by Stockwatch Business Reporter
U.S. markets had a half-day following yesterday's Thanksgiving holiday. West Texas Intermediate crude for January delivery plunged $9.88 to $68.15 on the New York Merc, while Brent for January tumbled $9.56 to $72.72 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.30 to WTI, unchanged. Natural gas for December added 33 cents to $5.45. The TSX energy index lost 10.02 points to close at 168.98.
The Friday after U.S. Thanksgiving is normally a quiet trading day, as Americans bask in a semi-holiday lull or shop for Black Friday bargains. That was not the case today. Markets were roiled by a new COVID-19 variant detected in South Africa, Botswana, Hong Kong and Israel, triggering some renewed flight bans and spooking traders in nearly every sector, particularly oil. The TSX had its worst session in 10 months and the Dow its worst session in 13 months. (Worth noting is that half-day sessions can exacerbate market swings, as trading volumes tend to be lower.)
Here in Canada, oil stocks fell with oil prices. Oil sands producer Cenovus Energy Inc. (CVE) lost 91 cents to $15.61 on 25.4 million shares, despite promoting the imminent arrival of its 2022 budget. It is planning to release the budget and hold an investor day on Wednesday, Dec. 8.
If Cenovus was hoping to mimic MEG Energy Corp. (MEG: $10.86), it would have been disappointed. MEG announced on Tuesday that it would hold a conference call on Nov. 29 to unveil its 2022 budget, and as this was a highly unusual step for MEG, shareholders quickly sent the stock higher. They seemed confident that MEG will take the call as an opportunity to announce share buybacks or dividends. Cenovus, by contrast, already made both of those commitments on Nov. 3. This naturally reduced some of the potential excitement for Cenovus's event relative to MEG's.
Cheerleaders are still finding plenty to chant about. For one thing, even though Cenovus's dividend was doubled on Nov. 3, it is still just seven cents on a quarterly basis, for a low yield of 0.9 per cent. Management itself acknowledged during a quarterly conference call on Nov. 3 that the dividend "still has lots of room to grow." As for the share buyback, it is aimed toward shares in the open market, but management has also shown interest in buying shares owned by ConocoPhillips. The U.S. major received 208 million shares of Cenovus through an asset sale in 2017 and currently has 120 million left. "We're always talking to Conoco and we're always trying to see if there is an opportunity [for a formal disposition deal]," said Cenovus's management on Nov. 3.
Speculation aside, Cenovus is maintaining that the point of the Dec. 8 investor day is to unveil the 2022 budget. It will also reveal an updated plan for the next five years.
Back on the topic of share dispositions, Gary Guidry's Gran Tierra Energy Inc. (GTE) lost seven cents to 92 cents on 1.69 million shares, after unloading its remaining interest in Manolo Zuniga's Petrotal Corp. (TAL), down one cent to 29.5 cents on 3.5 million shares. Gran Tierra produces oil in Colombia and Petrotal produces oil in Peru. They have been linked since 2017, when Gran Tierra obtained 246 million shares of Petrotal through an asset sale and a financing. Gran Tierra sold 109 million of the shares last January. Now it has sold the remaining 137 million.
Neither of Gran Tierra's sales had stellar timing. The 2017 deemed value of the 246 million shares was about $45.9-million (U.S.). Through its sales today and last January -- both done at discounts to market value -- Gran Tierra has taken in a total of just $44.9-million. By contrast, if Gran Tierra had sold all the shares at Petrotal's pre-COVID high of 42 U.S. cents, it would have received $103.3-million (U.S.) and reaped a lovely profit of $57.3-million (U.S.).
It is likely that Gran Tierra just wanted to get its hands on fast cash. The company has long wrestled with its debt, which got as high as $784-million (U.S.) in September, 2020. High oil prices and cash flow have helped push this figure down to $735-million (U.S.) as of Sept. 30, 2021. This is still more than double Gran Tierra's market cap of $337-million (Canadian). During a quarterly conference call earlier this month, chief financial officer Ryan Ellson set an ambitious target of getting the debt below $500-million (U.S.) in 2022. The Petrotal share sale will nudge the balance sheet that much closer.
Back in Canada, some familiar promoters are planning a return to the public market. The TSX has granted conditional listing approval to Pat Carlson's private Kiwetinohk Energy Corp. (KEC -- though investors who want to say the full name will find that the first word sounds like key-wheat-in-oh. It means "north" in Cree). KEC has until Feb. 22, 2022, to fulfill all of the listing requirements.
The above names will be familiar to many energy investors. Mr. Carlson previously founded Seven Generations Energy, a public Alberta Montney producer that ARC Resources Ltd. (ARX: $11.38) acquired in a multibillion-dollar share exchange last April. Mr. Carlson had left by then, stepping down as Seven Generations' CEO in 2017, after which he founded KEC (then KRC, for Kiwetinohk Resources Corp.). KEC entered a joint venture in the Alberta Duvernay with Alex Verge's Journey Energy Inc. (JOY: $1.62) in 2018. That kept it in Journey's updates for some time.
By 2020, KEC was losing interest in the Duvernay and itching to return to the Montney. It decided to help recapitalize a company called Distinction Energy. Distinction used to be Delphi Energy, a once-public Montney producer that succumbed to debt woes in 2020, cancelled all of its old shares for no consideration -- too bad for former shareholders -- and issued new shares to creditors and new investors, including KEC. Mr. Carlson became Distinction's CEO in early 2021. His original goal was to reobtain a listing for Distinction by June 30, 2021. He soon changed his mind, and on June 28, 2021, KEC and Distinction announced they would merge instead. The merger closed two months ago. KEC moved its sights to receiving TSX listing approval by Nov. 8, 2021.
It did not quite make Nov. 8, but today, KEC trumpeted its conditional listing approval from the TSX. The company also provided its third quarter financials and an update on its 15,000-barrel-a-day operations. Newly in charge of these operations is Mike Backus, the recently appointed chief operating officer of KRC's upstream division. He was previously at Painted Pony Energy until its acquisition last year by Canadian Natural Resources Ltd. (CNQ: $52.46). Other familiar faces at KRC include CEO Mr. Carlson, chairman Kevin Brown (co-chairman of ARC Financial) and director Steve Sinclair (former senior vice-president and CFO of the above-mentioned ARC Resources).