Stockwatch Energy today
Energy Summary for Jan. 25, 2022
2022-01-25 20:40 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added $2.29 to $85.60 on the New York Merc, while Brent for March added $1.93 to $88.20 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.00 to WTI, up from a discount of $13.70. Natural gas for February added two cents to $4.05. The TSX energy index added 6.46 points to close at 186.99.
The U.S. energy sector notched another multibillion-dollar deal, as Chesapeake Energy agreed to buy the private Chief Oil & Gas in Pennsylvania's Marcellus gas play for $2.6-billion (U.S.). They were not the first to crack the billion-dollar mark in 2022 -- Texas players Desert Peak and Falcon Minerals agreed last week to merge in a deal worth $1.9-billion (U.S.) -- but they continue an impressive streak of U.S. energy deals. Analytics firm Enverus reported last week that total upstream deals in the U.S. energy sector reached $66-billion (U.S.) in 2021. That is a 25-per-cent jump over 2020, though it remains below the pre-COVID (2015 to 2019) average of $72-billion (U.S.).
The deal also has implications for the Calgary-based Enerplus Corp. (ERF), up 57 cents to $14.37 on 3.19 million shares. Enerplus devotes most of its attention to its oil assets in the North Dakota Bakken, but in 2010, it entered a joint venture with Chief in the gassy Marcellus, with Chief being the operator. The sale of Chief may have Enerplus examining its own options. Enerplus's president and chief executive officer, Ian Dundas, already stated during a BNN interview in November that he is "open-minded" about selling the Marcellus assets "if we could get an attractive price."
He understandably did not throw out a figure. Long-term investors may remember that Enerplus was previously rumoured to be marketing its Marcellus assets in 2016, with analysts valuing them at the time at $500-million (U.S.). Although their production has remained unchanged since then, at around 195 million cubic feet of gas a day (or about 32,500 barrels of oil equivalent a day), gas prices are now markedly higher.
Meanwhile, the Lundin family's International Petroleum Corp. (IPCO) added eight cents to $8.26 on a heavier-than-usual 236,700 shares. (The stock tends to be a thin trader, with an average of just 71,000 shares changing hands daily over the last three months. The Lundins control over 40 million of the company's 154 million shares.) Like Enerplus, International Petroleum is rumoured to be ready for some dealmaking, except as a buyer rather than a seller. The rumours grew louder after International Petroleum closed a $300-million (U.S.) bond financing late last week.
Mike Nicholson, who is International Petroleum's CEO (and who has spent the last 18 years at one Lundin promotion or another, including as chief financial officer of Lundin Petroleum AB in Norway), made no secret of being on the hunt. He emphasized that the bond financing helps provide "certainty of being able to close" a deal. "Whilst we do not have an imminent acquisition," he declared, "we believe that being able to demonstrate [financial strength] to sellers ... will enable [us] to access a greater universe of opportunities."
Mr. Nicholson did not specify which corner of the universe he is scouring for deals. The most likely candidate is Western Canada, where International Petroleum previously closed three significant acquisitions from 2018 to 2020, spending a total of $1.3-billion. The Canadian assets contributed over four-fifths of the 46,800 barrels a day produced by International Petroleum in the third quarter. The rest came from steadily declining assets in Malaysia and France.
In the oil sands, Derek Evans's MEG Energy Corp. (MEG) added 67 cents to $14.36 on 4.18 million shares. It got a lovely mention this morning from RBC analyst Greg Pardy, who hiked his price target on the stock to $18 from $15. "Our bullish stance towards MEG reflects its capable leadership team, top-quartile oil sands operations at Christina Lake, diversified market access to the U.S. Gulf Coast, balance sheet deleveraging, and shareholder returns (share buybacks) which should arrive in 2022," wrote the analyst.
This is actually Mr. Pardy's second lovely mention of MEG in less than two weeks. On Jan. 14, he published a similarly bullish note, reiterating an "outperform" rating and his price target of $15. The stock was then trading at $13.39. Given that it has climbed higher since then (closing today at $14.36), Mr. Pardy pushed his target in today's note up to $18. It is one of the quirks of the world of analysts that they must sometimes rush to give their targets a quick little push just as they come in sight for the stock. Indeed, in October, Mr. Pardy published one note on MEG with a target of $12, followed by another with a revised target of $15 just six days later. (It hardly needs saying that all reports contain the boilerplate disclaimer that Mr. Pardy's employer, RBC, does business or seeks to do business with companies under its analysts' coverage.)
Further afield, Philip O'Quigley's Falcon Oil & Gas Ltd. (FO) edged down half a cent to 19.5 cents on 906,100 shares, despite its efforts to tout a "high-impact, extensive and really exciting work program" coming up this year in Australia. CEO Mr. O'Quigley called himself "delighted" to lay out the plans for this "extremely important period." Among other things, Falcon and its joint venturer, Origin Energy, plan to drill and frack two more wells at their Beetaloo shale project, following up on "very encouraging" earlier results. Further good results could provide more "line of sight to the commercialization of the Beetaloo" and a potential "pilot development program in 2023."
Investors remained cautious. Falcon and Origin have been working together in the Beetaloo for about seven years, with plenty of bumps along the way. Some were external, such as a two-year fracking ban imposed by the regional government from 2016 to 2018, and some had to do with the operations themselves, such as disappointing test results in 2020 and 2021.
None of this has dimmed Mr. O'Quigley's optimism that 2022 will be the year of the Beetaloo. This year will also mark his 10-year anniversary with Falcon. He joined it in mid-2012, walking away from his old job as CFO of Providence Resources (an Irish explorer -- he is an Irishman). One of Falcon's lures was its then-chairman, John Craven, who shot to fame in early 2012 after selling his Cove Energy to Thailand's PTT Exploration for 240 pence a share, a full 20 times the 12 pence at which Cove had listed just three years earlier. Cove had gone from a shell company to a discoverer of large gas resources in East Africa. Falcon wanted to mimic this success in Australia, according to Mr. O'Quigley. "It's very much the John Craven model. ... We're not going to become an oil and gas producing company," he told the media in 2013.
True to its word, Falcon has produced nary a drop of oil or gas. It has, however, outlined substantial shale gas resources in Australia, and is aiming to keep doing so in 2022. The above Mr. Craven left in 2016. Mr. O'Quigley has stayed on, determinedly plugging the "really exciting" and "nationally significant" project.
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