Stockwatch Energy for yesterday
Energy Summary for Dec. 23, 2022
2022-12-23 21:01 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added $2.07 to $79.56 on the New York Merc, while Brent for February added $2.94 to $83.92 (all figures in this para U.S.). Western Canadian Select traded at a discount of $28.00 to WTI, unchanged. Natural gas for January added eight cents to $5.08. The TSX energy index added 9.41 points to close at 244.50.
Although trading volumes were thin in a choppy pre-Christmas trading session, oil prices managed to notch their second weekly gain in a row, buoyed by Russian threats to disrupt global supplies. Russian deputy prime minister Alexander Novak told the state television agency that Russia may cut its production by 500,000 to 700,000 barrels a day in early 2023, as a response to Western price caps. This could include halting sales to "unfriendly countries" that support the caps and other restrictions on Russian energy.
Here in Canada, Jim Evaskevich's Alberta Cardium-focused Yangarra Resources Ltd. (YGR) added 19 cents to $2.96 on 610,800 shares, pleasing investors with its 2023 guidance. The company will aim for production of 13,000 barrels a day (up from this year's target of 11,250 barrels a day) on a budget of $125-million (compared with this year's $110-million). Management boasted that the budget is well within forecast cash flow and that it expects to reduce debt to just $75-million by the end of next year.
Management noticeably did not reiterate a prediction that it made last month, when it said it "intends to implement a return-of-capital strategy when bank debt reaches less than $100-million." It dangled possibilities such as share buybacks or perhaps even special dividends. Neither got a mention in today's update. What did get a mention, if only a small one tossed off to the side, is that Yangarra's bankers have completed their latest credit facility review and have set the facility at $180-million. Yangarra opted to omit the context that this is a decrease from the prior limit of $210-million. The newly thinned financial cushion (the facility was $153-million drawn as of Sept. 30) may explain the sudden reticence about future payout possibilities.
Elsewhere in the Cardium, the Gray brothers' Petrus Resources Ltd. (PRQ) added 15 cents to $2.53 on 102,500 shares. It has posted its final monthly update of 2022 on its website. The update covered the company's activities in November, a month in which it produced 8,900 barrels a day, up from 8,000 barrels a day in October. Management added that it is "pleased" to announce that Petrus is currently producing within its year-end target rate of 10,500 to 11,000 barrels a day. It thumped itself on the back for the nearly 75-per-cent increase from last year's exit rate of 6,100 barrels a day.
The big increase came at a big cost. So far this year (up to the end of November), Petrus has spent $93.1-million, which is more than what it spent in the previous four years combined ($82.3-million from 2018 through 2021). A substantial debt restructuring in 2021, followed by a large rights offering and the securing of new credit facilities in 2022, led it to open its wallet. Such events also helped chairman Don Gray and his brothers solidify their grip on the company. Don Gray has been the founding chairman and a major shareholder since 2015, but brothers Stuart, Glen and Ken (the last of whom is now president and chief executive officer) did not start getting involved until 2021. The four of them now collectively hold 91.9 million of Petrus's 122 million shares.
Speaking of a tighter grip, an institutional shareholder has been buying more shares of Alberta Montney producer Pipestone Energy Corp. (PIPE), up 25 cents to $3.17 on 2.27 million shares. New SEDI filings show that Thomas Claugus's GMT Capital spent about $1.5-million this week buying 524,000 shares of Pipestone. It now holds 52.6 million of the company's 278 million shares.
Pipestone presumably appreciates the show of confidence. It is still bruised from its plunge on Nov. 9, when it announced a "shift in focus" and promptly lost one-fifth of its value in a single day. The shift will see the company "moderate" (reduce) its production ambitions and try to make up for it by launching a three-cent monthly dividend in March. This idea proved unpopular with investors, who sent the stock down to $3.58 from $4.51 on Nov. 9, and then watched volatile commodity prices push it down even further to just $2.67 at the start of this week. Evidently GMT took that as its cue to add some buying support. As it happens, the $1.5-million that it spent on shares this week roughly matches the $1.5-million that it can now expect to receive from Pipestone's inaugural three-cent dividend payment, though it will have to wait until March to get it.
Further afield, Philip O'Quigley's Falcon Oil & Gas Ltd. (FO) flitted up one cent to 13.5 cents on 196,100 shares, as it cheered early-stage data from a well in Australia's Beetaloo shale gas basin. Falcon and its joint venturer, Tamboran Resources, have finished drilling the Amungee-2H well. "Preliminary drilling data confirm elevated gas shows," cheered Falcon CEO Mr. O'Quigley. He said the well will be fracked and tested in the new year.
As long-time shareholders will be aware, this is just the latest chapter for the well pad known as Amungee. The original Amungee well was drilled way back in 2015. Falcon and its joint venturer -- not Tambaron at the time, but rather a different company, Origin Energy -- fracked and tested this well in 2016, but then had their activities curtailed by a regional fracking ban that lasted two years. Other distractions cropped up in the meantime, and the companies did not return to Amungee until 2021. They ran more tests and decided that a particular interval warranted more attention in the form of a fresh horizontal section. In early 2022, however, Origin lost interest and exited the joint venture, at which point Tamboran came in. At long last (or so it must feel to Falcon's patient shareholders), Falcon and Origin began drilling the above Amungee-2H development well in November, leading to Mr. O'Quigley's upbeat update today.
The wait is not over yet. Assuming that the fracking and testing operations go well, the next step, according to Mr. O'Quigley, is "moving to a multiwell pilot development program in 2023/2024." This suggests that commercial activity could still be years away. Not a single operator in the Beetaloo has achieved commercial production, despite years of trying. There are, however, deep pockets supporting the effort. Both Falcon and Tamboran count among their major shareholders Bryan Sheffield, the U.S. fracking billionaire who founded Parsley Energy in 2008 and sold it to Pioneer Natural Resources for over $7-billion (U.S.) in 2021.
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