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Archive for March, 2014

Energy industry keeps wary eye on Alberta political turmoil

(Reuters) – Alberta’s powerful oil and gas industry is keeping a close watch on the uncertainty sparked by Alison Redford’s abrupt resignation as leader of the Canadian province, even though no change is expected in energy policy for now.

Redford stepped down on Wednesday as premier of the ruling Progressive Conservative party following a controversy over her travel expenses and caucus infighting that left her party floundering in the polls.

Some observers fear the political instability risks deterring potential investors in the province’s vast oil sands, the world’s third-largest crude reserve behind Venezuela and Saudi Arabia.

After several lean years, energy deals are on the rise again in oil-rich Alberta, with a number of acquisitions announced since the start of the year.

Sonny Mottahed, chief executive officer at Black Spruce Merchant Capital Corp in Calgary, said Redford’s resignation could steal some of that momentum.

“Any sudden departure will stir some excitement and create some pause in short-term investment sentiment. The bigger question will be what is next? Who will be her replacement?,” he said, adding there could be a big opportunity for the right-wing Wildrose party, now the official opposition, to gain ground.

The Progressive Conservatives are one of North America’s most successful political dynasties, having run Alberta for more than four decades.

But they have changed premiers three times since 2006 with a fourth expected to be appointed within six months. Dave Hancock, Redford’s deputy, was chosen on Thursday to govern in the interim.

“This is the third premier in eight years. They seem to bring them in, chew them up and spit them out,” said Keith Brownsey, a politics professor at Mount Royal University.

“The party is in a great deal of trouble and business certainly needs political stability. Investors will look at this and say what kind of goofball is this? They are throwing a premier out every two or three years.”

Redford’s predecessor Ed Stelmach had attempted to raise energy royalties, but backed off in the face of fierce industry opposition and the impact of the global financial crisis.

The Progressive Conservatives have since been steadfast supporters of Alberta’s oil industry. The Wildrose party is also firmly business friendly.

Redford won plaudits from business leaders for promoting the oil sands industry in Ottawa and Washington, supporting TransCanada Corp’s controversial Keystone XL pipeline and setting up the Alberta Energy Regulator in a bid to streamline the approval process for new projects.

ENERGY POLICY

Despite the uncertainty, analysts said there was little chance of an abrupt switch in energy or fiscal policy. Alberta, the largest source of U.S. oil imports, is flush with cash from oil sands production in the northern part of the province.

“Redford’s resignation doesn’t really change Alberta’s near-term outlook, Warren Lovely, senior economist at CIBC World Markets. “The province can still be expected to lead the country in terms of economic growth in the year(s) ahead. Nor does her departure jeopardize the immediate fiscal outlook.”

Attention is now focused on who will succeed Redford, but none of the potential candidates, who include Finance Minister Doug Horner and Justice Minister Jonathan Denis, are expected to change direction.

“I have not heard about any of the potential candidates talking about any energy policy other than the status quo,” said Mike Dunn, an analyst at FirstEnergy Capital.

Interim premier Hancock, a long-serving member of the Progressive Conservative party, represents a constituency in Edmonton, the provincial capital, and was first elected in 1997. He has served as deputy premier since December. (Editing by Paul Simao, Jeffrey Hodgson and Diane Craft)

By Nia Williams and Scott Haggett

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Keystone delays seen keeping investment away from junior energy space

CALGARY – Uncertainty over the Keystone XL pipeline is a “black mark” that’s been keeping investors away from the Canadian junior energy space, says a Calgary investment banker.

The sentiment may not be entirely logical, with several other alternatives on the table to get oil to lucrative markets, such as rail and a host of other pipeline proposals.

But Sonny Mottahed, CEO and managing partner at Black Spruce Merchant Capital, said there’s a “big psychology component” at play.

“The psychology of this black mark against the Keystone pipeline has just kept a lot of investors away from looking at the Canadian story. On its own, just on an island, it doesn’t necessarily make all that much sense,” he said.

TransCanada Corp. (TSX:TRP) first applied to build the Keystone XL pipeline about five and a half years ago and has yet to receive the green light from the U.S. government. The $5.4-billion project has attracted enormous controversy, pitting environmental and landowner concerns against economic and national security benefits.

The project would enable 830,000 barrels of mostly Canadian crude per day to flow to Texas refineries — an attractive market for heavy crude, like that produced in the oilsands.

An approval could be the “light switch” that gives investors a reason to get into the Canadian market.

