If You Give A Driller A Dollar…

I don’t mean to offend any Texans in the room, but if you ever met anybody from Texas, those guys know how to gamble, and if you let them stick a hole in the ground with your money, they’re going to do it.

Stanley Druckenmiller, January 18, 2015

Special thanks to Greenlight Capital for this presentation.

The mother-fracker can drill holes.

PXD StockCharts.com August 7

Source: StockCharts.com

And the father-fracker can drill holes.

EOG StockCharts.com August 7

Source: StockCharts.com

Is the shale bubble about to burst?

Corridor Resources: The Numbers

Here is what happened since we know that Hydrocarbons Anticosti LP is negotiating with the government.

CDH StockCharts.com April 12

Source: StockCharts.com

Corridor’s (CDH) stock went from C$0.42 to close at C$0.45/share at 5.5X average volume for total upside of C$2.7M.

PEA StockCharts.com April 12

Source: StockCharts.com

Petrolia’s (PEA) stock went from C$0.14 to close at C$0.18/share at 7.0X average volume for total upside of C$4.3M.

These gains have evaporated since.

Disclosure: I am long CDH. Not for republication on Seeking Alpha.

Must-Read: Canadian Natural Gas Producers And The OPEC Deal

Alliance offers natural gas producers more access to the east as West Coast LNG prospects fadeFinancial Post

TransCanada’s natural gas pipeline deal with producers just saved the industry from losing US$25 billionFinancial Post

OPEC’s misleading narrative about world oil supplyBelfer Center

Saudis are right back where they startedBloomberg Gadfly

Not for republication on Seeking Alpha.

Must-Read: Saudi Arabia, US Crude Oil Exports And Heavy Oil

Exclusive: Saudi Arabia wants oil prices to rise to around $60 in 2017Reuters

US crude exports surge to a recordBloomberg Markets

U.S. gasoline demand hits record number last yearReuters

U.S. crude oil imports from Saudi Arabia and Iraq combined recently approached five-year high, but are expected to declineEIA

After OPEC cuts heavy oil, China teapot refiners pull US supply to AsiaReuters

Enbridge CEO downplays need for competing pipelines till at least 2025Financial Post

Not for republication on Seeking Alpha.

MEG Energy: Tough But Good Decision

MEG Energy had a very good run since OPEC’s deal late last November. This all came crashing down on January 12: The company announced an ambitious refinancing and growth plan. First, here is what we know as of now:

  • The credit facility’s maturity date is extended to November 5, 2021
  • The amended credit facility will permit certain opportunities to de-lever without lender’s consent
  • The $1.2B term loan will be refinanced to extend its maturity (no word yet on pricing and due date)
  • The $750M notes due 2021 will be refinanced (unchanged at 6.50%) and extended to 2025
  • The company will issue over 66 million shares for C$7.75 apiece

All over-leveraged energy E&P companies I know had to issue shares and dilute existing shareholders to survive. The share count will increase 30% in our case. I think overall this is good news despite what the market thinks (bad news). I understand the reaction:

  • First and foremost: the Access Pipeline still isn’t sold
  • The current 2017 production guidance points to lower production
  • The massive growth capital program (C$320M in 2017 and C$80M in 2018) will reach full capacity only in early 2019
  • The company is committed to paying more in financing costs with extended maturities

This confirms that the company wasn’t able to sell the pipeline because of its credit profile. The market is missing something however. There is now renewed hope the sale will go through because of this refinancing plan:

  • Extended maturity dates
  • 25% growth to 100,000 bopd in two years
  • MEG’s shares are in strong demand from what we saw last week
  • OPEC’s changing stance concerning oil prices
  • Lower cash costs by 2019

All of this should help convince institutional investors that now is the time to buy the pipeline. For me, the pipeline sale is the biggest catalyst yet to come. And this refinancing plan is another step towards its realization.

I added to my position on January 12.

Disclosure: I am long MEG. Not for republication on Seeking Alpha.

Pine Cliff Energy: Good News At A good Price

Pine Cliff Energy recently sold a non-core oil asset for C$31M. This asset produced 500 boe per day, which brings us to a price of C$62,000 per flowing barrel.

Not bad as Raging River Exploration recently completed a transaction in the Viking area for C$85,000 per flowing barrel. The premium is understandable as the transaction included more than 100 additional drilling locations.

This sale reduces Pine Cliff’s net debt drastically to C$75M from C$125M in August. This will strengthen the company and allow it to thrive in the uncertainty ahead.

Indeed, while natural gas futures increased in 2017, the outlook for 2018 and beyond turned bearish.

AECO Natural Gas Monthly Index December 10

Source: gasalberta.com

The company will be able to withstand a period of lower natural gas prices with its cleaner balance sheet. Just to remind us:

The current environment of natural gas prices has created opportunities to continue to make value-adding and potentially counter-cyclical acquisitions and Pine Cliff anticipates that it will continue to be able to act quickly on acquisition opportunities identified and to fund these activities from working capital, debt or equity issues.

Source: Pine Cliff Energy’s website

Pine Cliff itself was in trouble in early 2016: management wasn’t thinking about potential value-adding, couter-cyclical acquisitions in April 2016. The cleaner balance sheet will enable Pine Cliff to execute its strategy and withstand price shocks.

Disclosure: I am long PNE. Not for republication on Seeking Alpha.