A service rig crew performs maintenance and repair work on an oilfield pumpjack and well head site near Halkirk, Alberta.Larry MacDougal/The Canadian Press
Inside the Market's roundup of some of the Canadian small caps making news and on the move today. This post will be updated throughout the morning
Penn West Petroleum Ltd. said it is reducing its capital budget by $215-million and will reduce its 2015 dividend by about $160-million. Its board approved a reduction to Penn West's quarterly dividend commencing in the first quarter of 2015 to $0.03 per share from $0.14 per share. The company has also suspended its dividend reinvestment program.
AltaCorp Capital analyst Jeremy McCrea reiterated a "sector perform" rating and $4.50 (Canadian) price target in the wake of Penn West's latest action. He commented, "With $1 billion in asset sales completed in its first year, and continuing improvements in operating efficiencies, we were becoming much more encouraged on the turn-around and the guidance into 2015 before the downturn in commodity prices. Unfortunately, the over-leveraged position of the company is clearly weighing on the share price, which continues to hide the profound turnaround we have seen operationally. Overall, the dividend cut, suspension of the DRIP, and a focus on the Cardium and Viking (with less exploratory spending) should help improve the leverage metrics and eventually help the share price into 2015. Investors with a higher tolerance for risk and who are bullish on commodity prices will likely find some of the highest torque with Penn West."
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Spyglass Resources Corp. said it was suspending its dividend to improve financial flexibility in a low oil price environment and set its 2015 capital budget at $26-million. Through the first three quarters of 2014, the company spent $62.3-million on capital expenditures. Instead of paying out a dividend, management intends to buy back roughly 10 per cent of common shares outstanding. The company also announced a sale of its 50 per cent working interest in an oil property, which will raise $100-million.
AltaCorp Capital analyst Jeremy McCrea commented, "With high leverage (including decommissioning liabilities), well results that look to have payout in two years, and limited growth for 2015/16, the company has its work cut out for itself. That said, with the asset sales and dividend cuts this year, we are pleased to see the new management team start to address the leverage at a greater urgency. Ultimately, investors could see more downside, but today's asset sales and dividend elimination, combined with stronger well results, could be the catalysts to bring institutional investors back."
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Whitecap Resources Inc. said it is reducing its capital budget for 2015 by 32 per cent to $245-million "in response to the dramatic drop in crude oil prices over the past six weeks." The firm will cut its drilling program from 180 to 99 wells. The company also lowered its 2015 production guidance by 6 per cent and its estimated funds from operations by 21 per cent. Management said lower levels of capital spending will allow the company to grow production per share by 5 per cent next year while maintaining its monthly dividend. A substantial portion of the company's production for 2015 is hedged at a significant premium to the current price of oil.
AltaCorp Capital analyst Jeremy McCrea reiterated an "outperform" rating and $15 (Canadian) price target after the latest news. "With management's track record in growing CFPS and creative M&A transactions, well economics that show payback in less than two years, even under our revised commodity price deck, and a low leverage profile at 1.5x for 2015, the company has a number of key performance attributes that should make it an above average performer," he commented.
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Bonavista Energy Corp. said it is reducing its capital budget for 2015 to a range of $375 to $425-million, down from its previously announced range of $525 to $575-million, due to the drop-off in commodity prices. Management indicated that it would be halving its monthly dividend to $0.035 beginning in February. Production is also now expected to come in 2 per cent below its November 2014 guidance. 55 per cent of the company's forecasted oil and liquids revenues for 2015 are hedged at $90.90 (Canadian) per barrel of West Texas Intermediate, while 65 per cent of its projected natural gas revenues are hedged at an average floor price of $3.63 per gigajoule.
AltaCorp Capital analyst Jeremy McCrea maintained his $12.50 (Canadian) price target after the news. He commented, "Bonavista has made considerable improvements in terms of well economics in each of its core regions, especially in its Glauconite and Wilrich plays where well paybacks, even at a revised $3.50/mcf, are still coming in in under 18 months. Overall, we maintain our outperform rating, given management's ability to materially improve the business over the past couple years and likely ability to weather the current commodity price scenario."
