Energy Summary for Dec. 28, 2022
2022-12-28 20:48 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery lost 57 cents to $78.96 on the New York Merc, while Brent for February lost $1.07 to $83.26, both benchmarks settling lower in light intraholiday trading (all figures in this para U.S.). Western Canadian Select traded at a discount of $27.50 to WTI, up from a discount of $28.00. Natural gas for January lost 57 cents to $4.71. The TSX energy index lost 5.84 points to close at 238.66.
Oil sands giant Suncor Energy Inc. (SU) lost 29 cents to $42.52 on 22.2 million shares. It is not having a cheerful holiday season, as it grapples with workplace injuries on one front and injured acquisition prospects on another. Starting with the first item, two workers were hurt in a fire on Christmas Eve at Suncor's Commerce City refinery in Colorado, according to the local Denver Post. The cause of the fire and the extent of the injuries are not yet clear. Suncor said in a statement that it immediately triggered its emergency response measures and evacuated non-essential workers. "The fire was extinguished, and everyone has been accounted for," it said.
Separately, in a terse after-hours announcement last Friday -- when many would have already been racing to the holiday exits -- Suncor disclosed a potential hiccup in its plan to boost its interest in the Fort Hills oil sands project. The company already owns 54.1 per cent of Fort Hills. As announced in October, it has agreed to buy an additional 21.3-per-cent interest from departing joint venturer Teck Resources for $1-billion. Now, however, the third and final member of the joint venture, France's Total, has filed a lawsuit "challeng[ing] the validity" of the right-of-first-refusal (ROFR) notice provided by Teck, under which Total can choose to acquire part of Teck's interest. While the case is in progress, Total also wants to suspend the 90-day period within which it can exercise the ROFR.
The lawsuit seems to have come as a surprise to Teck and Suncor, both of which bristled that the case is "without merit." Certainly there has been no expectation that Total would want to exercise the ROFR and increase its interest in Fort Hills. The French major wrote off this interest in 2020, calling Fort Hills a "stranded" asset, and subsequently began pooh-poohing the thought of any further involvement in the Canadian oil sands. It announced its official decision to exit the oil sands in September, saying it would spin out its associated interests (in Fort Hills and in a separate project called Surmont) into a new public company, pending shareholder approval in 2023. To hear Total's explanation, leaving the oil sands is a matter of nothing less than saving the world. "We have a climate strategy and we don't want to invest in these assets," said chief executive officer Patrick Pouyanne.
Total's unabashed bashing of the oil sands appears in stark contrast to its decision to challenge Teck's ROFR notice on the Fort Hills sale to Suncor. Mr. Pouyanne may perhaps be concerned that the $1-billion price tag, which was lower than analysts were expecting (and forced Suncor to take a sizable writedown on its existing interest), will hurt the creation or value of the spinout. In any case, Teck has vowed to "vigorously defend" its position. Suncor took heart from Teck's reassurance that it continues to expect the deal to close in the first quarter.
Further afield, the Kurdistan-focused Forza Petroleum Ltd. (FORZ) lost 1.5 cents to 16 cents on 30,800 shares, after unveiling its "leadership succession plan." Sami Zouari is stepping down as chairman (and from the board) after a little over two years with the company. The incoming chairman will be Vance Querio, the company's CEO for nearly seven years. Replacing Mr. Querio as CEO will be operations director Shane Cloninger, who has been with the company for about a decade.
All three have seen significant changes at Forza during their time. The company will soon mark the 10-year anniversary of its initial public offering, which took place in May, 2013, and saw it raise $250-million at $15 -- a heady price for an exploration-stage operator in a high-risk part of the world. High hopes reflected big-name backers. The company's founder and major shareholder (at the time) was Jean Claude Gandur's Addax and Oryx Group (AOG), known for selling Addax Petroleum to Sinopec for $52.80 a share in 2009. Forza -- originally named Oryx Petroleum; both the addax and the oryx are types of antelope -- was Mr. Gandur's next idea. He served as chairman and former Addax executive Michael Ebsary served as CEO.
Alas for IPO investors, Oryx failed to meet its lofty initial production targets, and the stock took barely two years to fall below $1. It got a rescue line in 2016, when a private Kurdistan-based company called Zeg Oil agreed to buy 75 million shares for $30-million. Around that same time, Oryx fired Mr. Ebsary as CEO and replaced him with the above Mr. Querio (another former Addax man). He dutifully worked to boost Oryx's production, but apparently not quickly enough for its erstwhile steadiest supporter, AOG. In July, 2020, AOG unloaded all of its 380 million shares of the company to Zeg for barely six cents each. Just a few weeks after that, the above Mr. Zouari arrived as chairman. He had just done a four-year stint as chief financial officer of the London-listed, Kurdistan-focused Gulf Keystone Petroleum.
(As an aside, the name Gulf Keystone still sparks shudders in some London circles. Worth $3-billion (U.S.) at its peak in 2012, Gulf Keystone faced a debt default in 2016 and arranged a restructuring that diluted its shareholders' ownership to around 5 per cent. Separately, its founder and former CEO, Todd Kozel, was accused of tax crimes in 2018 and sentenced in January, 2022, to five years in prison. Gulf Keystone has tried to shake off its financial and other woes and is still around today, closing on the London Stock Exchange at 203 pence, the equivalent to about $3.12.)
Getting back to Oryx, the withdrawal of its founder, AOG, prompted it to change its name to Forza in late 2020. The above Mr. Querio, who held on to his job throughout the change of control to Zeg, continued to focus on the company's Kurdish operations. He is now ready to step back as CEO and become chairman instead. The above Mr. Cloninger, who first arrived as a drilling engineer roughly a decade ago and has worked his way up into various senior roles, will now take the top job as CEO.
As for Zeg, it is still waiting patiently for its investment to pay off (an idea that Forza's $15-a-share IPO investors likely gave up on many, many years ago). Since 2016, Zeg has spent a total of $80.4-million amassing its 500 million shares of Forza, out of 600 million shares outstanding. At today's close of 16 cents, this investment is worth $80.0-million, meaning Zeg could have stuck the money under a mattress for six years and been nearly as well off.
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