Stockwatch Energy today
Energy Summary for July 13, 2022
2022-07-13 20:10 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery added 46 cents to $96.30 on the New York Merc, while Brent for September added eight cents to $99.57 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.90 to WTI, unchanged. Natural gas for August added 53 cents to $6.69. The TSX energy index lost a fraction to close at 206.82.
After a steep plunge yesterday, oil prices edged slightly higher today, but could not break back above $100 (U.S.). Prices faced pressure from a higher U.S. dollar and continuing fears of a global recession. The U.S. dollar -- which is now at parity with the euro for the first time in two decades -- tends to have an inverse relationship with oil prices, as a higher greenback makes oil more expensive in other currencies, generally lowering demand. On that subject, the International Energy Agency (IEA) released a report this morning that "modestly trimmed" its outlook for global oil demand in 2022 and 2023. It cited a "worsening macroeconomic outlook and fears of recession."
Here in Canada, oil sands giant Suncor Energy Inc. (SU) lost three cents to $39.68 on 12 million shares. Today was supposed to be the day on which its CEO was to host a lengthy on-line presentation about the company's oil sands operations and ambitions. Instead, following yet another fatality at one of its sites last week -- its 13th since 2014, worse than any of its competitors combined -- Suncor unceremoniously ousted its CEO late Friday and cancelled the presentation. Between that and lower oil prices, the stock is trading below $40 for the first time in months.
Kris Smith, executive vice-president of Suncor's downstream division, is now serving as interim CEO while the company looks for a replacement. Investors could be in for a long wait. "This level of events is something we have never seen in the 25 years of covering the sector. ... Ultimately, we believe a meaningful overhaul will be needed, and we see that taking time and money," wrote Eight Capital analyst Phil Skolnick in a research note earlier this week. National Bank's Travis Wood speculated that "additional executive changes will likely be required." Laura Lau, chief investment officer of Brompton Group (a Suncor shareholder), speculated to Reuters on Monday that Suncor will take several months to find a new CEO and could be in "turmoil for a while."
A more placid assessment arrived this morning from DBRS, which found "No Impact on Credit Ratings" from the fatality or the abrupt CEO departure. The credit rating agency reminded readers that it already flagged problems with "operational reliability and workplace safety performance" in its most recent report on Suncor on June 15. It sees no need to update its rating in light of last week's upheaval. Suncor continues to have an investment-grade rating of A (low), which is the same as Canadian Natural Resources Ltd. (CNQ: $61.78) and slightly below the AA (low) rating of Imperial Oil Ltd. (IMO: $54.99).
Further afield, Frank Giustra and Serafino Iacono's Colombian gas explorer, NG Energy International Corp. (GASX), added four cents to 75 cents on 101,300 shares. It has announced a share buyback program whereby it can repurchase up to 6.2 million of its 124 million shares over the next 12 months. The reason for the buyback, as usual, is management's belief that "the market price of the common shares may not fully reflect the underlying value of the company's business and its future prospects."
Put another way, the stock has taken a beating -- falling to 75 cents from $2.30 since the start of the year -- and management wants to be seen doing something about it. Part of the drop reflects delays in starting production at NG Energy's gas assets. Political turmoil has added to the pressure, with several energy stocks having tumbled since leftist candidate Gustavo Petro won Colombia's presidential election last month. He will take office Aug. 7 and has vowed to try to ban new oil projects, interfere with existing projects and generally wean the country off dirty fossil fuels. (He has offered scant details about how he will develop alternative revenue streams for a country so reliant on energy exports, but that is par for the course for a politician.)
None of the above fazes a brand new cheerleader of NG Energy, Canaccord Genuity analyst Roman Rossi. He published his first research note on the stock this morning. In Mr. Rossi's view, the gassy NG Energy is "operating in one of the hottest subsectors in Colombia ... [and] is well positioned to become an important player in the medium term." He predicted that the company will be producing over 40 million cubic feet a day by the end of 2023. In addition, the analyst heaped praise on NG Energy's management, most of which previously worked at Pacific Rubiales, "one of the most successful O&G [oil and gas] independent stories in Latin America." (It was not until much later in the note that the analyst mentioned that Pacific "did not have a happy ending," his way of referring to its spectacular collapse into bankruptcy in 2016, followed by its restructuring and emergence as Frontera Energy Corp. (FEC: $11.48), under new management.)
Mr. Rossi concluded by giving NG Energy a "speculative buy" rating and a price target of $1.40. That is nearly double today's close of 75 cents. Investors may wish to note the disclaimers buried at the bottom of the 34-page note, disclosing that the analyst's employer, Canaccord, has led recent financings for NG Energy and receives compensation from it for investment banking services.
Another Latin American operator, Jose Francisco Arata's Ecuador-focused New Stratus Energy Inc. (NSE), lost four cents to 71 cents on 275,400 shares. It too arranged a share buyback today, but unlike NG Energy, it did not get a boost today from fawning analyst attention. Investors had to make do with the news that New Stratus may buy back up to six million of its 120 million shares over the next 12 months. The reason -- prepare for deja vu -- is that it believes that "the market price of its common shares may not reflect their underlying value."
New Stratus's stock has fallen to 71 cents from last month's high of $1.45. It too has faced political upheaval lately, as Ecuadorean President Guillermo Lasso clings to power following weeks of violent anti-government protests last month. The government ended the protests by agreeing to enter 90 days of negotiations on matters ranging from fuel price cuts to labour rights. These talks happened to start today. New Stratus, for its part, said last month that the protests were not affecting its production, but beyond that it has stayed (wisely) silent. The company is in its own negotiations with the government as it tries to extend its contracts on its core assets, blocks 16 and 67. Together these produce over 15,000 barrels a day. Their contracts expire at the end of this year.
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