Stockwatch Energy today
Energy Summary for Nov. 8, 2021
2021-11-08 19:56 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added 66 cents to $81.93 on the New York Merc, while Brent for January added 69 cents to $83.43 (all figures in this para U.S.). Western Canadian Select traded at a discount of $18.79 to WTI, down from a discount of $17.32. Natural gas for December lost nine cents to $5.43. The TSX energy index added 1.96 points to close at 169.33.
Oil prices had a wobbly start to the week. Bulls cheered the passage of a sweeping $1.2-trillion (U.S.) infrastructure bill through U.S. Congress, paving the way for higher fuel demand in the world's largest economy. Bears kept their eye on a potentially massive supply increase from the same source. In an MSNBC interview today, U.S. Energy Secretary Jennifer Granholm said President Joe Biden is "certainly looking at what options he has" to address soaring fuel prices, including possibly tapping the Strategic Petroleum Reserve. She declined to go into specifics, but said, "Hopefully there will be an announcement or so this week."
Within the sector, one of the day's big gainers was Paul Baay's Trinidad-focused Touchstone Exploration Corp. (TXP), up 53 cents to $2.63 on 1.9 million shares. It has made an unexpected but welcome discovery at its Ortoire block. The Royston-1 exploration well, which is Touchstone's fifth well on this block, has just tested up to 360 barrels of oil a day from a 30-foot interval of net pay. The well hit a total of 393 feet of net pay in September. Touchstone thought the whole thing was going to be gassy, but now this first test has shown that at least some of it is oily instead.
This is not the first time Ortoire has thrown Touchstone for a loop. One of the first wells at block, Cascadura, hit over 1,000 feet of net pay in late 2019, with Touchstone certain that it was looking at a large oil gusher. Testing in early 2020 turned up gas instead. As far as Touchstone was concerned, this was excellent news, as oil was fetching poor global prices (in the $50s (U.S.) per barrel) and was also subject to worse tax treatment in Trinidad, making gas the better commodity. Touchstone began cheerfully touting plans for large-scale gas production from Ortoire. Nowadays, oil prices have rallied enough that the discovery of oil is just as pleasing as the earlier surprise of gas.
A less pleasant surprise for those who bought the early hype is that Ortoire has yet to achieve production. Touchstone was originally hoping to achieve this in early 2020, but is over a year behind schedule. Its most recent update (in August) was that it hopes to get its final environmental submissions to the government by the end of 2021. Shareholders have not minded the delay; since the Ortoire program began in 2019, Touchstone's stock has shot up to $2.63 from 20 cents. A faithful cheerleader sees it heading even higher. In a research note this morning, Canaccord Genuity analyst Charlie Sharp marvelled at Touchstone's new well and reiterated his price target of $2.95. (The fine print of the note discloses that Canaccord is a "market maker or liquidity provider" for Touchstone's securities and also receives compensation from Touchstone for investment banking services.)
Another international player, Charle Gamba's Colombia-focused Canacol Energy Ltd. (CNE), edged down two cents to $3.50 on 798,300 shares. The company announced this morning that it is making a cash tender offer for all of its $320-million (U.S.) outstanding senior notes due in 2025. Separately, both Fitch Ratings and Moody's Investors Service reported that Canacol is proposing a sale of up to $450-million (U.S.) in senior notes due in 2028. Evidently Canacol is climbing aboard the debt refinancing bandwagon, an increasingly popular trend as debt markets continue to open up to energy companies.
The refinancing should give Canacol more breathing room as it pursues ambitious production plans. When the company released its third quarter financials last week, management reminded investors that it is trying to build a pipeline with capacity of 100 million cubic feet a day (about 17,500 barrels of oil equivalent a day). That would be a sharp increase over its average third quarter production of about 190 million cubic feet a day. The company still needs to obtain permits, finalize contractors and customers, and arrange the financing to build the pipeline, but claims that it can get this all done by the end of the first quarter of 2022. (Investors are presumably to ignore any niggling memories of when Canacol previously claimed that it could get it all done by the end of 2019.)
Here in Canada, Stephen Loukas's Alberta-focused Obsidian Energy Ltd. (OBE) added 21 cents to $5.12 on 871,700 shares, after releasing its third quarter financials. The financials held few surprises given that Obsidian already released a preliminary version of them last Tuesday. They were overshadowed at the time by the unpopular announcement that Obsidian would buy out its joint venturer in the Peace River oil partnership (PROP) for $43.5-million. The stock promptly plummeted to $4.75 from $5.35, reflecting the unimpressive history of the assets (as discussed in last Wednesday's Energy Summary) and the unspecified terms of an equity financing to accompany the purchase (since pinned down as a $22.5-million offering of shares at $4.40). Today's financials, being no better or worse than expected, helped the stock regain some ground.
Also looking to regain ground is Alberta gas producer Pine Cliff Energy Ltd. (PNE), up two cents to 77 cents on 302,600 shares. The stock was as high as 90 cents in mid-October, buoyed by enthusiasm about rising gas prices, but has meandered down since then. Pine Cliff tried to impress investors late last week with its third quarter financials. Production of 18,300 barrels a day and cash flow of four cents a share were both exactly as analysts predicted. Less predictable was Pine Cliff's large budget boost -- going all the way to $21.5-million from $13-million -- and its newfound interest in potentially "tak[ing] the steps necessary to implement a sustainable dividend." Pine Cliff has never once paid a dividend, or shown much interest in the idea. For nearly a decade, it has tended to pour its cash into acquisitions, through which it has boosted its production up from just 100 barrels a day since 2012.
Should Pine Cliff introduce an imminent dividend, that would be excellent news for its founder and chairman, George Fink. He is surely missing the dividend income from his other promotion, Bonterra Energy Corp. (BNE: $7.15), which was an 18-year dividend stalwart until it unexpectedly suspended its payout in early 2020. Bonterra has made no secret of its desire to bring back the dividend once it improves its balance sheet. (It owes over $300-million, relative to Pine Cliff's much trimmer debt of $40-million.) Mr. Fink controls 4.6 million of Bonterra's 33 million shares, and 26.6 million of Pine Cliff's 337 million shares. Should one or both start paying a dividend, he will be a happy fellow indeed.
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