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Shares of Sherritt International Corp. are soaring early in the session, up more than 15 per cent, on reports that U.S. President Barack Obama will announce sweeping changes to U.S.-Cuba relations at noon ET today. The company produces nickel, cobalt, and energy in Cuba; approximately three-quarters of its 2013 revenues came from the country.
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Niko Resources Ltd. said it is considering its strategic alternatives, which include a sale of the company or a portion of its assets, and that Jefferies LLC will advise the firm on this matter.
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Pacific Rubiales Energy Corp. said it has entered into an agreement to sell 43 per cent of its interest in Pacific Midstream Ltd. to the International Financial Corporation, the IFC Global Infrastructure Fund, and a consortium of investors for $320-million (U.S.). "We are pleased to announce this sale, which will significantly improve our cash position and provide additional flexibility as we enter into an uncertain oil price environment in 2015," said chief executive officer Ronald Pantin. "We will continue to monetize our midstream assets and plan to sell certain non-core E&P assets, the proceeds from which will be used to reduce debt."
Shares were up 7 per cent in early trading.
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TransForce Inc. approved a 17.2 per cent quarterly dividend increase. "This increase reflects TransForce's ability to continue to generate a strong free cash flow in current and projected market conditions and reflects its stated dividend policy whereby approximately 20-25 per centof annualized free cash flow available would be distributed every year as dividends to shareholders," the company said.
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Lake Shore Gold Corp. said it will repay the $20-million balance on its line of credit with Sprott Resources on December 31, 2014, in order to save $2.4-million in interest charges. "We have made excellent progress reducing our debt levels while also generating net free cash flow. Earlier this year, we said we would repay $20.0 to $25.0 million of debt in 2014 while also building our cash position. With the $20.0 million repayment we will make later this month, we will have repaid a total of $45.0 million of debt this year and increased our cash and bullion from $34.0 million at the beginning of 2014 to approximately $60.0 million ending the year," said president and chief executive officer Tony Makuch.
M Partners analyst Derek Macpherson reiterated a "buy" rating and $1.65 (Canadian) price target after reviewing the announcement. "In our view, this debt repayment highlights Lake Shore's ability to generate free cash flow in the current gold price environment. We expect the company to generate $51.8-million in free cash flow in 2015 and believe the current valuation is not reflective of Lake Shore's ability to generate free cash flow in the current gold price environment. Lake Shore's shares currently trade at 3.8x estimated 2015 EBITDA versus peers at 5.0x."
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Paramount Gold and Silver Corp. said it has entered into an agreement to be purchased by Coeur Mining, Inc. Shares of Paramount's subsidiary, which owns assets in Nevada, will be spun off to holders of the acquired company's stock. This will be an all-stock deal that comes at a 15 per cent premium to Paramount's closing price on Tuesday, and is valued at approximately $146-million.
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NAPEC Inc. said that two of its subsidiaries had been awarded contracts with a cumulative value close to $100-million. "These contracts further demonstrate our subsidiaries' leading positions in their respective markets. The blanket contracts awarded to RDC highlight its strong and longstanding business relationships with industry leaders in the United States, while the contract extension in Ontario illustrates RDI's growing reputation as a trusted provider of high-quality services to local utility service providers", said president and chief executive officer Pierre L. Gauthier.
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In analyst actions today involving Canadian small caps:
FirstEnergy Capital downgraded Long Run Exploration to "market perform" from "outperform" with a price target of $1.75 (Canadian).
RBC Dominion Securities downgraded Manitok Energy to "sector perform" from "outperform" with a price target of $1.50 (Canadian).
RBC Dominion Securities downgraded Trilogy Energy to "sector perform" from "outperform" with a price target of $12 (Canadian).
RBC Dominion Securities downgraded Oryx Petroleum to "sector perform" from "outperform" with a price target of $10 (Canadian).
Cantor Fitzgerald initiated coverage on NexGen Energy with a "speculative buy" rating. It is not providing a price target, due to the speculative nature of the stock.