by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery added $1.55 to $65.37 on the New York Merc, while Brent for July added $1.66 to $68.71 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.79 to WTI, up from a discount of $12.81. Natural gas for June lost one cent to $2.96. The TSX energy index added 3.32 points to close at 126.56.
With oil prices ending the week higher for the third week in a row, some Canadian companies are taking a chance and boosting their guidance. For the most part, the oil patch has shunned budget boosts this year, vowing that any extra cash flow resulting from higher oil prices will be used to tidy up balance sheets (or, in some cases, to buy back shares). A couple of juniors feel differently.
One is Scott Ratushny's Alberta-focused Cardinal Energy Ltd. (CJ), up 12 cents to $3.22 on 2.71 million shares. It released its first quarter financials last night and announced that it would nearly double its full-year budget to $46-million from $27-million. Investors seemed relieved. They had not particularly liked the original budget, sending the stock down when Cardinal announced the guidance in January. The company had unambitious aims of keeping production fairly flat at 17,500 to 18,000 barrels of oil equivalent a day and not drilling a single well. (Non-drilling activities, such as workovers, were planned to offset natural production declines.)
Now Cardinal says it will drill eight wells, enjoy a 10-per-cent production increase in the fourth quarter and still repay $40-million of extra debt compared with the original budget. Mr. Ratushny, Cardinal's chief executive officer, cheered the "renewed confidence [in] the Canadian oil and gas market." The cheerful remarks helped offset an otherwise bland quarter. Cardinal's production in the first quarter averaged 18,400 barrels a day, down slightly from 18,600 barrels a day in the fourth quarter (and down more sharply from 20,300 barrels a day in the first quarter of last year). Where many other juniors are starting to enjoy profits for the first time in a year, Cardinal turned a net loss of $25.9-million.
The net loss was weighed down by $13.1-million of hedging losses and a $12.9-million remeasurement loss on a warrant liability. Cardinal shrugged off the hedging loss by noting that, while it may have (unwisely in retrospect) heavily hedged its production in the first quarter of the year, it is almost unhedged in the second half (though it is still fairly heavily hedged in the second quarter). As for the warrant loss, the silver lining is that this is a function of the rapid rise in Cardinal's share price. The company issued the warrants in December as part of a private placement done at just 50 cents. The main participant in the financing was N. Murray Edwards, the billionaire backer behind Canadian Natural Resources Ltd. (CNQ: $41.67) and other oil companies. His interest in the stock, along with the rally in commodity prices, helped send the stock flitting up to today's close of $3.22.
Another budget-booster was Neil Roszell's Headwater Exploration Inc. (HWX), up 11 cents to $4.56 on 789,500 shares. It released its first quarter financials and updated guidance on Wednesday after the close. The financials showed the effects of the large asset acquisition that Headwater completed in December, when it bought the Clearwater assets of Cenovus Energy Inc. (CVE: $9.73) for $100-million. (As discussed in past Energy Summaries, the Clearwater has seen a lot of area excitement lately, with various cheerleaders -- including Tamarack Valley Energy Ltd. (TVE: $2.55), another recent entry into the play -- dubbing it the most profitable oil play in Canada. So potent is the Clearwater that Cenovus is continuing to benefit from it even after selling the assets. The price tag included 50 million shares of Headwater issued at $1.30, for a deemed value of $65-million. Today those 50 million shares are worth $228-million.)
Headwater went right to work on its new assets. It drilled eight Clearwater wells during the first quarter and boosted its quarterly output to 4,800 barrels of oil equivalent a day, up from 1,646 barrels a day in the fourth quarter (which included one month of production from the Clearwater). About one-third of the first quarter's production came from a gas field in New Brunswick that Headwater inherited from a predecessor company. That field has now been temporarily shut in -- as is normal for this field, which is usually off-line from May to November and then starts up again in time to enjoy higher winter gas prices -- but Headwater has no intention of letting this affect its ambitious production plans. It was previously aiming to boost its full-year production to a range 6,500 to 7,000 barrels a day on a budget of about $92-million. Now it is hiking the budget to about $107-million, with a new production target of 7,000 to 7,250 barrels a day.
Further afield, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), edged down six cents to $3.30 on 638,800 shares. Investors yawned off its first quarter financials. Canacol's habit of releasing monthly production updates ensured that its quarterly sales volumes of 177 million cubic feet equivalent a day (or about 31,800 barrels of oil equivalent a day) came as no surprise. Cash flow of 21 cents a share was higher than analysts' predictions of 19 cents a share, but the company unexpectedly turned a net loss of $3.1-million. Mr. Gamba, president and CEO, blamed the loss on an $11.3-million non-cash tax expense related to foreign exchange rates. He emphasized that Canacol's operations are staying "resilient even amidst the severe COVID-19 crisis in Colombia." (The country is suffering through one of the deadliest third waves in the world.)
Investors remained aloof. Canacol's monthly gas sales have been declining since February, dropping to 166 million cubic feet a day in April. They may keep suffering the effects of low demand until Colombia's slow-moving vaccine rollout starts to show some real effects -- possibly not until the fall. With little exposure to rising oil prices, and with the first two wells of this year's nine-well exploration program having come up dry, Canacol is having a tough time impressing investors. Perhaps most gallingly, it still has no news on a definitive agreement for its proposed Jobo-to-Medellin pipeline, an agreement it originally expected to secure and sign in 2019. Investors seem skeptical that Canacol will stick to its revised schedule of signing an agreement in 2021.
There should, at least, be some near-term excitement (or disappointment) for Canacol. It is planning to spud its next exploration well, Aguas Vivas-1 on the VIM-21 block, in mid-May -- so, any day now. Drilling and testing should take about five weeks.