Stockwatch Energy today
Energy Summary for Oct. 18, 2022
2022-10-18 21:01 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery lost $2.64 to $82.82 on the New York Merc, while Brent for December lost $1.59 to $90.03 (all figures in this para U.S.). Western Canadian Select traded at a discount of $26.50 to WTI, up from a discount of $28.75. Natural gas for November lost 25 cents to $5.75. The TSX energy index lost a fraction of a point to close at 236.27.
Canadian pipeline giant Enbridge Inc. (ENB: $51.30) must fork over $11-million (U.S.) in penalties related to the Minnesota section of its Line 3 oil pipeline. The Minnesota Pollution Control Agency (MPCA) and Department Natural Resources (DNR) announced yesterday that investigators have determined that Enbridge "violated a series of [water] regulations and requirements" during pipeline construction. The agencies, along with the Fond du Lac Band of Lake Superior Chippewa (which experienced an aquifer breach near its reservation), have reached a settlement with Enbridge for $11-million (U.S.), comprising fines, financial assurances and payments for environmental projects.
The investigations come as a result of Enbridge's construction activities on the pipeline during 2021, when (according to the agencies) the company discharged stormwater into wetlands, released drilling mud into surface waters at 12 locations and was responsible for three aquifer breaches. "The DNR is holding Enbridge fully accountable ... [and] will continue work to ensure that mitigation and restoration effectors effectively address damage to Minnesota's natural resources," said DNR Commissioner Sarah Strommen in a statement.
"We appreciate that we were able to come to agreement with the agencies and are committed to making this right," said Enbridge in its own statement. It defended its "strong environmental safeguards" and the fact that it built the pipeline under "the strictest environmental requirements in state history." Then, perhaps realizing that there is a limit to that avenue of damage control when accepting millions of dollars in environmental penalties, Enbridge shifted tack and emphasized the project's economic benefits. It noted that it spent $3-billion (U.S.) in Minnesota alone, with an "overall regional economic impact" of $5-billion (U.S.).
The dollar signs in Enbridge's statement, and the construction activities mentioned in the Minnesota agencies' statement, are all in reference to the Line 3 replacement project. Line 3 as a whole was built in the 1960s to carry oil from Alberta to Wisconsin. With age and corrosion beginning to take a toll on capacity, Enbridge proposed upgrading and expanding the line in 2014, and finally brought the last upgraded segment (in Minnesota) into service in late 2021. This made it the first major Canadian oil pipeline expansion to be completed since Enbridge's Alberta Clipper in 2015.
As to be expected, the expansion faced fierce opposition from green groups, which persisted long after the pipeline came into full service last year. Indeed, the last of the legal challenges did not wrap up until about two weeks ago. A federal judge ruled on Oct. 7 that the U.S. Army Corps of Engineers properly evaluated the Minnesota segment of Line 3 when issuing federal permits. This effectively knocked down a challenge to the federal permits lodged by the Sierra Club, Honor the Earth, the Red Lake Band of Chippewa Indians and the White Earth Band of Ojibwe. According to local news outlets, this was the last of numerous lawsuits filed in state and federal courts against Line 3, all of which have resulted in rulings upholding the line's permits.
Here in Canada, oil sands producer Cenovus Energy Inc. (CVE) added 20 cents to $23.48 on 9.47 million shares. It had no news today, but got a lovely mention from RBC analyst Greg Pardy, who released a boosterish research note this morning about his "insightful" chat with chief operating officer Jon McKenzie. Mr. McKenzie was seemingly trying to stir up some excitement ahead of Cenovus's third quarter financials on Nov. 2. Mr. Pardy was all too eager to help, reporting that there is "Lots Going On" for Cenovus and for Mr. McKenzie, about whom Mr. Pardy thought it important to note that he "remains very happy in his current role as COO."
Mr. McKenzie's insights included hammering home the usual message on debt reduction. Cenovus, which was swimming in $11-billion in net debt this time last year, is hoping to get this all the way down to $4-billion by the end of this year or early next. This would give it more room for dividends and share buybacks. (It currently pays a 10.5-cent quarterly dividend, for a yield of 1.8 per cent.) Cenovus is also working on ways to cut costs, particularly its single biggest cost, which is condensate (used by oil sands producers to dilute bitumen enough to flow through pipelines). Lastly, Cenovus "continues to work with BP on the incident at the Toledo [Ohio] refinery in September," as Mr. Pardy diplomatically phrased it. (The incident was a fire that killed two employees and likely caused enough damage to prevent the facility from being operational again until next year.)
Mr. Pardy ended on a cheerful note, opining that Cenovus "should trade at an average/above-average multiple vis-a-vis our major peer group, reflective of its capable leadership team, strengthened balance sheet, operating momentum and bolstered shareholder returns." He reiterated his "outperform" rating and his price target of $32. As ever, investors may wish to note the chummy relationship between Cenovus and Mr. Pardy's employer, RBC, which must disclose that it "makes a market" in Cenovus's securities and receives compensation from Cenovus for various products and services.
Further afield, Richard Gonzales's Brazilian oil junior, Petro-Victory Energy Corp. (VRY), added 30 cents to $2.00 on 1,300 shares. The stock is a thin trader -- which makes big price swings more likely; yesterday it lost 30 cents -- as more than half of its 14.7 million shares are held by just four investors. These include two entities controlled respectively by T. Lynn Bryant and Charles Cotter, who are directors of Petro-Victory.
Today's jump came as Petro-Victory trumpeted a "fantastic achievement" at its onshore Andorinha field in Brazil. The company has drilled its first development well, PVE-01, and found net oil pay. The drilling itself seems to be the main achievement, as the amount of net pay was just 3.85 metres -- though in this part of the world, the motto could be that net pay need not be impressive when wells are this cheap. The cost runs anywhere from $50,000 (U.S.) (for a workover on an existing well) to $600,000 (U.S.) (for a new well). In any case, today's early-stage PVE-01 results prompted "delight" in Petro-Victory's chief executive officer, Mr. Gonzales. He added that test results from the well should arrive "shortly."
He will have to cross his fingers that these tests fare better than a previous batch in July. That was when the GALP-06 well -- which was actually an abandoned well from 2007, hence Petro-Victory's pride in the PVE-01 well being its first -- hit 13 metres of net pay, yet yielded no commercial discoveries during testing. Even a small commercial discovery would be noteworthy for Petro-Victory, whose output was a grand total of 47 barrels a day in the quarter ended June 30. The company is hoping to boost this figure through a four-well program this year. The PVE-01 well marks the halfway point, with GALP-06 being a bust and PVE-02 and PVE-03 still in the future.
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