Stockwatch Energy today
Energy Summary for Oct. 31, 2022
2022-10-31 20:15 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery lost $1.37 to $86.53 on the New York Merc, while Brent for December lost 94 cents to $94.83 (all figures in this para U.S.). Western Canadian Select traded at a discount of $28.25 to WTI, up from a discount of $28.75. Natural gas for December added 68 cents to $6.36. The TSX energy index added 4.19 points to close at 262.37.
Oil prices skidded lower on weak economic data from China (the world's largest oil importer). Even so, prices ended the month of October with their first monthly gain since May. They soared at the beginning of the month amid rumours that OPEC+ was planning a sizable production cut. The rumours turned out to be accurate, with the group announcing its biggest cut in more than two years on Oct. 5. Separately, in a widely watched annual outlook released this morning, OPEC raised its mid- and long-term oil demand forecasts and estimated that $12.1-trillion (U.S.) in investment will be necessary to meet this demand.
Meanwhile, with just over a week to go until the U.S. midterms, U.S. President Joe Biden is reportedly eyeing a windfall tax on oil and gas companies. A statement from the White House today indicated that Mr. Biden will make an after-hours announcement in connection with "major oil companies making record-setting profits even as they refuse to help lower prices at the pump for the American people." The Associated Press and other media outlets quoted U.S. officials as stating that the President will ask Congress to consider imposing tax penalties and other restrictions. The general view among oil observers is that this is pre-election politicking and that the President will find it difficult to persuade Congress to do anything of the sort.
Here in Canada, it was a quiet day in the oil patch, a pause for breath before the resumption of a busy quarterly earnings season. This will pick up again tomorrow with the third quarter financials of Topaz Energy Corp. (TPZ: $23.04) and Gran Tierra Energy Inc. (GTE: $1.88). Others set to report their financials this week include Cenovus Energy Inc. (CVE: $27.54), Athabasca Oil Corp. (ATH: $2.75), Tourmaline Oil Corp. (TOU: $76.76), Canadian Natural Resources Ltd. (CNQ: $81.71), Baytex Energy Corp. (BTE: $7.40) and several more.
Oil sands giant Suncor Energy Inc. (SU), up $1.00 to $46.86 on 12.3 million shares, plans to release its third quarter financials on Wednesday after the close and hold a conference call on Thursday morning. Today it got a helping hand from RBC analyst Greg Pardy, who released a boosterish research note in advance of the financials. He expects the company to report production of 720,000 barrels a day and free cash flow of $2.6-billion. The analyst reiterated his "outperform" rating on the stock and his price target of $55.
It is, as ever, worth noting the ties between the object of Mr. Pardy's boosterishness, Suncor, and the firm that signs Mr. Pardy's paycheques, RBC. They forged another link just last week, when Suncor agreed to buy Teck Resources' 21.3-per-cent interest in the Fort Hills oil sands project for $1-billion. RBC is acting as a financial adviser in the transaction. Unsurprisingly, Mr. Pardy is a fan of the deal, calling it a "strategically sound move ... at a good price."
Further afield, Abby Badwi's TAG Oil Ltd. (TAO) lost 3.5 cents to 44.5 cents on 250,700 shares. It has filed the final prospectus for its previously announced $22-million equity offering. The offering (which has Research Capital and Echelon Capital as co-lead underwriters) will see TAG issue 55 million shares at 40 cents. It hopes to do so by the end of the week.
Prior to the announcement of the 40-cent-a-share financing, the stock was trading at 57 cents. The lukewarm reaction reflects the sizable dilution (TAG currently has just 91 million shares outstanding) and the plan to use most of the money for a somewhat hazy new promotion in Egypt. TAG entered Egypt last month through a service agreement to develop unconventional resources at the Badr oil field. The project has a "high probability of commercial development," according to executive chairman Mr. Badwi (a long-time oil promoter whose past companies include the Egypt-focused Rally Energy, sold for $898-million in 2007). Yet investors may have a long wait for commercial operations. According to the marketing materials for the financing, TAG expects to be in a non-commercial pilot phase for the first three years.
Back in North America, Mehran Ehsan's U.S. Permian junior, Permex Petroleum Corp. (OIL), stayed unchanged at 14.5 cents on 310,500 shares. It has decided to roll back its shares at the eyebrow-raising ratio of 1 for 60. As the company currently has 115.9 million shares outstanding, the rollback, which will take effect on Nov. 2, will reduce its share count to just 1.93 million.
Mr. Ehsan, Permex's president and chief executive officer, gave no particular reason for the rollback other than wanting to "make the shares more attractive to new and current investors." There are some investors who would find such a low share count to be actively discouraging. Mr. Ehsan may, however, have an eye on meeting the qualifications to list the stock on a more attractive exchange, such as the Nasdaq, which generally requires a minimum price of $4 (U.S.). Permex's U.S.-listed shares currently trade on the OTCQB and closed today at 10.35 U.S. cents. A 1-for-60 rollback would take them to $6.21 (U.S.), leaving some wiggle room to drift while the exchange mulls a listing application, if submitted.
Investors are no stranger to downward drifting. Permex peaked at 60 cents in 2018, right as it completed its 50-cent-a-share IPO. In a matter of days, the opportunities for IPO investors to sell at a profit were gone. The stock got as low as 2.5 cents during the 2020 downturn, popped back up to 45 cents earlier this year, and lately has been trading sideways at around 15 cents. It is hoping to regain favour with the results of a "transformative" drill program that started last month. Factoring in the rollback, IPO investors (if there are any left) will now need a share price of $30 to break even.
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