Alberta looks likely to implement energy efficiency measures when it revamps its climate-change policy to win support for its oil sector, an about-face on the former premier’s vow that the province wouldn’t enact new rules until the U.S. did.
The province plans to have new regulations on emissions in the near future and may include a higher carbon price, Alberta's environment minister says.
The struggle by Alberta’s oil producers for access to new markets, as reflected in U.S. delays in approving the Keystone XL (TRP) pipeline, comes amid opposition to oil sands bitumen because of its higher carbon intensity and concerns around air and water pollution.
Baytex Energy (BTE +1.7%) late yesterday announced a 10-year agreement with Genalta Power to deliver the majority of its excess natural gas production from the Three Creeks heavy oil production in the Peace River area of Alberta to a power generating facility to be constructed by Genalta.
The project is in addition to BTE's existing commitments to supply Genalta with natural gas to generate 1 MW of power. As part of the project, BTE will construct new pipelines, scheduled for Q4 completion, to increase its delivery capacity from its existing collection system to the Genalta facility.
Baytex Energy (BTE -5.8%) investors are taken aback by the size of the deal to acquire Australia's Aurora Oil & Gas for $1.8B - or A$4.10/share, a 52% premium above the last week’s average price - plus assumption of $744M of long-term debt; plus, BTE pledges to raise its monthly dividend by 9% after the deal closes.
To help fund the deal, BTE is issuing $1.3B of subscription receipts in a bought deal co-led by Bank of Nova Scotia and RBC Dominion, and will tap its credit facilities.
The acquisition is "manageable" for BTE, but "the balance sheet is no longer pristine," says portfolio manager at Brompton Funds. “There’s no doubt the Eagle Ford is a good play, but they are not operating the play.”
Other analysts suggest the hefty premium is warranted: "It’s probably one of the most expensive deals done in the Eagle Ford, but we think it should certainly have gone at a significant premium to other deals because of the high-quality nature of the resource,” a UBS analyst says.
Baytex Energy Trust (BTE) agrees to acquire Australia-based Aurora Oil & Gas for ~$1.8B in cash plus assumption of ~$744M in debt.
Aurora's primary asset is 22,200 net contiguous acres in the Sugarkane field in south Texas in the core of the Eagle Ford shale; Aurora's Q4 2013 gross production was 24,678 boe/day (82% liquids) of predominantly light, high-quality crude oil.
BTE says the deal is highly accretive on a per share basis to reserves, production, and funds from operations.
BTE plans to increase its monthly dividend by 9% to $0.24/share, subject to the completion of the acquisition.
KKR says it will open its first Canadian office next month in Calgary, the capital of Canada's oil patch, as it seeks to tap into growing demand for private-equity financing in the region and expand its presence in the global energy industry.
KKR Director Brandon Freiman, who will relocate from the NYC headquarters to start up the new office, is eyeing investment of $500M to "several billion dollars" over the next five years in upstream oil and gas production, midstream pipelines and related infrastructure as well as energy services businesses.
The planned investments will include providing financing instead of outright takeovers, KKR says.
Canadian heavy oil producers Suncor (SU), Cenovus (CVE), Baytex (BTE), Imperial Oil (IMO) and Canadian Natural Resources (CNQ) have jumped 10%-15% in three months, and some analysts see further gains ahead on optimism that pipeline bottlenecks are easing - with or without the Keystone XL. The large-cap Canadian producers have an average enterprise value of 8x their 12-month trailing EBITDA vs. 12.9x in 2010.
In an operations update, Baytex Energy (BTE +1.6%) says it expects average Q2 production of 57.5K-58K boe/day, up 11% Q/Q and up 9% Y/Y; FY 2013 production guidance remains at 56K-58K boe/day. Q2 production from its Peace River properties is estimated at 23K bbl/day, up 22% Q/Q and 19% Y/Y.
"Oil's well" with these energy stocks - BTE, APC, DVN, NTI, LINE/LNCO - which Corvette Kid says could average 40%-plus total return in 12-18 months. Of Baytex, shares can push $60 if production growth hits forecast targets and heavy oil prices continue to recover. Devon management has all but indicated a sale is on the table, which could bring 60% upside.
If the Keystone pipeline is approved, analysts are more interested in Canadian oil producers and refiners along the Gulf of Mexico that can process the heavy stuff flowing south than in TransCanada (TRP) and rival pipeline operator Enbridge (ENB), whose gains are priced in. RBC likes SU, CNQ, BTE and MEGEF.PK, while Edward Jones prefers CVE, IMO, XOM, PSX and VLO along with SU.
Suncor Energy (SU -0.6%) may make its C$11.6B Voyageur oil sands project the first major spending reduction among Alberta energy producers, as cutting production costs is one of the few options available while the region’s crude prices sink to the lowest in the world. The revolution in U.S. production and the gridlock in pipeline approval is "a train wreck" for Canadian producers, an analyst says.