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Archive for August, 2015

Encana Leads Big Spenders Becoming Stressed Sellers in Oil Rout

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August 26, 2015 — 10:01 PM MDT

  • Louisiana land sale was North America’s largest in 2015
  • More sales seen by high-debt producers with banks pressuring
The energy industry’s biggest acquirers when the oil market was hot are turning into pressured sellers in the worst crude slump since the 1980s.

Encana Corp., after making about $9.9 billion of oil and natural gas purchases in 2014, announced North America’s most sizable energy land sale this year, with a deal Tuesday to unload its Louisiana assets for $850 million to lower debt. Repsol SA, Whiting Petroleum Corp., Surge Energy Inc. and Linn Energy LLC, all active acquirers on the continent last year, are also among sellers in 2015.

The tables have turned for acquisitive producers now grappling with climbing debt loads as oil prices that are hovering near a six-year low curb cash flow. While selling producing properties allows executives to reduce leverage, it comes at the expense of output and revenue.

 “These are almost forced transactions,” said Sonny Mottahed, managing partner and chief executive officer of Black Spruce Merchant Capital Corp., a Calgary-based bank. Some big spenders borrowed money to do deals, and lenders are now calling for reduced leverage with the bleak outlook for oil, he said. “It’s getting more pressing the more time goes by.’’

Crown Jewels

Deals done to reduce debt are different than the normal reorganization of lands that companies undertake in good times and some are already being forced to part with “crown jewel” assets to keep creditors at bay, Mottahed said.

The sales by some of last year’s buyers are notable given oil and gas deals by producers have plunged with the crude crash, amounting to just $12 billion for North America in the first half of the year. That’s a drop of 78 percent from the same period in 2014 and the lowest start to a year since the first half of 2009, according to data compiled by Bloomberg.

Encana, the largest buyer of North American energy assets in 2014 after Repsol, avoided selling any of its flagship oil properties by parting with land in the Haynesville shale area that produces gas, which the Calgary-based company is shifting away from.

Debt Levels

Analysts had expected sales with Encana’s debt levels exceeding peers. The deal is poised to lower the company’s net debt to 3.2 times cash flow in 2016, from a previous estimate of 3.7, according to BMO Nesbitt Burns. That compares with an average multiple of 2.5 for rivals next year.

The Louisiana sale was “a clear win for Encana” and should give investors confidence it could also sell its Piceance, Denver Julesburg and San Juan properties in the U.S.,Randy Ollenberger, an analyst at BMO in Calgary, wrote Tuesday in a note. The stock gained 3.5 percent the day of the announcement.

Encana has plunged 48 percent this year, almost double the 24 percent drop for the Standard & Poor’s/TSX Energy Index.

The company doesn’t need to sell assets to act on its strategy, Jay Averill, a spokesman, said by e-mail. Encana bought about as much as it sold in 2014 without adding significant leverage, and selling more to pay down debt now is prudent, he said.

Repsol Deals

Repsol, which spent $13 billion acquiring Canadian producer Talisman Energy Inc. in 2014, is also considering divesting assets in Venezuela, Alaska, Bolivia and the Gulf of Mexico to lower debt, people familiar with the plan said in July.

The Spanish company said it would sell $1 billion of non-oil assets when it announced the Talisman acquisition last December, Kristian Rix, a spokesman, said in a phone interview. He declined to provide further details on potential deals.

Whiting, Surge and Linn have together announced about $900 million of asset sales in 2015.

Trigger Sales

Companies with high debt may trigger more asset sales if oil prices don’t improve, Ajay Khurana, co-head of energy investment banking for the Americas at Jefferies LLC, said in a phone interview.

“You can see companies capitulate and say, ‘I need to sell assets in this
environment to reduce leverage,’” Khurana said. “If the market stays where it is and the commercial banks are more punitive than people hope, you could see more transactions occur.’’

Baytex Energy Corp. may sell assets to reduce its debt load after a big acquisition last year, Mottahed said. The Canadian crude producer spent
about $1.7 billion in cash and took on debt to acquire Aurora Oil & Gas Ltd.

Baytex has no plans for additional divestitures after selling assets last year in North Dakota, Wyoming, Saskatchewan and British Columbia following the Aurora purchase,Brian Ector, a company spokesman, said in an e-mail. The company believes that the suspension of its dividend, reduction of the 2015 budget and moves to reduce costs, all announced last week, are enough to get it through the price rout, Ector said.

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With crude dipping below U$40 a barrel, reserve writedowns likely in store

CALGARY – Another wave of ugly news is looming for oil producers already battered by weak oil prices.

BY LAUREN KRUGEL, THE CANADIAN PRESS AUGUST 26, 2015

Every year, companies hire outside evaluators to tally up their reserves — a calculation of how much resource in the ground can be recovered technically and economically.

