by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery added $3.71 to $114.20 on the New York Merc, while Brent for July added $2.69 to $114.24 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.75 to WTI, down from a discount of $13.49. Natural gas for June added 30 cents to $7.96. The TSX energy index added 6.21 points to close at 251.28.
Oil prices soared into the week, buoyed by optimism about Chinese fuel demand. The country's economic capital, Shanghai, has been under harsh COVID lockdowns for the last six weeks, but now city officials have announced a planned lifting of the lockdowns and a return to normal life on June 1. Meanwhile, on the supply side, European Union diplomats expressed optimism that the bloc will reach agreement by the end of the month on a proposed Russian oil embargo. The main holdout is Hungary, which is heavily reliant on Russian oil. The proposal requires unanimous approval.
Here in Canada, Darren Gee's Alberta gas producer, Peyto Exploration & Development Corp. (PEY), added 22 cents to $14.14 on 1.45 million shares, hoisting itself back over $14 after getting as low as $12.87 last Thursday. That was after it released its first quarter financials. These showed relatively few surprises, given the habit of its chief executive officer, Mr. Gee, of releasing monthly operational updates that he calls president's reports. (They retain this label even though Mr. Gee gave away the president's title to chief operating officer J.P. Lachance last year.) Production averaged 101,500 barrels of oil equivalent a day, while cash flow came to $1.17 a share.
Peyto also turned a net profit of $98-million, or 56 cents a share, although the figure would have been much higher if not for $53-million in hedging losses. Unlike several competitors, Peyto's management has shown no interest in winding down the hedging program, even defending it in the press release for providing "greater predictability of cash flows." That pitch works better on investors when commodity prices are low. When prices are high, they turn envious eyes to the unhedged, such as Birchcliff Energy Ltd. (BIR: $10.34), which happened to release its financials on the same day as Peyto. Birchcliff doubled its dividend and boasted about its rapidly declining debt (down to $408-million from $777-million a year earlier). Peyto left its dividend unchanged and its net debt stayed nearly flat at just over $1-billion.
Perhaps this accounted for the edgy mood at the subsequent annual meeting. On Friday, Peyto released the voting results from the meeting, which showed an unusually wide vote split for the seven directors up for election. Chairman Don Gray, who co-founded Peyto in 1998 and was CEO until 2006, got just 61 per cent of the vote, down from 95 per cent last year. An even more unpopular director was Greg Fletcher, who squeaked in with just 57 per cent, down from 91 per cent last year. The only director who saw a notable increase was CEO Mr. Gee, whose support went up to 97 per cent from 87 per cent. He may have won some favour during a preceding conference call, in which he vowed, "We will be bringing down our net debt significantly this year and being, at the end of the year, in a really strong position to look at boosting our dividend."
Over in Saskatchewan, John Jeffrey's Saturn Oil & Gas Inc. (SOIL) added 12 cents to $2.77 on 168,000 shares, after trumpeting its latest drill results and hiking its guidance. The company said it has drilled 12 wells at its Oxbow light oil asset since late last year. (It acquired Oxbow last summer from Crescent Point Energy Corp. (CPG: $9.59) for $93-million.) Based on initial data from the wells, Saturn is boosting its estimate of how much money it can squeeze from them. The wells are not gushers -- early production rates are under 100 barrels a day per well -- but they are cheap to drill, have a low decline rate and (according to Saturn) will have a long lifespan. At current oil prices, according to senior exploration vice-president Justin Kaufmann, the wells will pay out in five to seven months.
Citing these "strong economics," CEO Mr. Jeffrey added that Saturn is hiking this year's budget to $56-million from $50-million. This is enough to pay for six more wells. It will also, by Mr. Jeffrey's estimate, boost Saturn's total production in the fourth quarter to 8,750 barrels a day rather than the previous target of 8,300 barrels a day. He is confident that cash flow will cover all of the spending and leave a good chunk left over for debt repayment.
Should Saturn need more cash, it could make use of the shelf prospectus that it quietly filed on SEDAR two weeks ago, qualifying up to $200-million in debt or equity financings. Saturn's current market cap is just $89-million. That partly reflects a low share count of 32 million, which got a significant haircut last October when Saturn completed a rollback at the unfortunate ratio of 1 for 20.
Speaking of rollbacks, Wolf Regener and David Neuhauser's Oklahoma oil producer, Kolibri Global Energy Inc. (KEI), lost half a cent to 18.5 cents on 365,800 shares, after completing a 1-for-10 rollback that will take effect May 19. This will reduce its share count to 35.6 million. The goal of the rollback, as president and CEO Mr. Regener told investors last month, is to "make the company more attractive to potential new investors." Put more bluntly, this was the easiest way of hauling Kolibri out of penny stock drudgery. After trading as high as $6.89 in 2011, the stock fell below $1 in 2014 and has stayed there ever since, getting as low as 2.5 cents during the worst of the downturn in 2020.
A noteworthy change in 2022 has been the start of Kolibri's first drill program in four years. After raising $8.6-million through a rights offering in December (which was one of the reasons that the share count became so unwieldy), Kolibri set about in January drilling the Barnes 7-3H and Barnes 8-4H wells at its core Tishomingo field. In the past, the company has been happy when wells at this field produce around 400 barrels a day. The Barnes 8-4H well produced 600 and the Barnes 7-3H well got as high as 1,050. "[These results] are so good that they are transformative for our company," cheered Mr. Regener earlier this month. He added that the company is planning more drilling later this year.
The cash flow from the wells will have to cover this extra drilling, or Kolibri may have to raise more money. Its most recent financials showed a net loss of $2.4-million (U.S.) in the first quarter and a working capital deficit of $3.0-million (U.S.) as of March 31. It also owed $16.3-million (U.S.) under its credit facility, with no further borrowing capacity. The company is optimistic that its bankers will increase the capacity by $2-million (U.S.) at the spring review.