Stockwatch Energy today
Energy Summary for June 29, 2021
2021-06-29 20:15 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery edged up seven cents to $72.98 on the New York Merc, while Brent for August added eight cents to $74.76 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.75 to WTI, unchanged. Natural gas for August added one cent to $3.63. The TSX energy index added 1.10 points to close at 138.55.
Alberta's oil and gas industry is "dining and dashing" on the cleanup bill for aging wells, and the government should take over these wells and use their remaining revenue to pay for remediation, according to a new report from a coalition of environmentalists and landowners. The Alberta Liabilities Disclosure Project (ALDP) released a 40-page report this morning to share "13 bold ideas to make polluters pay ... before it is too late."
According to the ALDP's report, Alberta's energy industry is facing a cleanup bill of $40-billion to $70-billion to deal with aging wells, but companies -- though happy to squeeze every last drop of revenue from the wells -- are unwilling or unable to pay the costs of reclamation. "A staggering 80 per cent of Alberta's unreclaimed oil and gas wells are past their Economic Limit -- their 'best before' date when future revenue coming out of the ground is less than the cost to clean up the well," claimed the ALDP. It accused companies of violating the polluter-pays principle by accepting public bailouts for cleanup or dumping the wells into someone else's lap at the last minute -- or both. For example, the Orphan Well Association is industry financed but does not collect enough dues to close all of the wells in its inventory, and has received an estimated $535-million in government loans since 2017 to close the gap. (That these are loans, not subsidies, is nonetheless highly upsetting to the ALDP.)
"It's time Alberta stands up to deadbeat producers [and] makes them clean up their mess," declared the ALDP. At the top of its list of "bold ideas" is for the government to "wind down end-of-life companies and use their remaining revenue" for reclamation. "It's a radical idea," declared one of the report's authors, Regan Boychuk, to The Canadian Press. He then said the quiet part out loud and described the proposal as "something akin to nationalization." Well, that should go over splendidly. It is worth noting that the ALDP has faced criticism in the past over how it comes up with its numbers. The above-noted $40-billion to $70-billion cleanup bill, for example, first started to be bandied about by the ALDP in 2019, and implied that the average cleanup cost per well was $229,000. The Orphan Well Association pointed out in 2019 that its average cleanup cost per well (in 2018) was just $34,000.
Within the sector, oil sands producer Cenovus Energy Inc. (CVE) edged up 11 cents to $11.68 on 7.62 million shares. Given the above circumstances, it was rather timely that the company chose today to release its latest annual report on ESG (environmental, social and governance). Cenovus has been putting out reports like this since 2018 (or even longer if one includes the predecessor "corporate responsibility" reports). Its big ESG moment came in January, 2020, when it became the first oil sands company to explicitly aspire to net zero emissions by 2050. Nowadays it is not the only member of the net-zero-by-2050 club. Several others joined, culminating in an announcement on June 9, 2021, that Cenovus, Canadian Natural Resources Ltd. (CNQ: $44.71), Imperial Oil Ltd. (IMO: $37.28), MEG Energy Corp. (MEG: $8.72) and Suncor Energy Inc. (SU: $29.25) -- the five of which represent 90 per cent of Canada's oil production -- have collectively set "2050 net-zero aspirations." They even gave themselves a dapper new name, the Pathways alliance.
Given that the alliance was formed just three weeks ago, Cenovus kept the fanfare about today's ESG report to a minimum, although it did make sure to remind investors of its net-zero-by-2050 ambition. It added that it will release yet another ESG report by the end of the year. This will differ from today's version, as it will include updated figures in light of Cenovus's takeover of Husky Energy, which closed in January, 2021. Today's report is restricted to the numbers for 2020.
Elsewhere in Alberta, the Rick Grafton-backed Pipestone Energy Corp. (PIPE) edged down two cents to $2.16 on 269,600 shares, after it too released its 2020 ESG report. This is Pipestone's first such report -- for the very good reason that Pipestone was not created until 2019, with 2020 being its first full year of production -- but have no fear, it is jumping into the trend feet first. It is even setting a more ambitious target than any of the above companies: Pipestone has "set a course to be a net-zero producer by 2035." It said its assets, which are in the gassy Pipestone area of the Alberta Montney, are already lower in emissions than the assets owned by many of its competitors. The company therefore already views itself as "a leader in this rapidly evolving space."
Pipestone also announced some changes to its board of directors. Notably, Geeta Sankappanavar is stepping down, after having served on the board since Pipestone's inception in January, 2019. She joined the board in her capacity as co-founder and president of Mr. Grafton's Grafton Asset Management. Grafton, a $1-billion energy investment fund based in Calgary, is the manager of Canadian Non-Operated Resources LP (CNOR), which controls a 37-per-cent equity interest in Pipestone. Ms. Sankappanavar recently left Grafton to found and serve as CEO of a new investment firm, Akira Impact, which focuses on clean energy and infrastructure. She will therefore not serve as a Grafton/CNOR nominee on Pipestone's board.
To replace Ms. Sankappanavar, Pipestone has brought in a new CNOR nominee, who also happens to represent a different major shareholder of the company. That would be Jesal Shah, a principal at Riverstone Holdings. Riverstone took an interest in Pipestone last summer by participating in a $70-million financing of convertible preferred shares. Of the 70,000 convertible preferred shares issued (convertible into 86 million common shares), Riverstone acquired 52,690, representing a 23-per-cent equity interest in Pipestone on an as-converted basis. (The above-mentioned 37-per-cent interest held by CNOR is also on an as-converted basis.) This investment is looking like a good one. When Pipestone arranged the financing, its stock was trading at a mere 50 cents, and it set the per-share conversion price at a lofty 85 cents. Today the stock closed at an even loftier $2.16.
Pipestone used the money to restart an ambitious drill program in the Montney. At the time of the financing, it was producing about 17,000 barrels of oil equivalent a day. This figure rose to 21,600 barrels a day in the first quarter of 2021, and Pipestone has steadily maintained that it can reach 35,000 barrels a day in 2022.
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