With U.S. benchmark crude dipping below US$40 a barrel for the first time since early 2009, the economics are looking especially dicey these days. Oil that might have been viable to produce at stronger prices may not be anymore.

Reserve reductions have tangible financial consequences. A company may have to take a charge against its financial results. And for many producers, it makes borrowing money from banks problematic.

“It all sort of feeds itself in an ugly vicious cycle,” said Sonny Mottahed, CEO of Black Spruce Merchant Capital.

Keith Braaten, president and CEO of GLJ Petroleum Consultants in Calgary, said his firm is going to be busy doing up annual reserve evaluations for clients throughout the fall, wrapping up preliminary reports around the end of the year.

Companies normally disclose the reserve figures along with their annual reports early the following year.

“I think a lot of companies took a bit of a haircut last year-end because prices were low then,” said Braaten. In late 2014, crude had already begun its precipitous decline to around the US$60 a barrel mark from mid-year highs above US$107 a barrel.

“I am expecting to see more of a haircut this year because we are seeing prices weakening further than they were and staying low for longer than we expected.”

The oilsands are expected to feel the brunt of it because one single project represents a large amount of oil, he said.

“So when they become uneconomic and they’re cancelled indefinitely and those reserves fall off the books, they are massive volumes.”

By contrast, a producer may have dozens of wells in an oil deposit like Alberta’s Cardium play, for instance. Depending on their location, some of those wells might be susceptible to a reserve writedown, while others may remain in good shape economically. Therefore, the impact to those producers wouldn’t be as severe as in the oilsands.

Black Spruce’s Mottahed said there’s a question as to whether companies’ share prices are reflecting the possibility of reserve cuts.

“Is it priced in? Or is it really going to be a light-bulb moment?”

Mottahed said he suspects it’s the former, though there may be some surprises.

“I think most people already are anticipating what that’s going to look like and that it’s going to be relatively ugly.”

 

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Canadian dollar edges higher, but oil falls

Oil below $40 US a barrel is reverberating through the oilpatch and the economy

CBC News Posted: Aug 26, 2015 11:45 AM ET Last Updated: Aug 26, 2015 4:27 PM ET

The Canadian dollar recovered to just above 75 cents on Wednesday amid continued stock market volatility.

The loonie was at 75.05 US cents at the close, up slightly from 74.96 at yesterday’s close.

But the trend for oil was not so positive as traders digested news about high stocks of gasoline and other petroleum products in the U.S.

West Texas Intermediate oil contract was down 46 cents at $38.85 US a barrel, continuing its sojourn below the psychologically important $40 level.

Brent crude, the most important international contract, edged up to $43.49 US a barrel.

Jitters about the slowing Chinese economy continued to hurt oil, asChinese stock markets were hit by waves of selling today.

If China’s economy is slowing, that means it will likely buy less crude oil in the coming year.

The loonie has been beaten down by the stock market turmoil and the prospect of less demand for Canadian resources from China. But going forward the main risk is the trend in interest rates.

Some analysts say it is less likely the U.S. Fed will raise rates in September because of the market meltdown. The Bank of Canada has made two rate cuts this year, helping to pressure the Canadian currency, but if the Fed doesn’t move, that could bring some relief for the Canadian dollar.

Low oil hurts oilpatch

The international glut of oil has brought oil prices lower for the past seven weeks. Output by the Organization of Petroleum Exporting Countries is at record levels and rumours that the oil cartel might hold an emergency meeting to cut back output have been refuted by Saudi Arabia.

Meanwhile, the U.S. Energy Information Agency reported that crude oil inventories decreased by 5.5 million barrels last week, but oil in storage remains at levels not seen in 80 years. At the same time, stocks of gasoline and other distillates are growing.

Some analysts said the latest decline in crude stocks might have been an aberration driven by a brief dip in imports. Most are bracing for a sustained rise in stocks in coming months as U.S. refiners shut for seasonal work.

“We had a draw, but the market needs to see weeks of that to be convinced,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Conn.

The impact of low oil is reverberating through Canada’s oilpatch as Canadian companies make plans for 2016.

Reserve reductions

Every year, companies hire outside evaluators to tally up their reserves — a calculation of how much resource in the ground can be recovered technically and economically. This year, much of the oil they might have in reserve may not be viable to produce at current prices.

That may mean a raft of reserve reductions that companies may have to write down in their financial results later this year. That in turn could lead to less investment over the coming year, which will hurt Canada’s economy.

“It all sort of feeds itself in an ugly vicious cycle,” said Sonny Mottahed, CEO of Black Spruce Merchant Capital.

