Stockwatch Energy today
Energy Summary for Feb. 16, 2022
2022-02-16 20:01 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added $1.59 to $93.66 on the New York Merc, while Brent for April added $1.53 to $94.81 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.69 to WTI, unchanged. Natural gas for March shot up 41 cents to $4.72. The TSX energy index added 1.45 points to close at 201.84.
Oil prices had another wobbly day, keeping to their trend of "ambiguity from one day to the next," as one analyst from Citi sighed today to Reuters. Geopolitical tensions in Europe remain high. The threat of supply disruptions offset an unexpected rise in supplies closer to home, where the U.S. government reported today that domestic crude inventories increased by 1.1 million barrels last week. This is the opposite of the 1.1-million-barrel decrease reported yesterday by the American Petroleum Institute. (The numbers are usually closer together, but differences can arise, reflecting the fact that reporting to the institute is voluntary, whereas reporting to the government is mandatory.)
Here in Canada, the annual influx of year-end reserve reports continued. Rick McHardy's Alberta-focused Spartan Delta Corp. (SDE) added 15 cents to $8.56 on 778,900 shares, after cheering an "extensive reserve book" built on "successful execution." Proved and probable reserves rose all the way to 545 million barrels as of Dec. 31, 2021, from 206.9 million barrels a year earlier. The vast majority of the increase (over 300 million barrels) came from acquisitions. Spartan was a busy shopper during 2021, buying Velvet Energy, Canoe Point Energy, Inception Exploration and various piecemeal assets.
The acquisitions also provided other benefits. "Strong financial and operating results for 2021 ... exceeded full-year guidance," declared president and chief executive officer Frotis Kalantzis. He pointed to full-year production of 47,700 barrels of oil equivalent a day, higher than the guidance of 44,000 to 46,000. This included production of 72,400 barrels a day in the fourth quarter, reflecting contributions from acquisitions throughout the year. Mr. Kalantzis is aiming to keep Spartan's production at around 70,000 barrels a day for 2022. In discussing future guidance, he could not resist dangling one increasingly trendy carrot: He forecast that Spartan will enjoy $259-million in free cash flow this year, with which it could mull "capital allocation decisions such as to repay debt, reinvest in the business or" -- here comes the carrot -- "return capital to shareholders."
The reaction from shareholders was fairly muted. Spartan did, however, win several rounds of applause from analysts. Scotia Capital's Cameron Bean wrote that Spartan is "firing on all cylinders with strong [fourth quarter] results." He has a price target of $14 on the $8.56 stock. Separately, TD's Aaron Bilkoski, with a price target of $13.50, mused about the potential for dividends and buybacks in 2023. The formerly aloof Jeremy McCrea of Raymond James talked of a "greatly improved" outlook on Spartan and hiked his price target to $10 from $8.25. The employers of each of those analysts, of course, look to do business with Spartan. Both Scotia and TD were underwriters in a $45-million bought deal at $4 last March. Participants have more than doubled their money.
Speaking of financings, Craig Steinke's Reconnaissance Energy Africa Ltd. (RECO) edged up half a cent to $6.425 on 293,100 shares, barely regaining any of the nine cents it lost yesterday after filing a preliminary prospectus. The prospectus is for the $41.2-million bought deal that Reconnaissance arranged last week. The bought deal comprises 6.5 million units at $6.35, with the proceeds going toward "drilling and seismic operations" at Reconnaissance's Kavango basin assets in Namibia.
The prospectus went into more detail about the program and revealed it to be behind schedule yet again. Reconnaissance previously drilled its first two wells in the basin in early 2021, turning up "many positive indicators" of hydrocarbons (though neither well has reached the stage of production testing, and may not get there at all). The company began collecting seismic data ahead of the planned next phase of drilling, which it said would begin in September. It later pushed this out to any time before the end of the year. Next came "early Q1 2022," and last month brought "the first half of 2022," which investors were still hoping would mean the first quarter. The prospectus dashed those hopes and pushed the drill program into the second quarter.
Another international explorer hoping to drill soon is Dr. Art Halleran's Trillion Energy International Inc. (TCF), up 7.5 cents to 30 cents on 5.86 million shares. Investors perked up today on hearing that Trillion has hired Schlumberger to help with a 13-well drill program intended to begin in the third quarter. The wells are to be drilled at Trillion's 49-per-cent-owned SASB gas field in Turkey's Black Sea. To avoid the need for expensive underwater tie-ins, Trillion has hired Schlumberger to design long-reach directional wells that can extend more than two kilometres from the rig to the production platform. "[This] significantly lowers our capital costs ... and increases the anticipated returns," said CEO Dr. Halleran.
More broadly, the update is seen as a clue that Dr. Halleran is finally about to close a financing to be able to pay for the wells, which will cost an estimated $8.7-million (U.S.) a pop (or $4.3-million (U.S.) net to Trillion). Trillion had barely $1-million (U.S.) in working capital as of Sept. 30. Last spring, it tried to arrange a $17.5-million (U.S.) loan from a U.S. lender to get the first wells started -- with Dr. Halleran subsequently vowing that the loan would be ready in October and "first production will be December" -- but that appeared to go nowhere. What happened instead in December is that Trillion worked on redomiciling to Canada, in hopes of securing financing from a Canadian institution. The repatriation took effect last month and investors now seem hopeful that money is just around the corner.
Perhaps not wanting a repeat of his earlier overconfidence in closing a financing, Dr. Halleran did mention such things once in an interview today with The Market Herald (an Australia-based business media and IR platform). He kept the focus on the hiring of Schlumberger. "Schlumberger are the best in the world for directionally drilling wells," he declared. He explained that the SASB field -- a past producer that peaked in 2011 -- has numerous gas pools that have been discovered but never produced. Directional drilling should make production cost-effective and is something that Schlumberger has done "many, many, many times," said Dr. Halleran. He opined that the SASB field is shaping up to be "so economic."
Now the hope is that a financier sees things the same way. The most recent update on a potential financing was that Trillion entered a consulting agreement in January to "receive advice on institutional debt financing." It did not identify the consultant or the targeted institutions. All Dr. Halleran would say on Jan. 31 is that "significant progress has been made."
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