Stockwatch Energy today
Energy Summary for April 20, 2022
2022-04-20 20:09 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery added 19 cents to $102.75 on the New York Merc, while Brent for June lost 45 cents to $106.80 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.00 to WTI, unchanged. Natural gas for May lost 24 cents to $6.94. The TSX energy index added 3.38 points to close at 244.55.
The world will need to scrape up $1.3-trillion (U.S.) to invest in energy development over the next eight years to avoid an energy crisis, according to JPMorgan. The bank published its first annual energy outlook this morning. "Our main finding," wrote strategists Marko Kolanovic and Christyan Malek, "is that by 2030, energy demand growth will exceed supply growth by circa 20 per cent based on current trends."
They emphasized that the above energy investments will need to encompass all fuels, including oil and gas, not just trendy renewables. "Not all fuels are made equal, and for the most part [in this short time frame], different sources of energy are not fully fungible -- solar panels cannot replace oil, needed for example in the industrial production of petrochemicals," they wrote. Over the longer term, they foresee a transition to even safer, cleaner and cheaper sources of energy, such as nuclear. That should not prevent realism in the near term. "Until scalable, reliable, clean and affordable technologies are available, the world will need to work with all of the current sources of energy -- fossil and non-fossil -- and their respective drawbacks," concluded the outlook.
(The conclusion is markedly different from that of another high-profile outlook, namely the "Net Zero by 2050" published almost exactly a year ago by the International Energy Agency (IEA). The IEA asserted last May that the world should not invest a single extra dollar in new oil, gas or coal developments if it wants to meet its climate goals. It also said investments in clean energy would need to triple to $4-trillion (U.S.) by 2030. After its report met with wide criticism, the IEA walked back the findings and said they were just a hypothetical scenario.)
Within the sector, Gary Guidry's Gran Tierra Energy Inc. (GTE) added 23 cents to $2.35 on 6.04 million shares, pleasing investors with an operational update from Colombia. The company reiterated its full-year 2022 production guidance of 30,500 to 32,500 barrels a day. For many companies, this would be fairly standard stuff, but Gran Tierra's investors can be forgiven their excitement given how frequently the company had to slash its guidance over the past three years, reflecting operational setbacks and intermittent local protests. So far in 2022, it is mostly smooth sailing.
Investors even forgave the slightly lower-than-hoped-for production that Gran Tierra reported for the first quarter. After telling investors in January and again in February that its production was around 30,000 barrels a day, Gran Tierra's update today pegged the first quarter average at just 29,400 barrels a day, suggesting some slippage. It showed no concern and cheerfully predicted a "ramp-up in production ... in the latter half of [the] second quarter." As well, it boasted of "significant debt reduction," saying it has reduced its credit facility borrowings to just $40-million (U.S.) and expects to pay off the balance by midyear. For context, the credit facility was $67.5-million (U.S.) drawn at the start of this year and was over $200-million (U.S.) in March, 2020.
(Gran Tierra tends to downplay the fact that the credit facility is just one part of its debt burden. Its total debt at the start of this year was still lofty, at $668-million (U.S.), nearly equal to its current market cap of $862-million (Canadian). At its worst point in September, 2020, the company owed a staggering $784-million (U.S.), and soon afterward appeared on Fitch Ratings' list of "bonds of top concern" for 2021 -- basically a default watchlist. The balance sheet was saved by buoyant oil prices. Gran Tierra's president and chief executive officer, Mr. Guidry, has said he wants to get the total debt below $500-million (U.S.) by the end of the year.)
Here in Canada, Pat Carlson's Alberta Montney-focused Kiwetinohk Energy Corp. (KEC) lost one cent to $12.29 on 200 shares. ("Key-wheat-in-no" is the pronunciation of the first word in the name. It is a Cree word, meaning north. Investors tend to stick to the simple abbreviation KEC.) The company has filed the final version of a shelf prospectus qualifying the issuance of up to $500-million in debt or equity over 25 months. CEO Mr. Carlson -- whose previous promotion was Seven Generations Energy, acquired last year by ARC Resources Ltd. (ARX: $18.48) -- said in March that he planned to file the prospectus. KEC did not do a financing when it went public in January of this year. It has not announced one under the prospectus either, but if it were to do so, it says the proceeds would go toward acquisitions, capital spending, debt repayment or general "future growth opportunities."
Meanwhile, a once-far-flung international junior is expanding closer to home. Arthur Millholland's Canadian Overseas Petroleum Ltd. (XOP) lost one cent to 33.5 cents on 885,500 shares, on top of the 3.5 cents it lost yesterday after saying it will buy the assets of a bankrupt oil company in Wyoming. It is also raising $33-million (U.S.) in debt and equity. The $20-million (U.S.) debt portion will go toward the acquisition.
Canadian Overseas Petroleum -- which also tends to go by an abbreviation, COPL -- is relatively new to Wyoming. For most of its 17-year history, it favoured the "overseas" part of its name, jumping into one promotion after another in the U.K. North Sea, Liberia, Namibia, Mozambique and more. Nothing much came of it (though the company still keeps a foot in West Africa through a non-producing joint venture in Nigeria). Finally, in late 2020, COPL turned its focus to the United States, buying a Wyoming producer called Atomic Oil for $54-million (U.S.).
The stock finally caught a break in early 2022. As discussed in the Energy Summary for Jan. 10, an exploration well in Wyoming hit 140 feet of net pay, enough to send COPL's stock racing up to 59 cents from 34 cents in a single day (although it has since given all of that back). Stockwatch noted at the time that COPL would likely need to raise money to do any further drilling, as its Sept. 30 working capital was just $6.4-million (U.S.) and wells in this part of Wyoming tend to cost $5-million (U.S.) to $9-million (U.S.)
Three months later, COPL is indeed doing a financing, and an acquisition too. The target is Cuda Oil, a 250-barrel-a-day junior that used to trade on the TSX until falling into receivership late last year. (COPL was one of the companies to which it owed money.) The monitor started marketing Cuda in January, and Mr. Millholland, COPL's president and CEO, said he immediately went into "hot pursuit." He has not specified exactly what COPL is paying for Cuda, other than saying it is "funding it with a bridge loan" of $20-million (U.S.).
The loan is separate from the equity financing. That financing, for $13-million (U.S.), is being done at 41 Canadian cents and will go toward working capital, facility upgrades and of course drilling. It will also bring significant dilution. Investors seem leery about this, given COPL's past tendency to rely all too heavily on financings, to the point that its share count ballooned past 16 billion -- with a B -- less than a year ago. It rolled back 1 for 100 last September and then had 164 million shares outstanding. In the six months since then, and including the new financing, the share count has climbed up to 244 million.
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