Elsewhere, there are reports the Saudi government may be faced with a deficit for the first time in years and may have to make budget cuts because of low oil prices.

 

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With crude below US$40 a barrel, Canadian oil producers brace for wave of reserve writedowns

Lauren Krugel, The Canadian Press
Wednesday, Aug. 26, 2015

With U.S. benchmark crude dipping below US$40 a barrel for the first time since early 2009, the economics are looking especially dicey these days. Oil that might have been viable to produce at stronger prices may not be anymore. Jason Franson/The Canadian Press

CALGARY — Another wave of ugly news is looming for oil producers already battered by weak oil prices.

Every year, companies hire outside evaluators to tally up their reserves — a calculation of how much resource in the ground can be recovered technically and economically.

Reserve reductions have tangible financial consequences. A company may have to take a charge against its financial results. And for many producers, it makes borrowing money from banks problematic.

“It all sort of feeds itself in an ugly vicious cycle,” said Sonny Mottahed, CEO of Black Spruce Merchant Capital.

Keith Braaten, president and CEO of GLJ Petroleum Consultants in Calgary, said his firm is going to be busy doing up annual reserve evaluations for clients throughout the fall, wrapping up preliminary reports around the end of the year.

Companies normally disclose the reserve figures along with their annual reports early the following year.

“I think a lot of companies took a bit of a haircut last year-end because prices were low then,” said Braaten. In late 2014, crude had already begun its precipitous decline to around the US$60 a barrel mark from mid-year highs above US$107 a barrel.

“I am expecting to see more of a haircut this year because we are seeing prices weakening further than they were and staying low for longer than we expected.”

The oilsands are expected to feel the brunt of it because one single project represents a large amount of oil, he said.

“So when they become uneconomic and they’re cancelled indefinitely and those reserves fall off the books, they are massive volumes.”

By contrast, a producer may have dozens of wells in an oil deposit like Alberta’s Cardium play, for instance. Depending on their location, some of those wells might be susceptible to a reserve writedown, while others may remain in good shape economically. Therefore, the impact to those producers wouldn’t be as severe as in the oilsands.

Black Spruce’s Mottahed said there’s a question as to whether companies’ share prices are reflecting the possibility of reserve cuts.

“Is it priced in? Or is it really going to be a light-bulb moment?”

Mottahed said he suspects it’s the former, though there may be some surprises.

“I think most people already are anticipating what that’s going to look like and that it’s going to be relatively ugly.”

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With crude dipping below $40 US a barrel, reserve writedowns likely in store

Published on: August 26, 2015 | Last Updated: August 26, 2015 7:06 AM MDT

 

Another wave of ugly news is looming for oil producers already battered by weak oil prices.

Every year, companies hire outside evaluators to tally up their reserves — a calculation of how much resource in the ground can be recovered technically and economically.

With U.S. benchmark crude dipping below US$40 a barrel for the first time since early 2009, the economics are looking especially dicey these days. Oil that might have been viable to produce at stronger prices may not be anymore.

Reserve reductions have tangible financial consequences. A company may have to take a charge against its financial results. And for many producers, it makes borrowing money from banks problematic.

“It all sort of feeds itself in an ugly vicious cycle,” said Sonny Mottahed, CEO of Black Spruce Merchant Capital.

Keith Braaten, president and CEO of GLJ Petroleum Consultants in Calgary, said his firm is going to be busy doing up annual reserve evaluations for clients throughout the fall, wrapping up preliminary reports around the end of the year.

Companies normally disclose the reserve figures along with their annual reports early the following year.

“I think a lot of companies took a bit of a haircut last year-end because prices were low then,” said Braaten. In late 2014, crude had already begun its precipitous decline to around the US$60 a barrel mark from mid-year highs above US$107 a barrel.

“I am expecting to see more of a haircut this year because we are seeing prices weakening further than they were and staying low for longer than we expected.”

The oilsands are expected to feel the brunt of it because one single project represents a large amount of oil, he said.

“So when they become uneconomic and they’re cancelled indefinitely and those reserves fall off the books, they are massive volumes.”

By contrast, a producer may have dozens of wells in an oil deposit like Alberta’s Cardium play, for instance. Depending on their location, some of those wells might be susceptible to a reserve writedown, while others may remain in good shape economically. Therefore, the impact to those producers wouldn’t be as severe as in the oilsands.

Black Spruce’s Mottahed said there’s a question as to whether companies’ share prices are reflecting the possibility of reserve cuts.

“Is it priced in? Or is it really going to be a light-bulb moment?”

Mottahed said he suspects it’s the former, though there may be some surprises.

“I think most people already are anticipating what that’s going to look like and that it’s going to be relatively ugly.”

