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Energy Summary for Feb. 4, 2015

2015-02-04 19:46 ET - Market Summary

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by Stockwatch Business Reporter

West Texas Intermediate crude for March delivery plunged $4.60 to $48.45 on the New York Merc (all figures in this para U.S.), bringing an abrupt end to its four-day rally, after this week's report from the U.S. Energy Information Administration (EIA) showed that U.S. crude supplies are at record highs. Supplies rose by 6.3 million barrels in the week ended Jan. 30; analysts had expected a rise of just 3.7 million barrels. At 413.1 million barrels total, supplies are now at their highest level since the EIA began keeping weekly data in 1982. Looking at monthly data (which do not line up exactly with the weekly data), supplies are at their highest level since 1930. Brent for March lost $3.75 to $54.16. Western Canadian Select traded at a discount of $12.80 to WTI ($35.65), down from a discount of $12.15. Natural gas for March lost 9.2 cents to $2.66. The TSX energy index lost 9.66 points to close at 225.60.

Al Bey's Rock Energy Inc. (RE) lost 33 cents to $2.21 on 4.05 million shares. Yesterday after the close, it announced a $10-million bought-deal offering of 4.26 million shares at $2.35, with insiders expected to buy 10 per cent. This morning it boosted the offering to 5.6 million shares for proceeds of $13.16-million. Rock is joining the small but growing club of energy producers that are conducting financings while their shares are at multiyear lows. This morning, Rock's neighbour in southwest Saskatchewan, Raging River Exploration Ltd. (RRX: $7.77), completed an $88.32-million bought deal at $6.40. Last week, Montney-focused ARC Resources Ltd. (ARX: $23.33) closed a $350-million bought deal at $22.55, plus another $52-million in overallotment proceeds. All three companies say the same thing: Proceeds will go toward temporary debt reduction, 2015 capital spending and working capital. Shareholders have been skeptical each time. The companies' balance sheets are in relatively good shape in terms of debt to cash flow, goes the thinking, so there should be no need to raise money at these lows unless there are big plans ahead, such as acquisitions. When ARC announced its financing, Raymond James predicted that the money would surely go toward an acquisition. Today, Dundee Capital said Raging River is nicely set up for acquisitions and called it "our top pick in the intermediate space." Investors will see what institutions have to say about Rock once they are off restriction (many of them are underwriters in Rock's financing and so cannot put out recommendations). Meanwhile, Rock has reaffirmed its 2015 budget, which was lowered to $25-million from $90-million on Jan. 25. It has no drill rigs operating, so much of the money is going toward its Mantario EOR (enhanced oil recovery) project. Once operational in March, this project will lower Rock's royalties in the area to 1 per cent from as much as 30 per cent, thanks to Saskatchewan's EOR incentive program.

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