Bye Bye 22!
Energy Summary for Dec. 30, 2022
2022-12-30 20:45 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added $1.86 to $80.26 on the New York Merc, while Brent for March added $2.45 to $85.91 (all figures in this para U.S.). Western Canadian Select traded at a discount of $27.50 to WTI, unchanged. Natural gas for February lost eight cents to $4.48. The TSX energy index added 1.20 points to close at 243.00.
Oil prices ended the year with their second annual gain in a row. Relative to 2021, when prices soared by more than 50 per cent from the start of the year, this year's gain of 7 to 10 per cent appears far less dramatic -- but belies one of the most volatile 12 months in memory. Russia's invasion of Ukraine sent prices spiking into the $130-(U.S.)-a-barrel range in March. After enjoying spring in the triple digits, prices spent the second half of the year sliding all the way into the mid-$70s (U.S.), on global recession fears and Chinese COVID jitters. With the reopening of China's economy and harsher sanctions on Russian production, analysts are generally forecasting higher prices, perhaps even a return to triple digits, in 2023.
Within the Canadian energy sector, the 29 stocks of the TSX energy index ended the year higher, with just one intriguing exception. Among the gainers, three stocks managed to double, and the average overall gain was 54 per cent (with a range of 15 to 150 per cent).
The biggest winner in the index was Rick McHardy and Fotis Kalantzis's Spartan Delta Corp. (SDE). It climbed from $5.93 at the start of the year to today's close of $14.95, buoyed by rising production in the Alberta Montney. Even so, it proclaimed last month that its share price "does not fully reflect [its] underlying value," and launched a "strategic repositioning process" to decide what to do with all the cash it finds itself swimming in. Investors are still awaiting the outcome of this review, but seem optimistic.
Another energy stock that enjoyed a doubling in value in 2022 is oil sands producer Athabasca Oil Corp. (ATH), which closed today at $2.41, up from $1.19 at the start of the year. Like Spartan's promoters -- like promoters the world over -- it is manifestly confident that its stock is really worth far more. "The company sees tremendous intrinsic value not reflected in the current share price," it told investors earlier this month, while unveiling its 2023 guidance and vowing to launch share buybacks in the spring. It did not attempt to quantify "tremendous." (Long-term investors may still be unable to associate the word with Athabasca in any way other than a tremendous flop. The company debuted in 2010 with a record-setting $1.35-billion initial public offering at $18 a share, yet has spent nearly all of the last eight years below $3 a share.)
As noted above, there was one stock in the index that did not manage to post an annual gain. That would be Wayne Foo's Colombian oil producer, Parex Resources Inc. (PXT), for which today's close of $20.15 represented a 7-per-cent drop from $21.61 at the start of the year. Higher oil prices lost the fight to political uncertainties. Although Parex reached a high of $30.44 in June, it tumbled later that month after the left-leaning Gustavo Petro won the Colombian presidential election. Mr. Petro had campaigned on a promise to wind down Colombia's reliance on fossil fuels. In August, he unveiled a series of tax and royalty reforms that will take a disproportionate toll on oil producers such as Parex. The stock fell toward $18 in September, its lowest level in more than a year, though it has since scrabbled its way back above $20.
Parex is marching into the new year with its head held high. Just today, it made an announcement -- one of the few announcements to come out of the sector on this slow news day -- that it has renewed its share buyback program. It plans to buy back up to 10.6 million of its 109 million shares over the next 12 months. Parex has long been a fan of buybacks, using them to reduce its share count from 155 million since the start of 2019. In 2021, it added a dividend to the mix (for a current yield of 5.0 per cent). Earlier this month, it emphasized that even with the higher taxes it faces in 2023, it expects to churn out enough cash to cover its $450-million (U.S.) budget, its buyback ambitions and "potential incremental dividends" (on top of the regular one). Despite its best efforts, the stock is largely trading sideways.
For all the Colombian kerfuffle, the year was far worse for a different South American producer, Jose Francisco Arata's Ecuador-focused New Stratus Energy Inc. (NSE). It closed today at 18 cents, an 87-per-cent plunge from its high last June of $1.45. The collapse reflects the refusal of the Ecuadorean government to extend the company's contracts on blocks 16 and 67. As discussed in more detail on Dec. 5, the blocks were always due to expire on Dec. 31, but New Stratus was confident in its ability to negotiate an extension. It was "shocked" and "deeply saddened" to learn earlier this month that the state-owned Petroecuador will instead be taking over the blocks effective Jan. 1.
Investors are now awaiting the launch of international arbitration. Accusing the government of a "clear and blatant infringement of the rule of law," New Stratus vowed on Dec. 5 to "pursu[e] its legal and contractual rights ... [and] file a legal demand against the government under international arbitration." It has evidently not done so yet. Management told Reuters yesterday that it must go through a mediation process first (and is also busy gathering equipment, materials and so on for the handover to Petroecuador in January). The timing of when it expects to file its claim is not clear.
In the meantime, the above Mr. Arata, chairman and chief executive officer, has been taking the dip as a buying opportunity. Recent SEDI filings show that he has picked up nearly 500,000 shares over the past few weeks, at prices ranging from 16 cents to 18 cents. He now controls 6.1 million of the company's 123 million shares.
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