Portfolio Update: MEG Energy And It’s New CEO

I am simply astonished by the choice of the Board of Directors of MEG Energy.

Derek Evans served as CEO of Pengrowth Energy from May 2009 until March 2018.

I extracted a weekly view of the stock price of Pengrowth from the time he became CEO of the company.

PGF TMX Money

Source: TMX Money

Shareholders never recovered.

MEG is still touting the prowess of Evans to streamline Pengrowth…

During his tenure, Mr. Evans streamlined the Company’s asset base from 35 properties to two growth assets, with over $9 billion of development opportunities.

MEG Energy Press Release, August 8, 2018

Evans did streamline the company. Although he streamlined Pengrowth from the many properties he himself acquired with debt.

To me this choice doesn’t make any sense at all. The market is also in disbelief as the stock fell 8% today.

The company has a great asset and egress out of Western Canada. It only needs a good leader shareholders can trust. It’s not the case currently. Really it’s more of the same.

I sold half of my position in MEG and I bought back Gear Energy. I am not cashing out my entire position only because I want to know what Highfields Capital Management will do. Highfields asked the Alberta Securities Commission permission to contact MEG shareholders directly.

The Filer wishes to communicate with the holders of Shares (the Shareholders) in advance of the Meeting to solicit such Shareholders’ proxies in respect of the business to be transacted at the Meeting. The Filer may wish to conduct the solicitations by public broadcast, speech or publication (the Public Solicitation) without sending a dissident’s proxy circular to each of the Shareholders.

Alberta Securities Commission Press Release, August 8, 2018

Highfields previously had a board seat. Daniel Farb resigned on July 24.

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

MEG Energy: A Strong Vote Of Confidence

MEG Energy Corp. (TSX:MEG) (“MEG” or the “Company”) is pleased to announce that it has entered into an agreement with Wolf Midstream Inc. (“Wolf”) for the sale of the Company’s 50% interest in Access Pipeline and 100% interest in Stonefell Terminal (the “Transaction”) for cash and other consideration of $1.61 billion, representing 13.4x 2018 annualized EBITDA.

MEG Energy Press Release, February 8, 2018

Finally, I have been waiting for a year. Here is what I said in March of last year:

I sold what was left of my position in MEG Energy (MEG) for a sub-50% gain. WTI at sub-$50 won’t be enough for MEG to sell its pipeline at a good price. Hence share price appreciation will be limited in the short-term.

Cadotte Capital Partners, March 13, 2017

Share appreciation was indeed nonexistent for the last year. A combination of higher oil prices and lower production costs lead Wold Midstream to finally buy the 50% interest remaining in the Access Pipeline. Wolf, a subsidiary of the CPPIB, believes MEG will be able to supply its pipeline with plenty of crude for the next 30 years.

MEG Energy got the same price than Devon Energy, despite its much smaller size. It’s a strong vote of confidence in the operations of MEG Energy. The proceeds will go to repaying some of the debt and accelerate growth plans.

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

Portfolio Update: Sympathizing With Investors Enduring Pain

  • Despite mostly upbeat Q2 results, my stock picks aren’t moving higher.
  • Sentiment is still negative in the energy market, capping energy stocks gain.
  • Painted Pony and Point Loma are underperforming.
  • Prairie Provident and Granite Oil are my two favorite buys right now.

Click here to read the entire article on Seeking Alpha.

Portfolio Update: Adding To My Energy Holdings

Last Wednesday was a test for energy investors. Did you resist the urge of following the masses by selling your energy holdings?

I resisted. I added to my favorite energy holdings last Wednesday, which are Gear Energy, Point Loma Resources and Raging River Exploration. Those companies can survive low oil prices and then thrive once oil prices rise.

Here are my recent moves in the market.

First, I sold all the lithium explorers I bought last month: Critical Elements, Nemaska Lithium and Natan Resources, now Enforcer Gold. I was lucky to turn out a profit on this: Critical Elements skyrocketed 50% after investors learned the company had hired a communication firm for a year.

