Stockwatch Energy today
Energy Summary for Oct. 21, 2022
2022-10-21 19:59 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added 54 cents to $85.05 on the New York Merc, while Brent for December added $1.12 to $93.50 (all figures in this para U.S.). Western Canadian Select traded at a discount of $25.75 to WTI, unchanged. Natural gas for November lost 40 cents to $4.96. The TSX energy index added 4.26 points to close at 251.49.
After another rocky day, oil prices settled higher, but only Brent notched a weekly gain. (WTI was especially volatile due to the turnover to the December contract from the November one.) Inflation and supply fears continued to jockey for traders' attention. Meanwhile, gas prices dropped for the ninth week in a row, amid mild weather forecasts, high production and low exports of LNG (liquefied natural gas). This is the longest losing streak since gas prices fell for 11 weeks in a row in early 1991.
Canadian heavy oil prices are also having a grim time. The discount between Western Canadian Select (WCS) and WTI tends to be about $10 (U.S.) to $15 (U.S.), reflecting quality and transportation costs. Since the spring, however, the discount has steadily widened to more than $25 (U.S.). This is bringing back painful memories of the last major blowout in the discount to more than $45 (U.S.) in 2018. The Alberta government responded at the time by temporarily forcing producers to curtail output in order to clear a glut of oil that was pressuring prices. In other words, the problem was a lack of Canadian pipeline capacity. This time, the problem is largely south of the border, where U.S. refiners have suffered a series of unplanned outages, right as the U.S. government is releasing vast amounts of oil from emergency reserves -- all leading to less demand for Canadian crude.
With the discount getting as high as $28.75 (U.S.) this week, the situation is not quite as dire as it was in 2018, but it still caught the attention of Scotia analyst Jason Bouvier. In a new research note, he predicted continued weakness in WCS throughout the winter and spring, only easing in the second half of 2023 as more refinery capacity comes on-line. He added that the planned start-up of the Trans Mountain pipeline expansion in late 2023 should also be good for Canadian crude. Naturally, he had a handy list of stocks with exposure to "strong medium and long-term pricing," singling out the oil sands players MEG Energy Corp. (MEG: $18.19), Imperial Oil Ltd. (IMO: $67.84) and Cenovus Energy Inc. (CVE: $25.76). "Should the share prices of these companies materially weaken," mused Mr. Bouvier, "it will likely represent a good entry point."
Elsewhere in Alberta, Rick McHardy's Spartan Delta Corp. (SDE) lost 18 cents to $11.64 on 358,300 shares. Its president and chief executive officer, Dr. Fotis Kalantzis, headed to BNN yesterday to talk up the company and how "very well balanced" it is. About two-fifths of its production is oil and liquids and the rest is gas. This provides "torque both on oil and gas prices," said Dr. Kalantsiz. He also marvelled at the sheer volume of Spartan's production, which has soared from nothing to over 72,000 barrels a day in the past three years, thanks largely to "about a billion" dollars in acquisitions.
To hear Dr. Kalantsiz talk, Spartan's management can do this because it is now well accustomed to the drill of running an oil and gas company. "This is the fourth Spartan company we have started in the last 10 years," he boasted. The last three -- Spartan Energy, Spartan Oil and Spartan Exploration -- were all led by the above-mentioned Mr. McHardy, who sold them in 2011, 2013 and 2018, respectively. (The respective buyers were Obsidian Energy Ltd. (OBE: $11.62), Bonterra Energy Corp. (BNE: $8.25) and Vermilion Energy Inc. (VET: $30.73).) Dr. Kalantsiz was in various vice-president roles at those three. Now he is in the top job at Spartan Delta, while Mr. McHardy retains a prominent role as executive chairman.
The BNN interviewer, in a rare departure from typically softball questions, questioned Dr. Kalantzis about the involvement of an infamous shareholder of Spartan Delta. That would be Russian oligarch Igor Makarov, who since April has been sanctioned by Canada, Australia and the United Kingdom over suspected ties to Russian President Vladimir Putin. Mere days ahead of the Canadian sanctions in April, Mr. Makarov (through his ARETI International Group) sold 15 million shares of Spartan for $121.5-million, reducing his shareholdings to about 8 per cent and thus below the disclosure threshold. The BNN interviewer wanted to know if Mr. Makarov had sold any shares since then. Dr. Kalantzis claimed not to know, adding firmly: "We don't communicate with [ARETI], they don't have any control of the company ... It's irrelevant to us."
Rather bizarrely, the interview came to an abrupt end after that, giving Dr. Kalantzis no time to try to steer the conversation to friendlier ground. The BNN interviewer (Andrew Bell) took to Twitter to apologize and explain that the interview was cut short because of a poor audio connection. Whether Dr. Kalantzis will get another go remains to be seen, but in the meantime, the page with his interviewer fawns over Spartan as one of the "top TSX energy performers ... [with a] share price [that] has doubled since the beginning of the year."
Further afield, Serafina Iacono's Colombian gas junior, NG Energy International Corp. (GASX), added three cents to 92 cents on 1.65 million shares. It has arranged a $25-million convertible debenture offering. Each unit in the offering will comprise a convertible debenture with a conversion price of 90 cents a share, and will include warrant sweeteners with a strike price of $1.08 a share. The company expects to close the financing within a month. It said the subscribers will comprise "a lead group of strategic investors," including insiders.
The financing comes just a day after NG Energy's management trumpeted the results of a new gas well in Colombia, the Brujo-1x exploration well at the core SN-9 block. This is the second exploration well drilled by the company. The first one, Magico-1, found 100 feet of net gas pay in July and then tested at 15.1 million cubic feet a day in August. Now the Brujo-1x well has found 738 feet of net gas pay, leading an overjoyed Mr. Serafino, NG Energy's CEO and chief promoter, to declare himself "very excited by the potential magnitude of these results ... [which could] redefine the expectations of the full block potential."
The proceeds from the new financing will go toward testing the new well. Naturally, Mr. Iacono's enthusiasm remains undimmed; today he dubbed himself "more excited than ever." Investors also seem interested -- the stock has added 10 cents (to 92 cents) since yesterday -- but they could be forgiven some circumspection. Mr. Iacono remains best known for his previous promotion, Pacific Rubiales, a Colombian oil producer where he was co-chairman from 2008 to 2016. Durian this period, the stock went from about $2 to over $35, and then all the way down to 38.5 cents and into bankruptcy. How investors feel about Mr. Iacono tends to line up with when they got in or out.
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