by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery added $1.79 to $78.50 on the New York Merc, while Brent for November added $2.21 to $86.27 (all figures in this para U.S.). Western Canadian Select traded at a discount of $22.50 to WTI, unchanged. Natural gas for October lost 25 cents to $6.65. The TSX energy index added 4.63 points to close at 206.41.
Oil prices rallied as recession fears gave way to supply fears. Offshore producers in the U.S. Gulf of Mexico have shut in one-10th of their oil production as they keep an eye on Hurricane Ian, currently barreling toward Florida. Meanwhile, the Nord Stream gas pipeline system from Russia to Europe suffered two explosions yesterday, leading European officials to suspect acts of sabotage aimed at escalating the broader conflict over Russia's invasion of Ukraine. (The pipeline system was already shut down indefinitely for repairs -- or so said Russia's Gazprom earlier this month -- but the thin hope that Russia will turn them on again before winter is now essentially dashed.)
International oil and gas producer Vermilion Energy Inc. (VET) added $2.57 to $27.89 on 4.2 million shares. In addition to higher oil prices, investors seemed intrigued by Ireland, where Vermilion is a major producer and where the government has decided -- for now -- not to impose a windfall tax on oil and gas companies. The Irish government released its fiscal budget today and unveiled a raft of measures aimed at "helping individuals, families and businesses to deal with rising prices." While such measures included energy credits and fuel excise reductions, they stopped short of a windfall tax on producers' profits.
This may, however, only be a stay of execution. The Irish government suggested that the only reason it did not impose a windfall tax is because it is awaiting a higher-level directive from the European Union. Earlier this month, the EU proposed a 25-billion-euro windfall tax on oil and gas producers, which would apply to at least 33 per cent of their so-called "surplus" profits in 2022. As Vermilion gets roughly one-third of its production from Europe -- soon to rise to about half of its production, once it closes a large Irish acquisition later this year -- concerns about the proposal have played a large role in the stock's plunge toward $25 from $35 since the start of the month.
The EU proposal has drawn plenty of criticism, even from member countries. Given that the proposal will need unanimous approval from all 27 member countries if it is to go forward, negotiators are reportedly trying to seek a compromise ahead of a crucial vote this Friday, Sept. 30. Reuters reported today that a revised draft proposal would (among other things) allow countries to delay imposing the windfall tax by a year. Full details remain scarce, but will presumably be hammered out by Friday. In the meantime, Vermilion's share price, after falling every single day for nearly two weeks, finally enjoyed a day in the green.
Here in Canada, Brian Schmidt's Tamarack Valley Energy Ltd. (TVE) added 19 cents to $3.48 on 10.4 million shares. It has closed a previously announced bought deal for $144-million (including the full exercise of the overallotment option), issuing 38.3 million shares at $3.75. The proceeds will go in part toward the $1.4-billion takeover of the private Deltastream Energy in the Alberta Clearwater. The deal has met with a lukewarm reaction from shareholders, who have sent Tamarack's stock down to $3.48 from about $4 since the announcement two weeks ago.
One of the lead underwriters of the bought deal was RBC, which of course had to pay $3.75 a share. What a stroke of good fortune it is that RBC analyst Luke Davis chose today to publish a boosterish research note in which he reiterated his rating of "outperform" on the stock and his price target of $7.50. Mr. Davis expressed great enthusiasm for the "transformational" Deltastream deal, which should help Tamarack boost its 45,000-barrel-a-day production to a 2023 average of 70,000 barrels a day, and for which it just so happens that RBC is serving as a financial adviser. Further fine-print disclosures that investors may wish to note are that RBC "makes a market" in Tamarack's securities and receives compensation for various banking and non-securities services.
Back in the international sector, Randy Neely's Egypt-focused TransGlobe Energy Corp. (TGL) added 23 cents to $3.65 on 153,200 shares. It is continuing to try to drum up support for its proposed all-share merger with West African oil producer Vaalco Energy Inc. (U.EGY: $4.20). Last night, TransGlobe applauded Vaalco for receiving government approval for a plan of development at its Venus discovery in Equatorial Guinea. "[The approval] further supports the board's existing recommendation to combine with Vaalco to create a world-class African-focused E&P [explorer and producer]," declared TransGlobe chairman David Cook.
Investors have been hearing this recommendation on a seemingly endless loop for weeks. Not everyone is as excited about the merger as Mr. Cook; earlier this month, dissident shareholder Horizon Partners published an open letter calling for investors to reject the deal, as it "severely undervalues" TransGlobe and offers nothing but "inferior and speculative" Vaalco shares. (At $4.20 (U.S.), these shares have lost about $2 (U.S.) since the deal was announced in July.) This kicked off several rounds of back-and-forth sniping and repeated urgings from TransGlobe to vote in favour of the deal. Shareholders will have to put up with it for another two days before the vote takes place this Thursday, Sept. 29.
Back in Canada -- for now -- Robin Auld and Brian Anderson's new promotion, Softrock Minerals Ltd. (SFT), edged up half a cent to 4.5 cents on 1,500 shares. Though the promoters are new, Softrock is in fact the old name. Mr. Auld and his group agreed in July to recapitalize the company and take over its board and management. They announced the completion of those efforts last night, while also rebranding the company as Criterium Energy Ltd. It should start trading under its new name and symbol (CEQ) on Thursday.
Given the ho-hum nature of the existing assets, which comprise royalties on a grand total of five wells in Alberta, Criterium's immediate priority is to go shopping. Its hunting grounds will be Asia. New chairman Mr. Anderson previously oversaw Shell's operations in northeast Asia and Malaysia, while the president and chief executive officer, Mr. Auld, is the founder and CEO of the Criterium Group, a consulting group focused on the Asia-Pacific region. Others at Criterium include chief operating officer Matthew Klukas (who formerly worked in Talisman Energy's Asia-Pacific division), chief financial officer Dr. Henry Groen (also formerly of Talisman) and regional director Hendry Jaya (formerly of Indonesia's state-owned Pertamina).
Criterium has a bit of money to go shopping. Its recapitalization included a $5.4-million private placement, comprising 134.5 million shares at four cents. As this price is lower than the five-cent minimum usually required by the TSX-V, Criterium will need to conduct a rollback within six months. It currently has 181 million shares outstanding.