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Bonavista’s dividend cut: a harbinger of things to come?

Also: the Seaway Pipeline reversal is finished, and a look at FirstEnergy's top ideas in the international space

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at

Jan 11, 2013

by Max Fawcett

Could the dividend cut announced earlier this week by Bonavista Energy (TSE:BNP) be a sign of things to come for other companies in the sector? That’s what BNN correspondent Jameson Berkow explores in a blog post today. “Will energy dividends remain stable through 2013? Unless natural gas prices take a dramatic and unexpected turn upwards – and Canada’s oil price discount shrinks – the disappointing and almost definite answer is no,” he writes. Berkow singles out Penn West Energy (TSE:PWT) as a company that will almost certainly have to cut its dividend, and says there may be others as well.

Speaking of that price discount, there may finally be a light on the horizon for producers like Bonavista and Penn West who have been hit hard by the spread between WTI and Canadian crude. It’s not a particularly bright light, mind you – there’s been no movement on the proposed Northern Gateway pipeline, nor a decision on Keystone XL from the White House. But the reversal of the flow on the Seaway Pipeline, an 800-kilometre stretch of pipeline partially owned by Enbridge (TSE:ENB) that runs between Oklahoma to refineries on the U.S. Gulf Coast has been completed, and it’s expected to help ease – not eliminate – the bottleneck that’s formed at the North American oil storage hub of Cushing, Oklahoma and forced Canadian crude producers to take a steep discount on the price paid for their product.

That won’t help any of FirstEnergy’s top ideas for 2013 in the international space, though, given that they all trade off Brent Crude. Darren Engels pounds the table on behalf of Bankers Petroleum (TSE:BNK), noting that the company’s operational updates in the second half of 2012 suggest that it is getting a handle on the difficulties that plagued its production growth in the early part of that year. He has an $8 price target on its shares and says that “our thesis for Bankers being a top performer in 2013 is predicated on the company’s long life reserve base trading at US$4.49 per 1P barrel and US$2.90 per 2P barrel. Even with a significant takeover premium, these metrics fall far below the organic F&D [finding and development] costs of many larger companies.”

Stephane Foucaud and David Przybyla like Coastal Energy (TSE:CEN), a company with operations in Thailand and Malaysia. “Coastal offers about 7 per cent free cash flow yield (after exploration cap-ex), 50 per cent average production growth (to 33 mboe/d) and a low risk multi-well exploration drilling program targeting prospective resources representing about 100 per cent of the company’s current 2P reserves,” they write. “Additionally, the very encouraging recent initial fracking results at Bua Ban South could open an entire new play. The share price currently trades below core NAV.”

Other companies in the space that FirstEnergy’s analysts like are Heritage Oil PLC (TSE:HOC), Ophir Energy PLC (LSE:OPHR), Parex Resources (TSE:PXT), Platino Energy, (TSE:PZE) and WesternZagros Resources (TSE:WZR), which Przybyla and Gerry Donnelly describe as their preferred name in the ongoing consolidation of Kurdistan’s energy sector.



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