8-million in shares, plus a new $10-million equity financing, which itself went toward debt reduction. Petrus's overall debt has been slashed to $63-million from $112-million.
All of the shares in the debt settlement and the equity financing had a deemed value of 55 cents. They also all went to members of the Gray family, namely Don Gray (Petrus's founder and chairman), Ken Gray (its president and CEO), and Stuart Gray and Glen Gray (investors). These four brothers now control around three-quarters of the company. The stock was trading at 48 cents when they announced all the financings last month, but has since risen to 76 cents, enjoying the newfound extra breathing room. Investors do not seem worried about a potential delisting. The TSX has just started an automatic delisting review of the stock, triggered by Petrus's reliance on the "financial hardship" exemption for its financings. The company has until Jan. 5 to prove that it deserves to stay on the exchange.
Meanwhile, Altura Energy Inc. (ATU) added one cent to 27 cents on 550,700 shares, as it edged closer to completing its previously announced recapitalization and management overhaul. The company announced last month that it would repopulate its board and management with new faces, several of which were formerly at Vermilion Energy Inc. (VET: $10.62), including its former president and CEO, Tony Marino. He and the other newcomers agreed to invest $4-million directly into Altura and to help it complete an additional equity financing for $21-million. Now Altura has boosted those figures to $5-million and $24.5-million, respectively, and closed the larger financing.
The new management expect to take their positions and close the $5-million financing by Oct. 8. That will be one day after Altura holds a special meeting on Oct. 7 to ask shareholders to approve the sweeping changes. Mr. Marino, who expects to take the reins as the new president and CEO, has already decided on his preferred method to convince them. Since the initial announcement, he has been sharing his "vision and strategy" of adopting a "growth-and-income capital market model." In other words, he wants to take Altura shopping for acquisitions, and he wants to introduce -- of course -- a dividend.