Stockwatch Energy today
Energy Summary for March 3, 2022
2022-03-03 19:41 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery lost $2.93 to $107.67 on the New York Merc, while Brent for May lost $2.47 to $110.46 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.85 to WTI, up from a discount of $12.30. Natural gas for April added four cents to $4.52. The TSX energy index lost 3.43 points to close at 210.10.
Oil prices had another helter-skelter day. The U.S. government reiterated its opposition to direct sanctions on Russian oil and gas exports as a response to Russia's invasion of Ukraine, saying such a move would raise fuel prices for Americans. Europeans are already facing this grim reality. Amid rising supply uncertainty -- particularly with Russia's Gazprom temporarily cutting gas flows to Europe along the Yamal pipeline this morning, according to Reuters -- Europe's TFF gas benchmark reached an all-time high this morning of 199.99 euros per megawatt hour. For context, this would be as if oil were trading at $360 (U.S.) a barrel.
The International Energy Agency released a 10-point plan today on how the European Union can reduce its reliance on Russian gas imports by over one-third within a year. "Nobody is under any illusions anymore. Russia's use of its natural gas resources as an economic and political weapon show Europe needs to act quickly," stated IEA executive director Fatih Birol. He urged Europe to wean itself off Russian gas as fast as possible and "be ready to face considerable uncertainty over Russian gas supplies next winter."
Within the sector, one of the big movers -- unfortunately for the wrong reasons -- was Guyanese oil explorer CGX Energy Inc. (OYL), down $1.27 to $1.68 on 9.58 million shares. Its joint venturer, the Colombian oil producer Frontera Energy Inc. (FEC), lost $1.31 to $12.59 on 1.04 million shares. Both companies unnerved investors with their latest update on their offshore Guyanese exploration blocks.
The block that has been their focus so far is Corentyne. They spudded their first exploration well there, the Kawa-1 well, last August. After delays and cost overruns, the companies announced in late January that the well had turned up at least 50 metres of hydrocarbon-bearing reservoirs, thrilling investors at the time (CGX's stock shot up to $2.84 from $2.22 on Jan. 31). Today they announced they have finished drilling the well and confirmed 61 metres of net pay. What they did not manage to do, to investors' disappointment, is collect high-quality samples. This is not unheard of at a frontier well -- especially a complicated offshore one -- but it is a setback, as it will inherently limit the quality of the analysis. In addition, they pegged the final cost of the well at $140-million (U.S.), well above the original budget of about $80-million (U.S.) or the revised budget of about $120-million (U.S.).
The other block in the joint venture is Demerera. This block comes with drilling commitments that have been extended numerous times over the years by the Guyanese government. Now the government's patience is running out. Because of their excitement over Kawa-1 at Corentyne, the joint ventures deliberately moved Demerera down their priority list and skipped the well that they were supposed to drill last month. The government has now informed them they must drill not one but two wells at Demera by February, 2023 -- no more chances. Similarly, the government has told CGX to drill a well at its Berbice block (not part of the joint venture with Frontera) by the same deadline.
CGX does not have anywhere close to enough money for all this. It had already been looking into financings for the next steps at Corentyne, let alone two other blocks. All it could say today was that it will "seek further dialogue" with the government ("dialogue" presumably being how its PR crew spells pleading for mercy).
Here in Canada, it was another busy day for year-end financials. Oil sands giant Canadian Natural Resources Ltd. (CNQ) edged down 33 cents to $72.49 on 12.2 million shares, after reporting a $2.5-billion profit for the fourth quarter and hiking its dividend yet again. Investors hardly seemed surprised. After reaching a COVID-induced low of just $9.80 during early 2020, the stock has more than shaken off the downturn, septupling to over $72 and raising its dividend four times. Its new quarterly payout of 75 cents represents a yield of 4.1 per cent. Despite strong demand for oil in an ever-tightening market, the company made no move today to update the guidance that it laid out in January. President Tim McKay said during a conference call this morning that the existing guidance is "very strong" and the company plans to "stay the course."
Today's conference call was also the last to be hosted by Corey Bieber, a long-time executive at Canadian Natural. He has been with the company for 21 years. In 2019, he stepped down as chief financial officer and senior vice-president of finance -- turning those roles over to Mark Stainthorpe -- and became an executive adviser. Management announced during today's conference call that the 58-year-old Mr. Bieber will officially retire in April.
Canada's largest gas producer, Mike Rose's Tourmaline Oil Corp. (TOU), lost $1.59 to $49.58 on 3.11 million shares. It too released its year-end financials. While Canadian Natural's financials were in line with or slightly better than analysts' forecasts, Tourmaline fell a bit short of them on cash flow (reflecting rising operating costs and royalties). Tourmaline also did not announce a sizable dividend boost. (Its current 20-cent quarterly dividend represents a yield of 1.6 per cent, which some investors would no doubt like to see head higher.) Tourmaline did, however, turn a sizable profit of $996-million in the fourth quarter, and it boasted that its gas reserves are now the largest in all of Canada. Today's drop in the stock aside, Tourmaline has been another stout performer since the downturn, rising to nearly $50 from a 2020 low of $6.73.
Back in the oil sands, Athabasca Oil Corp. (ATH) lost 10 cents to $1.99 on 17.9 million shares. It already released preliminary year-end financials last month, so today's official version brought few surprises. They were accompanied by a new year-end reserve report pegging Athabasca's total proved and probable reserves at 1.3 billion barrels as of Dec. 31. At current production rates, this gives the company a reserve life index (a measure of how long it would take to deplete the reserves) of over a century, marvelled Athabasca.
Investors were more interested in the numbers on the balance sheet. Athabasca was carrying over $440-million in long-term debt as of Dec. 31, 2021. This was a bigger concern when most of the debt was going to mature in early 2022 (last month, in fact) but in late 2021, Athabasca restructured its debt and pushed the maturity out to 2026. Today it reiterated its goal of getting into a near-term net cash position. "Transitioning the enterprise value to equity holders" -- in other words, not being buried in net debt -- "is expected to unlock significant shareholder value," declared CEO Rob Broen and CFO Matt Taylor. They both dropped hints that Athabasca will unveil a "return-of-capital strategy," including potential dividends and share buybacks, in the second half of the year.
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