Stockwatch Energy today
Energy Summary for Sept. 9, 2022
2022-09-09 18:56 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added $3.25 to $86.79 on the New York Merc, while Brent for November added $3.69 to $92.84 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.38 to WTI, down from a discount of $20.36. Natural gas for October added eight cents to $8.00. The TSX energy index added 6.14 points to close at 234.30.
After falling to seven-month lows earlier this week, oil prices enjoyed a Friday comeback, rising on European supply concerns and (quite likely) short-covering heading into the weekend. Prices also got a boost from a CNN report late yesterday that the White House might stop tapping the U.S. Strategic Petroleum Reserve in October, after six months of dumping emergency barrels into a tight market. The story quoted anonymous sources and remains unconfirmed by government officials. Despite today's gain, persistent recession fears meant that oil prices still notched their second weekly drop in a row.
Here in Canada, Darren Gee's Alberta gas producer, Peyto Exploration & Development Corp. (PEY), added 26 cents to $11.92 on 1.15 million shares. It spent the day polishing its green credentials with the release of its annual report on ESG (environmental, social and governance). The first letter got top billing, with Peyto patting itself on the back for its efforts to reduce emissions, explore carbon capture and storage, and "right-size" its land and water use. The next two letters saw further self-applause for Peyto's charitable donations and its safety and "diversity" records.
Over all, Peyto's ESG report clocked in at 46 pages (or, for context, two pages more than its most recent quarterly financials and MD&A combined). It left out some of the more unique ideas recently espoused by the above Mr. Gee, Peyto's chief executive officer, about the middle letter of ESG. He sketched out these ideas in a letter to shareholders on Peyto's website earlier this week. In his view, the entire population of Alberta is getting short shrift on the letter S.
The "social" element of ESG generally focuses on a company's relationship with employees, customers and the local community. Mr. Gee would see it go further. To him, the S should include the ultimate owners of a resource, the general public. While a company can pay taxes, royalties and so on, there is only so much it can do to ensure that the public is getting its share. Arguing that this has not been happening lately, Mr. Gee laid the blame squarely at the feet of the government and regulators.
As evidence, he pointed to AECO gas prices (the gas benchmark in Alberta) and their recent "brutal" disconnect from U.S. counterparts. Canadian gas prices nearly always face a discount to U.S. ones, reflecting transportation costs, but in August the discount blew out to nearly $10 (U.S.) a unit from a more typical $1 (U.S.) to $2 (U.S.) a unit. Mr. Gee pointed the finger at a "very inefficient ... overcontracted and underbuilt" pipeline network. Whenever capacity is restricted by maintenance -- or nearly every summer, at this point -- the market suffers steep price drops, in turn reducing the revenue earned and royalties paid by gas producers. "Think of all the hospitals ... the schools ... [the] infrastructure that those missed royalties could fund. As an Albertan, it's not right," fumed Mr. Gee. "... As far as ESG goes, this is one of the biggest S or social issues we have in our industry today."
The letter included various suggestions to fix the problem, but in the near term, the likely only approach is one that the industry has been relying on for years: wait for winter. Already, prices are responding to anticipated hikes in heating demand. Government data show that AECO has bounded up from a low of negative 19 cents on Aug. 22 to $4.83 as of yesterday. Presumably next month's letter from Mr. Gee will see him in a more cheerful mood.
Further afield, Jose Francisco Arata's New Stratus Energy Inc. (NSE) lost three cents to 93 cents on 116,400 shares, giving back some of the seven cents it added yesterday after announcing an asset acquisition in Ecuador. It plans to buy out a joint venturer's interests in blocks 16 and 67. The deal will nearly double New Stratus's interest in the blocks to 66 per cent (from 35 per cent), in turn nearly doubling its production to around 10,000 barrels a day (out of the blocks' gross production of around 15,200 barrels a day).
The purchase will cost New Stratus only $1.2-million (U.S.). The price seemingly reflects the fact that the blocks are still under a service contract that expires in just a few months, at the end of the year. New Stratus has been working all year to extend the contracts and convert them into more favourable production-sharing agreements. The company offered no update on this in the latest announcement, merely saying that it "continues to negotiate with the government."
Chairman and CEO Mr. Arata is presumably confident. He has spent the last three decades in the Latin American energy and resource industries, since his early days at the state-owned Petroleos de Venezuela. Prior to New Stratus, he was the founding president of Colombian oil darling Pacific Rubiales from 2003 to 2015, leaving just prior to its spectacular flame-out and bankruptcy in 2016. It has since re-emerged as Frontera Energy Corp. (FEC: $10.91), and its former executives, including Mr. Arata, have scattered to new promotions.
Back in Alberta, Neill Carson's i3 Energy PLC (ITE) added half a cent to 38.5 cents on 1.01 million shares. (As the PLC signifies, it is a British company rather than a Canadian one, but is listed in Toronto as well as London and gets all of its 20,000-barrel-a-day production from Western Canada.) The company announced this morning that it has finally appointed an official chairman. It has been using an interim chairman for the last few years, namely Linda Beal, who will remain on the board of directors.
The promotion to proper chairman went to John Festival, who has been on i3's board since 2020. That was when the company first expanded into Canada through the takeover of Toscana Energy (where Mr. Festival was a director), as well as an asset acquisition from the now-bankrupt Gain Energy. Further acquisitions followed in 2021. Mr. Festival presumably hoped to prove his usefulness in evaluating and developing Canadian assets, given his experience as the former president and founder of BlackRock Ventures (sold to Shell Canada for $24 a share in 2006), former president and CEO of Blackpearl Resources (sold to International Petroleum Corp. (IPCO: $11.64) for $1.85 a share in 2018), and current CEO of the private Broadview Energy.
Mr. Festival may also have been able to jog the Brits' memories about Canadian corporate reporting obligations. These would not have been entirely new; the above-mentioned Mr. Carson previously had two Toronto-listed promotions before i3, namely Iona Energy and Ithaca Energy (hence i3 being "i3"). Both focused on the North Sea. Iona capsized and went bust in 2016. Ithaca is still afloat, but as a subsidiary of Israel's Delek Group, which bought it for $1.95 a share in 2017.
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