by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery lost $2.03 to $76.71 on the New York Merc, while Brent for November lost $2.09 to $84.08 (all figures in this para U.S.). Western Canadian Select traded at a discount of $22.50 to WTI, unchanged. Natural gas for October added seven cents to $6.90. The TSX energy index lost 6.94 points to close at 201.78.
Heading into the final week of the third quarter, oil prices are facing the prospect of their first quarterly slump in two years. Prices took another tumble today, coming under continued pressure from the rising U.S. dollar (which dents demand by making oil more expensive in other currencies). Iraqi Oil Minister Ihsan Abdul Jabbar said OPEC+ is keeping an eye on the "challenging" circumstances. "We don't want a sharp increase in oil prices or a collapse," he told an interviewer on state television (quoted in Reuters). OPEC+ will hold its next monthly meeting on Oct. 5.
Here in Canada, oil sands giant Suncor Energy Inc. (SU) lost 36 cents to $36.59 on 31.8 million shares, as it held its head high and gave the impression of a beautifully bulging treasury. It announced this morning that it has launched a bond buyback program for up to $1.75-billion. The offer spans 10 series of notes due from 2026 to 2042 and expires on Oct. 4.
The offer also comes just a few weeks after Suncor got a scolding from S&P Global Ratings, which downgraded the company by one notch to BBB -- the second-lowest rating that is still investment-grade -- and gave it a "negative" outlook on Aug. 31. The ratings agency said Suncor's share buybacks may put its per-share credit ratios below desirable levels, even as the company goes ahead with its previously announced efforts to reduce debt. (More broadly, the agency has been tightening its credit ratio thresholds for Canadian oil companies, saying they have been more prone to volatile operating performance than their U.S. competitors.)
In any case, Suncor is not the only oil and gas producer cleaning up its debt load through buybacks -- not even the only one this month. On Sept. 9, fellow oil sands player Cenovus Energy Inc. (CVE: $20.04) launched a $1.5-billion (U.S.) tender offer for outstanding notes, hiking the offer to $2.2-billion (U.S.) on Sept. 12. Yet another oil sands player, MEG Energy Corp. (MEG: $14.09), redeemed $216-million in notes last quarter and has repurchased another $361-million in debt on the market since May, including $41.6-million so far in September.
Meanwhile, a private Canadian producer is planning to go public, but -- unusually -- with a U.S. listing. The Riverstone-backed Hammerhead Resources Inc. has agreed to merge with the Nasdaq-listed Decarbonization Plus Acquisition Corp. IV (which is also a Riverstone portfolio company). Hammerhead is a 13-year-old Alberta Montney player producing about 33,000 barrels a day. Decarbonization Plus is a special-purpose acquisition company, otherwise known as a SPAC, otherwise known as a blank-cheque entity created for the purpose of merging with a company that wants to go public. Hammerhead will now do exactly that in a deal that values it at $1.39-billion.
As is generally the case with SPAC deals, the resulting issuer will continue to be led by the target's management, including Hammerhead's chief executive officer, Scott Sobie. He first joined the company in 2012. Back then, it was still known as Canadian International Oil Corp., but changed its name to Hammerhead in 2017. (This was relatively early on in the trend of companies wanting to scrub any sticky fossil fuels out of their brand names. In Hammerhead's case, it said it took inspiration from the shape of a river system in one of its core regions.) Prior to Hammerhead, Mr. Sobie was a senior executive with Talisman Energy, now part of Spain's Repsol.
As for Riverstone, it has been investing in Hammerhead since 2014 and now owns a majority interest. The exact interest was not specified in today's press release, but in a separate statement, the London-listed Riverstone Energy Ltd. (REL) -- which is just one of the entities through which Riverstone makes its investments -- said REL's 17-per-cent interest in Hammerhead represented a June 30 carrying value of $156-million (U.S.) against total invested capital of $295-million (U.S.). At the agreed-upon transaction terms, continued REL, the 17-per-cent interest is worth $177-million (U.S.) and will become a 12-per-cent interest in the merged company. The deal should close in the first quarter of 2023. Neither Riverstone nor Hammerhead has specified whether the company plans to stick to a Nasdaq listing only or seek a dual Canadian one.
Hammerhead is not the only Alberta Montney producer to have caught Riverstone's eye over the years. The investment firm also holds 35.4 million of the 186 million shares of Pipestone Energy Corp. (PIPE), down 33 cents to $3.37 on 1.03 million shares. Until last February, Riverstone owned 47.1 million of Pipestone's shares, but decided to sell 11.7 million of them at $4.55 on Feb. 8. Had it held on a few months longer, it could have sold them at the stock's high of $6.72 in June, but February's price of $4.55 is still well above today's close of $3.37.
Part of today's drop may have reflected a new SEDAR filing. Today Pipestone filed a preliminary shelf prospectus, qualifying up to $1-billion in equity or debt financings over the next 25 months. The prospectus also leaves room for secondary financings by existing shareholders. For clarity, the prospectus merely allows Pipestone (or any selling shareholders) to pursue financings; it is not an obligation. The company will file a prospectus supplement with the terms of any financing that it announces.