Stockwatch Energy today
Energy Summary for March 25, 2021
2021-03-25 20:06 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost $2.62 to $58.56 on the New York Merc, while Brent for May lost $2.46 to $61.95 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.55 to WTI, unchanged. Natural gas for April added five cents to $2.57. The TSX energy index added a fraction to close at 115.95.
The Suez Canal remains clogged by a massive container ship that ran aground two days ago amid poor visibility, blocking traffic on both sides. Typically, tankers carrying around one million barrels of oil a day pass through the canal. While the news of the choked waterway sent oil prices soaring yesterday, traders today seemed confident that the market can absorb the shutdown -- perhaps even a prolonged shutdown. The current estimate is that dislodging the ship will take anywhere from days to weeks.
Here in Canada, in a split decision, the Supreme Court has deemed the controversial federal carbon tax to be constitutional. The country's highest court ruled today that climate change is a critical threat and Canada cannot effectively address it if each province is going its own way. The nature of the threat justifies, even demands, a co-ordinated national approach.
By way of background, Ottawa imposed a federal carbon levy in 2020, after Alberta Premier Jason Kenney scrapped his predecessor's carbon tax in 2019. Alberta was one of the three provinces -- the others being Saskatchewan and Ontario -- that challenged the constitutionality of Ottawa's decision, citing concerns that it would lead to frequent federal intervention into provincial jurisdiction over natural resources. Alberta's Mr. Kenney was particularly worried about overreach into the oil and gas sector.
Today, Mr. Kenney told reporters that he is "obviously disappointed" with the Supreme Court's decision, but will "continue to fight to defend our exclusive provincial power to regulate our resource industries." His comments were echoed by his Saskatchewan counterpart, Premier Scott Moe, who continued to rail against "this costly and ineffective tax." As for the oil patch itself, it typically does not wade into political lions' dens of this scale. The industry's main lobby group, the Canadian Association of Petroleum Producers (CAPP), released a cautious statement noting, "Each province has very different opportunities to mitigate climate change based on their unique circumstances, and we support continued flexibility to allow for provincial input." (The provinces are free to adopt their own carbon pricing system if they do not like the federal one. Today's decision means they cannot have no system; they must enact their own carbon levy or accept Ottawa's.)
Within the energy sector, Brian Schmidt's Alberta- and Saskatchewan-focused Tamarack Valley Energy Ltd. (TVE) edged up one cent to $2.09 on 5.27 million shares, after closing $135-million worth of asset acquisitions. It announced the acquisitions on March 5. As discussed in that day's Energy Summary, the counterparty in the largest deal was likely Paul Colborne's Surge Energy Inc. (SGY), down one cent to 62 cents to 2.73 million shares. While neither company mentioned the other, Surge announced a $106-million asset sale on March 5 (with the description matching details in Tamarack's announcement), and today Surge confirmed that it has closed the sale.
Surge also announced that it has been a busy driller. It previously said it would pursue a 32-well drill program in the first half of 2021. The drilling season in the first half of the year is always cut short by spring breakup, so Surge moved fast, announcing today that the program is finished. It comprised 31 wells in the Alberta Sparky area and a solo well in the Alberta Montney. Surge seems to like what it is seeing so far, as it promised to release updated full-year guidance next month. Given that the company mused in January that it might announce "a potential, more substantial second-half drilling program in early Q3," investors will be wondering if Surge is moving fast on that front too.
Elsewhere in Alberta, Alfred Sorensen's Pieridae Energy Inc. (PEA), lost 5.5 cents to 48.5 cents on 1.23 million shares. Pieridae is an Alberta gas producer, though its main ambition is to become an LNG (liquefied natural gas) exporter from its proposed $10-billion (U.S.) Goldboro project in Nova Scotia. This morning it released its year-end financials. Investors were disappointed. As even Mr. Sorensen had to admit, the results were "lower than our initial forecasts." He blamed COVID-19, but even as late as August, 2020 -- when the pandemic was well under way -- Pieridae was forecasting full-year net operating income (NOI) of $70-million to $90-million. The actual figure came in at $50.7-million. Pieridae even revised the NOI guidance in mid-November to a range of $55-million to $65-million, and it still fell short.
Pieridae's production, at least, averaged 42,000 barrels of oil equivalent a day, in line with the consistent forecast of 40,000 to 45,000 barrels a day. Because of its limited spending, however, Pieridae was not able to replace all of this production with new reserves. Investors have tended to be forgiving this year when it comes to reserve reports: The normal expectation is for higher year-over-year reserves, but in light of the challenges of 2020, flat reserves are acceptable. These would mean that a company successfully replaced all of the reserves that it depleted through production. Unfortunately, Pieridae replaced only half of its production.
Mr. Sorensen tried to keep investors' spirits up as he discussed the "strong advancements" made on the company's big project, Goldboro. "Our Goldboro LNG project saw plenty of wind in its sails," he declared. As discussed in the Energy Summary last Friday, March 19, Pieridae is contractually committed to making a final investment decision (FID) on Goldboro by June 30, 2021. Today Mr. Sorensen said Pieridae is working toward this deadline with its engineering contractor, Bechtel, which "remains on schedule to submit ... its key deliverables." These include an engineering/construction plan due by March 31 and a final lump-sum price proposal due by May 31. Subject to the FID, Mr. Sorensen is hopeful that construction of Goldboro could begin this summer, with LNG exports starting in 2025 or early 2026.
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