Stockwatch Energy today
Energy Summary for April 27, 2021
2021-04-27 20:04 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery added $1.03 to $62.94 on the New York Merc, while Brent for June added 77 cents to $66.42 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.35 to WTI, up from a discount of $12.40. Natural gas for May added eight cents to $2.87. The TSX energy index added a fraction to close at 114.57.
Oil prices headed higher after OPEC+ hinted that it sees no reason to fear that its oil demand forecast will be derailed by rising COVID-19 levels in India, Brazil and elsewhere. The group did not explicitly say so, of course. A statement from OPEC+ merely noted that the group held a meeting today and "decided on the continued implementation of the production adjustment decision" from April 1. That was the day that OPEC+ agreed to start unwinding its production cuts over the next few months, citing rising demand and stabilizing markets. The stay-the-course implication of today's meeting is that the group is still confident in this stance. Panic averted, as far as traders were concerned. OPEC+ does not plan to meet again until June 1.
Here in Canada, unfortunately, the rise in COVID-19 cases has caused the heart of the oil patch -- the Regional Municipality of Wood Buffalo (RWMB), which includes Fort McMurray -- to declare a state of emergency. Fort McMurray has the highest active case rate in Canada, with about 1,340 cases per 100,000 people. (This compares with 385 cases per 100,000 in Edmonton and about 225 per 100,000 in both Toronto and Vancouver.) The region appears to have plenty of vaccine supplies, but is struggling with vaccine eligibility. "We have a very young population, It's young oil sands workers, predominantly. And unfortunately, most people do not qualify for the vaccine [because of their age]," RWMB Mayor Tom Scott told CBC News. He wants the province to lower the vaccine eligibility age to accommodate the younger Fort Mac population.
Not discussed (at least not in the CBC article) was the fact that many oil sands workers live in camps that can house thousands of other people, increasing the risk of outbreaks. Currently there are a dozen outbreaks at sites owned by Canadian Natural Resources Ltd. (CNQ: $37.24), Suncor Energy Inc. (SU: $25.85), Imperial Oil Ltd. (IMO: $32.06) and others. The Oilsands Community Alliance, which represents 15 operators in the region, has released a statement vowing to implement additional safety measures.
Further afield, Dr. Art Halleran's Turkey-focused Trillion Energy International Inc. (TCF) added 2.5 cents to 41 cents on 1.3 million shares, after finally getting its hands on some money to drill its SASB gas field. Trillion owns a 49-per-cent interest in this field and is looking to "exponentially expand" production. Nearly anything would be a massive increase over the field's production at year-end 2020, when it was producing a grand total of 700,000 cubic feet a day (about 116 barrels of oil equivalent a day). That is a steep drop from the field's peak production of 30 million cubic feet a day in 2011. Not a single well has been drilled since that year.
The SASB field eventually caught the eye of Trillion, which went public in February, 2020, with a promise to return the field to its glory days under the leadership of Dr. Halleran (who previously co-founded a Colombian gas producer, Canacol Energy Ltd. (CNE: $3.48)). The timing was not ideal: Global markets collapsed within weeks of Trillion's debut. Trillion persisted, and recently claimed to have assessed "several additional low-risk gas prospects" with odds of success "ranging from 60 to 90 per cent." It said it would drill five to six of these low-risk targets in 2021. Yet with its negative operating cash flow, a working capital deficit of $372,000 as of Sept. 30 and a history of going-concern red flags waving about its financials, Trillion was in no position to drill the wells by itself.
Today Trillion cheered the long-awaited arrival of an investor to help it out. An unidentified U.S. investment firm has agreed to provide up to $17.5-million (U.S.) in royalty and debt financing. The financing will include terms enabling the conversion of some of the debt into shares of Trillion at 28 U.S. cents each. A mere three months ago, Trillion was trading at just eight cents, but it seems that investors have been expecting it to land a backer. Trillion has steadfastly hyped the low-risk nature of SASB drilling and the high-priced nature of Turkish gas. Gas in Turkey typically sells for around $6 (U.S.) to $8 (U.S.) a unit, more than double the North American benchmarks. Assuming that the above financing closes -- it is still in the due diligence stage -- Trillion should be able to start drilling the SASB field in the second half of this year, the field's first such activity in a decade.
Another international gas producer, the Tanzania-focused Orca Energy Group Inc. (ORC.B), remained unchanged at $5.45 on zero volume. Keen-eared investors may have heard a harrumph or two from Canaccord Genuity analyst Charlie Sharp, who published a boosterish research note on Orca this morning, to apparently zero attention. Orca's stock is a thin trader at the best of times. Over 99 per cent of its Class A common shares and about 16 per cent of its Class B shares are controlled by the estate of its founder, David Lyons, who died in 2018. Current management has kept up Orca's focus on its Songo Songo gas field in Tanzania. It brought the field on production in 2004 and is currently producing around 60 million cubic feet a day.
Tanzania is another country that is relatively lucrative for gas producers, with Orca enjoying a weighted average price of $4.32 in the fourth quarter. (By comparison, the Alberta AECO benchmark averaged $2.63 -- and that was its best fourth quarter in four years.) In today's research note, Mr. Sharp noted that Orca's long production history and high gas prices have allowed it to develop an "outstanding shareholder distribution track record," even during the 2020 downturn. The company has bought back over $90-million worth of its shares since the start of last year. Over the same period, it has hiked its quarterly dividend to 10 cents from six cents, for a current yield of 7.3 per cent.
Mr. Sharp sees the potential for further buybacks and dividend hikes given Orca's "very robust" balance sheet and cash flow. Even so, he gently nudged his price target down to $8.10 from $8.40, without particularly explaining why. (The stock is not very liquid, as noted above, and Orca is currently in negotiations with the government to get its Songo Songo licence extended past the current expiry of 2026, which may have some investors on the sidelines.) The new $8.10 price target is still well above Orca's closing price today of $5.45. A disclaimer at the bottom of Mr. Sharp's note indicated that his employer, Canaccord, is a "corporate broker" for Orca and "may have an agreement with [Orca] relating to the p