 

By Lauren Krugel

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Price of oil hits six-year low on higher stockpiles

CALGARY — Canadian oil sands producers faced tighter margins Wednesday after oil prices hit a six-year low on news of increased stockpiles.

West Texas Intermediate crude, the North American oil benchmark, went as low as US$40.46 a barrel in intraday trading after a U.S. Energy Information Agency report showed a 2.6-million-barrel increase in American oil inventories.

Desjardins Capital Markets said in a research note that the analyst consensus called for a 400,000 barrel drop in inventories.

The EIA also revised downward its price outlook for oil by US$6 a barrel for 2015 and US$8 a barrel for 2016 compared with last month’s forecast. The agency now sees an average of US$49 a barrel for 2015 and US$54 a barrel in 2016.

In a research note Wednesday, Citigroup said that with oil balances pointing to further oversupply this year, a drop to the 2008 low of US$32.40 a barrel is a “conceivable reality.”

“There’s a lot of worry right now about the overproduction and storage concerns as we come off of summer driving season,” said Martin Pelletier, portfolio manager at TriVest Wealth Counsel Ltd.

The drop in oil prices comes as Canadian producers struggle with a high discount to the U.S. benchmark after a major shutdown at a refinery that processes Canadian heavy oil, as well as pipeline disruptions.

“As a result, the Canadian oil producers have just been hammered over the last couple of weeks,” said Pelletier.

A report Monday by JBC Energy said oilsands viability is “on the edge” in current markets, with producers on average seeing profits of no more than US$5 a barrel.

Sonny Mottahed, chief executive of Black Spruce Merchant Capital, said Wednesday’s low oil price combined with the discount means many producers could be in a negative cash cost position.

“I think you have a serious cash flow crunch that’s going to be realized by producers across the board,” said Mottahed.

But he said oilsands production has become dominated by majors that are better suited to waiting out price fluctuations.

“The oilsands is a big boys game and the big boys can endure a lot of pain, and they’re probably enduring some of that pain right now. And there’s probably more pain in sight.”

Despite the tight financials, Canadian oilsands producers have little choice but to keep producing, said Peter Argiris, an analyst at Wood Mackenzie in Calgary.

“The problem is, these companies just can’t stop producing. . . . They need to pay their bills, they need to ensure their bond covenants are not breached. So there’s a variety of reasons why companies need to produce.”

But some companies have started to cut their highest-cost production, with Canadian Natural Resources Ltd. shutting-in 4,000 barrels a day of production “primarily in northern Alberta” because of the unfavourable economic conditions.

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Terra Energy Corp. Renews Credit Facility

WEDNESDAY, AUGUST 5, 2015 – 2:06PM

Terra Energy Corp. renewed its credit facility with its senior lender, and selected a financial adviser, the company said Aug. 4.

The renewed facility contains a $22.5 million revolving loan, about $5 million in letters of credit and a $700,000 remaining development line. It was renewed after the annual review by the chartered lender.

The next review is scheduled for May 1, 2016, the company said.

Black Spruce Merchant Capital was chosen as Terra’s financial adviser. Black Spruce was recommended by the committee of independent directors to Terra’s board, the company said.

Terra Energy Corp. is based in Calgary, Alberta.

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Terra Energy Corp. Announces Renewal of Its Lending Facility and Selection of Financial Advisor

CALGARY, ALBERTA, Aug 04, 2015 (Marketwired via COMTEX) — Terra Energy Corp. (“Terra” or the “Corporation”) (TT) is pleased to announce the renewal of its credit facility with its senior lender and the selection of a financial advisor.

The annual review of the Corporation’s credit facility has now been completed by our Chartered Lender and the existing facility has been renewed at substantially the same terms and rates as the previous facility. The facility is comprised of a $22.5 million revolving loan, an approximate $5 million Letters of Credit facility and a $700,000 remaining development line and is subject to annual and mid-term review. The facility is payable on demand with the next annual review scheduled for May 1, 2016.

Upon recommendation by the Committee of Independent Directors of the Board, the Corporation has engaged Black Spruce Merchant Capital to advise and solicit proposals to deleverage and enhance shareholder value through a public process that will consider the sale of oil and gas properties, joint venture opportunities, realization of tax pools, entering into strategic alliances, mergers, restructuring or recapitalization of the corporation.

Corporate Information

Terra is a junior oil and gas company engaged in the exploration for, and the development and production of, natural gas and oil in Western Canada. Terra’s common shares trade on the Toronto Stock Exchange under the symbol “TT”.

Contacts:
Terra Energy Corp.
Bud Love
Vice President of Finance, & Chief Financial Officer
403.699.7777
403.264.7189 (FAX)

SOURCE: Terra Energy Corp.

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