Stockwatch Energy today
Energy Summary for Feb. 23, 2022
2022-02-23 20:21 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery edged down 25 cents to $92.10 on the New York Merc, while Brent for May lost 20 cents to $96.05(all figures in this para U.S.). Western Canadian Select traded at a discount of $12.65 to WTI, up from a discount of $13.69. Natural gas for March added 12 cents to $4.62. The TSX energy index added a fraction to close at 198.27.
Oil prices crept toward $95 (U.S.) -- a seven-year high -- in intraday trading, before retreating and ending the day down, as traders kept a wary eye on rising geopolitical tensions in Europe. The Ukrainian government has declared a 30-day state of emergency in response to Russia's formal recognition this week of two separatist regions of southeastern Ukraine. A wave of sanctions against Russia from the European Union also went into effect today, though they mainly target banking and travelling. The West has shown little inclination so far to disrupt energy output from Russia, which contributes around one-10th of the world's oil supplies.
Closer to home, U.S. shale producer Ovintiv Inc. (OVV) added 98 cents to $51.02 on 433,700 shares. It is rumoured to be mulling a sale of its assets in Utah's Uinta basin. Anonymous sources have told Reuters that the assets could fetch as much as $1-billion (U.S.), which Ovintiv would use to reduce its net debt (which was $4.8-billion as of Sept. 30). The company declined to comment on the speculation.
A sale would come as no surprise. Although Ovintiv is one of the largest producers in the Uinta basin, its SEDAR filings describe the basin as "not part of Ovintiv's current strategic focus," and the assets contributed just 13,000 of the company's total production of 544,000 barrels a day in 2020 (with the company not even bothering to update their contribution since then). The basin is also enjoying a moment in the spotlight. Just last week, the NYSE-listed Crescent Energy Company agreed to buy Uinta assets from the private Verdun Oil for a total of $815-million (U.S.). (Crescent Energy is unrelated to Canada's Crescent Point Energy Corp. (CPG: $6.50), though by coincidence, Crescent Point also used to be active in the Uinta basin until unloading those assets for $515-million (U.S.) in 2019.)
Here in Canada, Grant Fagerheim's Whitecap Resources Inc. (WCP) added 12 cents to $9.25 on 4.95 million shares, after co-submitting a proposal to "transform the future of carbon reduction." It made the proposal with Wolf Midstream (a private company backed by the CPP Investment Board), the Heart Lake First Nation (located in Northern Alberta) and First Nation Capital Investment Partnership (representing multiple other indigenous communities). Together they are seeking to build a carbon sequestration hub in the Fort Saskatchewan area near Edmonton.
The four of them submitted the plan as part of the government of Alberta's request for full project proposals (RFPP) to develop carbon capture and storage (CCS) hubs. The province put out the RFPP in December. Essentially, it is willing to grant rights to specified Crown-owned underground spaces to parties that want to use those spaces to sequester carbon, thus helping the province seize a "strategic opportunity ... to achieve its economic and environmental objectives." Only subsurface formations deeper than 1,000 metres, with no associated hydrocarbon recovery, are eligible under this RFPP. Whitecap and its fellow group members say they meet this criteria; they plan to inject carbon into a saline aquifer. They also say they could handle up to six million tonnes annually and have already received interest from potential customers.
The press release did not include a single financial detail. It was, however, chock full of mutual back pats, with Wolf and Whitecap being lauded for their "experience and technical expertise" and the indigenous partners in turn being praised for their "traditional knowledge and historical perspective." This is a "very constructive, forward-thinking partnership," proclaimed Mr. Fagerheim, Whitecap's president and chief executive officer.
Mr. Fagerheim also talked up Whitecap's experience operating "the largest anthropogenic carbon sequestration project in the world." This is a reference to its Weyburn project in Saskatchewan, which is both an oil field and a carbon capture project, as carbon is pumped in to coax oil out. The province has deemed that sort of project ineligible under the current RFPP (though it has not ruled them out for the future). For now, Whitecap and the others will have to wait and see what reaction their saline aquifer proposal receives. If all goes well, they hope to have the project in service by the end of 2024.
Further afield, Gary Guidry's Colombia-focused Gran Tierra Energy Inc. (GTE) edged up two cents to $1.67 on 2.54 million shares, after releasing its year-end reserves and financials. The stock's sharp rise from barely $1 in the last four weeks suggests that investors had high hopes. President and CEO Mr. Guidry was certainly pleased with the results, boasting that the company turned its highest full-year profit since 2018 and its greatest full-year free cash flow since 2012. Those figures for 2021 were $42-million (U.S.) and $37-million (U.S.), respectively.
Gran Tierra's production for the year was already announced in January and averaged 26,500 barrels a day. Mr. Guidry noted that current production is around 30,000 barrels a day. The company is already approaching its full-year guidance of 30,500 to 32,000 barrels a day, and this guidance assumes no success from exploration, emphasized Mr. Guidry. After taking what was essentially a two-year pause on exploration drilling, Gran Tierra is now setting aside nearly one-third of this year's $220-million (U.S.) to $240-million (U.S.) budget for this purpose.
The renewed exploration push suggests two things: Firstly, Gran Tierra seems optimistic that its past operational setbacks, which forced it to repeatedly lower its production guidance from 2019 onward, are finally behind it. Secondly, the company feels it can do more than plow money straight back into the balance sheet. Its debt as of year-end 2021 was $668-million (U.S.). While this is still well above the company's current market cap of about $480-million (U.S.), it is a considerable reduction from the peak debt of $784-million (U.S.) in September, 2020.
Mr. Guidry sees this figure falling below $500-million (U.S.) by the end of this year. During a conference call today, chief financial officer Ryan Ellson added Gran Tierra could do "a number of things" once it hits this milestone. He implied that the number will probably be just one or two: bond buybacks (such as notes maturing in 2025 and 2027) and, for shareholders, possible share buybacks as well.
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