Stockwatch Energy today
Energy Summary for Feb. 18, 2022
2022-02-18 20:13 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery lost 69 cents to $91.07 on the New York Merc, while Brent for April added 57 cents to $93.54 (all figures in this para U.S.), with both benchmarks posting their first weekly drop in nine weeks. Western Canadian Select traded at a discount of $13.69 to WTI, unchanged. Natural gas for March lost six cents to $4.43. The TSX energy index lost 4.81 points to close at 197.38.
While oil prices snapped an eight-week streak of gains, the headlines from the Canadian energy sector were all about pipelines. TC Energy Corp.'s (TRP: $66.81) Coastal GasLink reportedly sustained millions of dollars of damage yesterday after a "violent attack" by protesters at a work site near Houston, B.C. The company said about 20 protesters, some armed with axes, attacked workers, fired flare guns, and damaged windows, machinery, fencing and portable buildings. They also threw smoke bombs and fire-lit sticks at the police, injuring one officer, said the Houston RCMP. "This was a calculated and organized violent attack that left its victims shaken and a multimillion-dollar path of destruction," said Chief Superintendent Warren Brown, North District Commander. Police are investigating.
(Neither the police nor the company speculated about the identity of the protesters. The Coastal GasLink pipeline has been the target of years of opposition by members of the Wet'suwet'en Nation, whose hereditary -- unelected -- chiefs say the pipeline needs their support. The pipeline has the support of all 20 of the elected band councils along its route, including the five councils to the Wet'suwet'en, but internal divisions persist.)
Meanwhile, fellow pipeline builder Trans Mountain said its costs of its eponymous expansion project are ballooning (again). Its update this morning pegged the cost estimate at $21.4-billion. This is up sharply from the prior estimate of $12.6-billion made in February, 2020, an increase that Trans Mountain blamed on COVID-19 and extreme weather in British Columbia. (The 2020 estimate was itself a sharp increase from the initial budget of $7.4-billion in 2017, with Trans Mountain blaming that increase on years-long legal battles.) The federal government, which technically owns Trans Mountain but is looking for buyers, said it will not be paying for the cost overruns. Chief executive officer Ian Anderson said Trans Mountain has hired advisers to pursue third party financing from institutions. He also said he is retiring from the company and its board, effective April 1.
Speaking of financings, John Jeffrey's Saturn Oil & Gas Inc. (SOIL) plunged 48 cents to $2.96 on 507,100 shares, after announcing a sizable one. It is also planning an acquisition and a debt consolidation. President and CEO Mr. Jeffrey said all three will help "accelerate the company's growth in this strong oil price environment."
Investors seemed taken aback, especially after Saturn took the original financing amount of $8.01-million and doubled it to $16.02-million, all at the discounted price of $3 a unit. Saturn's shares have spent most of 2022 so far above $3.50. For context, the company last raised money in June, 2021, when it sold $32.8-million of units at a premium to its closing price the day before the financing was announced. The closing price had been 11 cents and the offering price was 12 cents. Saturn then rolled back its shares 1 for 20 in October (in which case the aforementioned figures become $2.20 and $2.40). The rollback took Saturn's share count to 25 million from 502 million. Today's financing will dilute it to nearly 31 million.
Both the June financing and today's were arranged to support acquisitions. In June, Saturn paid $93-million to acquire Crescent Point Energy Corp.'s (CPG: $8.24) Oxbow oil assets in southeast Saskatchewan. As the financing covered only one-third of the price tag, Saturn also took on sizable debt. Mr. Jeffrey seemingly wants to avoid that this time: Today, he said the company will pay $8.3-million for assets in the Plato area (in west-central Saskatchewan). The $8-million financing would have largely covered this; the upsized $16-million financing will do that and then some.
Investors are likely hoping that "then some" will go to the balance sheet. As of Sept. 30, Saturn's net debt was over $70-million, relative to its current market cap of $75.4-million. Mr. Jeffrey noted today that Saturn is consolidating its various forms of debt into one expanded senior term loan. This will provide "flexibility to amend capital plans and increase responsiveness to market conditions," he explained. He noticeably did not reiterate a previously stated goal of halving the debt by the end of the year.
Further afield, Gabriel de Alba's South American oil producer, Frontera Energy Corp. (FEC), lost 55 cents to $12.20 on 332,300 shares -- a stumbling end to a busy week. The stock got a boost on Monday after Frontera tweaked its exploration plans in Guyana with CGX Energy Inc. (OYL: $2.88) (as discussed in Monday's Energy Summary). This was followed on Wednesday evening by Frontera's year-end reserves and 2022 budget, to which investors had a more muted reaction.
The reserve report covered Frontera's reserves in Colombia and Ecuador (not Guyana; those assets are too early stage). Proven and probable reserves stayed fairly flat at 178 million barrels as of Dec. 31, 2021, compared with 174 million a year earlier. Investors were likely expecting a larger increase. CEO Orlando Cabrales emphasized that within those reserves, the amount of gas and liquids roughly doubled (to 19.1 million barrels from 9.3 million), "further diversifying Frontera's future production mix." (The company made a pronounced gas push late in the year to try to take advantage of high Colombian gas prices.)
Mr. Cabreles then turned his attention to 2022. Here, too, investors might have liked to see higher numbers. The company is aiming for full-year production of 40,000 to 43,000 barrels a day, which is up from 37,800 barrels a day in 2021, but still well below the 2019 pre-COVID average of over 60,000 barrels a day (adjusted to exclude Peruvian assets that Frontera stopped holding in 2021). This does not include the potential for any exploration success, of course. Of the $340-million (U.S. to $395-million (U.S.) budget, $160-million (U.S.) to $190-million (U.S.) is earmarked for exploration in various countries -- particularly offshore Guyana, which Mr. Cabreles called "the most exciting offshore basin in the world." Over all, he is optimistic that Frontera will "create a platform for future growth in 2023 and beyond."
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