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.

Amaya: Water Under The Bridge

[…] the Board concluded that at this time remaining as an independent publicly-traded corporation best positions Amaya to deliver long-term shareholder value. […] Amaya and William Hill have determined that they will no longer pursue the merger.

Source: Amaya

The market saw this as very bad news: Amaya’s stock dropped 10% today. I disagree. The company still has too much debt to consider merging with another company.

Not all is bad: the company plans to grow its 2016 adj. EBITDA and net earnings by 10% and 20%, respectively. Free cash flow and net earnings will grow nicely.

As we can see, adj. net earnings will grow faster than adj. EBITDA as the online casino business pick up steam. Indeed, the online casino business has very high operating margins (upwards of 90%, per a previous conference call). In other words: it greatly affects the bottom line.

Full Q3 2016 results are expected within a month.

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

California Online Poker: Quick Update

The online poker bill passed the legislative committee today. The same thing happened last year: could this year be different?

Progress on the bad actor clause wasn’t clear publicly. Surprisingly, the PokerStars coalition supported the bill, even though it included the clause. We only know from its public statement that the coalition is looking forward on establishing a safe, regulated commercial online poker market.

The bill heads to the full Assembly. Unless every interested parties are behind it, there won’t be any progress beyond that point. Therefore two California tribes still need convincing.

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

US Online Poker & DFS Update

Here is a quick update on the state of the US online poker and DFS market.

  • Tennessee and Mississippi: a bill for regulating DFS has been sent to the governor.
  • Michigan: a bill was introduced in the State Senate for regulating both online poker and casino. DFS regulation is still pending.
  • California: a bill for regulating online poker was introduced in the legislation last February. The PokerStars coalition’s strength has been put to the test following the news of insider trading charges against David Baazov. Recently, the debate to include or not the bad actor clause has regain traction because of these accusations. Indeed, last minute amendment of the bill appear to target previous bad actors of the online poker industry, namely PokerStars.
  • New York: progress has been incremental and very slow.

As we know, Amaya is working to diversify its revenue base. However, online poker is still the bread and butter of Amaya and amounts to 78% of its revenue as of Q4 2015. US online poker growth will be undoubtedly a significant catalyst for the stock.

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

US Oil Production Will Collapse In Mid-2016

The latest Monthly Report from the EIA came out this week. How come no one is talking about it? I find it pretty astonishing!

The projected drop in production is staggering. From what we can tell from the picture, it will also happen right in the driving season.

USO EIA Monthly Report April 21

Source: EIA Monthly Report

This is very, very bullish for oil. Not changing my positions for the moment. Long MEG Energy, Raging River Exploration and Suncor.

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