“We think that would attract a whole new set of capital,” said Mottahed, adding that Canadian juniors have generally been lagging their U.S. counterparts,

“We think that (an approval) would positively swing valuations… So, (it would be) very positive for sentiment, deal flow, capital flow into the Canadian market.”

Dirk Lever, managing director of institutional equity research at AltaCorp Capital, said junior producers have a lot fewer tools at their disposal than their larger counterparts when it comes to getting their crude to market.

Big players like Suncor Energy Inc. (TSX:SU), Canadian Natural Resources Ltd. (TSX:CNQ) and Cenovus Energy Inc. (TSX:CVE) have signed contracts to move their crude on multiple pipelines, whereas smaller ones would just take what they can get.

In December, Canadian Natural kept 10,500 barrels per day in the ground in anticipation of better market conditions ahead. But not all companies have that option.

“A junior has very little luxury when it comes to lower prices and shutting in. They all like to say they do, but unless they’re getting negative cash flows, they actually won’t.”

The Keystone XL uncertainty might have harmed investor sentiment a year ago, but that’s changed with the advent of crude by rail, said Lever.

“Certainly a (Keystone XL) approval would help certain stocks, but I think there’s a growing realization that if it doesn’t get approved, then there’ll be a workaround somehow,” he said.

Brian Pow, vice president of research at Acumen Capital Partners, said the outlook is bright for companies that provide temporary housing and other services to pipeline builders and oilsands producers — with or without Keystone XL.

“Hopefully we’ll get a decision that makes sense, but in the interim business moves forward.”

By Lauren Krugel, The Canadian Press, thecanadianpress.com

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Petronova, Pacific Rubiales Farm-In Worth Another Look: Black Spruce Merchant’s Sonny Mottahed

As posted on ceo.ca on March 2, 2014 by Tommy Humphreys

The $65 million market cap Petronova announced a farm-in deal with Pacific Rubiales that will see the tiny oil explorer carried for 4 wells in the largest untested prospect in Colombia, potentially worth as much as $4 billion (40% to Petronova), with drilling starting in this year’s second half. Plus: Petromanas, Petroamerica, Canacol and frontiers of interest in an interview with one of Calgary’s leading independent energy-investment bankers.

Petronova (TSXV:PNA) is poised to take off in 2014.

This from Calgary-based energy investment banker and investor Sonny Mottahed.

Mr. Mottahed in a telephone interview tells us about one company that impresses him a lot.

Colombian oil and gas explorer Petronova just announced a farm in-deal with Pacific Rubiales (TSX:PRE), Colombia’s largest non-state owned oil producer.

Pacific Rubiales can earn into 50% of Petronova’s Tinigua prospect by paying back-costs of U.S. $12.5 million and spending U.S. $33 million for drilling, completing and testing up to four wells. Petronova will keep 40% of the project.

Tinigua could be the largest untested target in Colombia, Mottahed believes, with unrisked potential of 159 million barrels of medium to heavy oil.

If proven successful, those barrels could be worth between $20 and $25 in the ground. Petronova’s 40% could be worth $1.27 billion to $1.6 billion, which is impressive considering the company’s market cap today is $65 million.

Our request for comment sent to Serafino Iacono, co-founder and co-chairman of Pacific Rubiales, was responded with two words, “Good grounds.”

The first exploratory well at Tinigua will start drilling in the second half of 2014.

Petronova has a second asset in Colombia, the PUT-2 block (75% working interest), which just drilled its first well; results are expected any day now. Success there could lead to an early production scenario.

“Management may not come across as the most promotional, but they are capable, focused and experienced,” Mr. Mottahed said. “If they are successful at PUT-2, watch out.”

[This is Sonny Mottahed’s first appearance in these CEO.ca blogs, and we are grateful to him for sharing his time and ideas with us.]

PNA Weekly Chart

CEO Technician: There is a big 2 year base here but PNA needs over $.40 to get the excitement going. (Stockcharts.com)

Mottahed owns other energy names in Colombia, including Petroamerica Oil Corp. (TSXV:PTA), a 6,000 barrels per day light-oil producer trading at 1.4 times cash flow. Mr. Mottahed says the company has a strong exploration track record and has been creative in its deal making, even as Petroamerica receives little recognition in the stock market. Petroamerica soon will show results from its sole risk La Guira 2 well. Barring success at La Guira 2, Mottahed expects the stock could see a tailwind of new buying interest after the expiry of 80 million $0.35 cent warrants on May 9, 2014.