This experience would be cash neutral at best if it wasn’t for this gain. Just for example: Enforcer Gold switched its focus to gold exploration after I bought the stock for its lithium properties. All in all, this is another point to not speculate on the market.

Second, I sold TransGlobe Energy. It turns out the Canadian assets aren’t as transformative as I thought they would be. I first estimated netbacks at C$11.50 per barrel for total consideration of 6X 2017 FFO. Instead, netbacks were as low as C$6 per barrel in Q4, which implies an estimated price tag of over 10X 2017 FFO.

The Cardium light oil acreage should provide interesting returns according to past presentations from Angle Energy. Management will drill these lands only in late 2017. Therefore it will take some time before shareholders see something good from these assets.

I sold what was left of my position in MEG Energy for a sub-50% gain. WTI at sub-$50 won’t be enough for MEG to sell its pipeline at a good price. Hence share price appreciation will be limited in the short-term.

I added massively to my positions in Point Loma Resources, Gear Energy and Raging River Exploration using these gains.

I bought back Tidewater Midstream and Infrastructure on Friday after selling the stock two weeks ago. Support was limited below the 200-day moving average.

TWM StockCharts.com March 13

Source: StockCharts.com

Low AECO prices in Western Canada may delay growth projects by producers and lower flows in pipelines owned by TWM in the short-term.

I am now heavily positioned in the oil and gas sector with a strong presence in junior Canadian E&Ps with low leverage and high netbacks. Those companies can survive at $50 WTI and thrive at higher prices.

Disclosure: I am long GXE, PLX, RRX, TWM. Not for republication on Seeking Alpha.

Portfolio Update: Moving Chips To My Winners

I am now well positioned for 2017 after another series of move in my portfolio.

  • I added to my positions in Painted Pony Petroleum and in Gear Energy by selling part of my position in MEG Energy. I am preparing my portfolio for lower oil prices.
  • I opened a position in Tidewater Midstream & Infrastructure.
  • I bought back shares in TransGlobe Energy. TransGlobe’s Canadian transformation is a game changer to me. Plus the acquisition metrics are very good for TransGlobe shareholders.
  • I opened a position in Point Loma Resources.

I made a quick analysis for Point Loma Resources after hearing about the stock on Seeking Alpha. The stock is indeed trading at a very low 6.3X Year-End 2016 FFO. I estimate FFO of C$17.92 per barrel at year-end 2016. Furthermore, the company holds no debt except for convertible debentures and plans to grow production aggressively next year. In other words, the multiple should be higher.

Other interesting news for Canadian oil and gas producers: lower oil exports from Venezuela and possibly lower transport tariffs from TransCanada.

Lower heavy crude from Venezuela will benefit Canadian heavy oil and tighten the price differential of Canadian heavy oil versus WTI.

Finally, the new push for natural gas pipelines in the Northeastern US will force TransCanada to lower its transportation tariffs. Else it will face a severe decrease in its market share in Eastern Canada.

Disclosure: I am long GXE, MEG, PLX, PPY, TGL, TWM. Not for republication on Seeking Alpha.

Portfolio Update: Aggressive Moves To Start 2017

Here are my trades to start the year:

  • I added to my position in Amaya. Indeed, bad names will stop appearing in bad actor clause negotiations now that both David Baazov and Daniel Sebag are gone. Plus Amaya’s operations are coming out as very strong.
  • I bought back shares in Corridor Resources, as you know. It’s now or never for Corridor to move west and grab assets on the cheap before oil heads substantially higher. I need to go long before reading about the acquisition in a press release.
  • I added to my position in MEG Energy after the company announced a major refinancing plan.
  • I added to my position in Painted Pony Petroleum. The company is still undervalued despite being up 60% since I bought it nine months ago.

I also went long lithium by buying all the junior exploration companies operating in Quebec: Critical Elements, Nemaska Lithium and Natan Resources. I’ll let you know shortly how I narrowed it down to those three companies.

Disclosure: I am long AYA, CDH, CRE, MEG, NMX, NRL, PPY. 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.