PTA Weekly

CEO Technician: PTA has formed a very tight range around .28-.32; there is some evidence of quiet accumulation. A strong push above .35 would be very constructive and move towards a longer term breakout targeting .50+. (Stockcharts.com)

Canacol (TSX:CNE), having climbed 200% in recent months, is another Mottahed favourite.

“It’s had a huge run, but they have an incredible asset portfolio, and results from their Exxon well are imminent; so it’s very easy to be excited about Canacol.”

CNE Canacol

CEO Technician: Heavy accumulation within recent bullish consolidation – $10 is certainly achievable for CNE by June. (Stockcharts.com)

Petromanas Energy (TSXV:PMI) came up multiple times during our call. That company saw its share price rise to $0.205 from $0.14 last week after a report by Oil & Gas Investments Bulletin’s Keith Schaefer suggested Petromanas could deliver 20-fold returns to investors. Petromanas is developing its early stage onshore deep light-oil discovery in Albania with Royal Dutch Shell.

Mr. Mottahed says Petromanas Energy’s assets as they exist today could substantiate a share price of $0.70.

“These guys are onto something that looks like it is out of this world, enormous,” he says.

“Actually getting oil up and putting it into tanks and selling it will probably go a long ways in the eyes of any doubters of this discovery.”

Mottahed says the company’s second well, Molisht-1, probably will be cheaper and more efficient than its first well, Shpirag-2. Still, the banker warned that the play could take 2 to 3 years to mature, albeit with lots of milestones that could keep investors’ eyes on Petromanas.

PMI

CEO Technician: High volume breakout last week in PMI, needs to hold above $.25 to confirm and target $.40. (Stockcharts.com)

We discussed a few of Sonny Mottahed’s favourite frontiers in the international energy business in 2014.

He credited Peru for encouraging exploration investment and said that Gran Tierra (TSX:GTE) has drilled a “monster” discovery there.

GTE Weekly

CEO Technician: Big bearish engulfing candlestick on volume last week although GTE is in a very nice long term uptrend. Above $8.50 it’s no problem but it looks a little dangerous here in the short term. (Stockcharts.com)

Nigeria, where Mottahed once lived and worked and keeps close connections, is a tough place to do business but has a robust hydrocarbon system, the financier said.

“We think the onshore in Nigeria has a lot of low hanging fruit.”

Mottahed also is looking at early stage opportunities in Indonesia.

Junior energy companies have a very high risk of going bust. They are not suitable for most investors, he reminds us.

“No matter how good the science, geology or close-ology may be, you never know what Mother Nature is going to turn up until you turn the drill bit to the right far enough to figure it out.”

Sonny Mottahed, 41, was born in Los Angeles, the son of an oil executive with Exxon-Mobile. The family lived in ten cities during Mottahed’s childhood and after university, he joined the oil and gas business in Nigeria. He then relocated to London, and Houston, before settling in Calgary, Canada’s energy finance capital, in 2004.

In Calgary, Mottahed is growing Black Spruce Merchant Capital (BCMC) with two partners, Jeff Barber and Dave Cheadle. The three men have worked together for the past eight years at Canaccord, Raymond James and now BCMC. Collectively, they have executed more than 300 transactions, including financings and mergers-acquisitions, Mottahed said.

The six-person BCMC team invests in and advises early-stage energy businesses.

Some 70% of the firm’s business today comes from the international sector, while BCMC is also active in domestic Canadian energy names.

Jeff Boyce, Co-Founder and Former CEO of Vermillion Energy and Executive Chairman at Petroamerica Oil, does business with BCMC and told us what gives Sonny Mottahed his edge.

“Sonny is intuitive and creative in finding solutions to financial and business dealings. He also has one of the most extensive contact bases, along with being one of the more likeable and street-smart financial people I have dealt with in my 33-year career.”

Learn more about Black Spruce Merchant Capital by visiting their Web site and follow them on Twitter (@BlackSpruceMC) for updates from their portfolio and the oil and gas industry.

Disclaimer: Black Spruce has a business relationship or Sonny Mottahed is an investor in all of the companies mentioned in this article. Author has a financial interest in Petroamerica Oil Corp. and Petromanas Energy. Mr. Mottahed’s comments are his opinions solely and are in no way assurances of one outcome or another. Views expressed in this article are NOT to be considered individual investment or professional advice of any kind. All facts are to be verified by the reader. Always do your own due diligence. Thank you.

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