Energy Summary for Nov. 23, 2021
2021-11-23 20:41 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added $1.75 to $78.50 on the New York Merc, while Brent for January added $2.61 to $82.31 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.40 to WTI, up from a discount of $19.45. Natural gas for December added 18 cents to $4.97. The TSX energy index added 6.11 points to close at 167.40.
The battle for global oil control has begun. Today, the U.S. government announced that it will release 50 million barrels of oil from its strategic petroleum reserve (SPR), in tandem with smaller releases by China, India, South Korea, Japan and Britain, as they all seek to cool down oil prices that hit a seven-year high last month. This is the largest SPR release in history and the first time the markets have seen such a globally co-ordinated release of emergency reserves.
The announcement had the opposite of its intended effect today, with oil prices racing higher. This reflects anticipation about the response of OPEC+ at its imminent meeting next Thursday, Dec. 2. OPEC+ officials have already warned that any release of emergency reserves might prompt the group to cancel or adjust its own production-boosting plans, offsetting the new supplies. (It is also worth noting that the mere chatter about tapping the SPR was already successful in driving down prices by about $10 (U.S.) a barrel over the last month. For further context, the entire SPR holds 606 million barrels, enough to meet U.S. demand for about a month.)
This was not the only battle heating up. Late yesterday, Canada's TC Energy Corp. (TRP: $61.51) firmed up its demand for compensation from the U.S. government over the cancelled Keystone XL pipeline. The proposed 830,000-barrel-a-day pipeline had its permits stripped by President Joe Biden last January. After mulling its options for a few months, TC Energy filed a notice of intent in July to begin a NAFTA claim, seeking more than $15-billion in purported damages. Now it has filed the formal request for arbitration related to this claim. It faces an uphill battle; the U.S. government has never once lost a NAFTA suit. Observers have put the company's odds anywhere from zero to 50-50.
On yet another battlefront, some of Canada's largest oil sands companies tried to win over hearts and minds by burnishing their green credentials. The Canadian Global Affairs Institute hosted a webinar today called "Oil Sands Pathways to Net Zero: How Do We Get There?" and featuring representatives from Canadian Natural Resources Ltd. (CNQ: $53.66), Suncor Energy Inc. (SU: $33.00) and Cenovus Energy Inc. (CVE: $16.23). The representatives discussed the companies' previously announced goals to reach net zero emissions from their oil sands operations by 2050.
(The plans will be broadly familiar to investors aware of the "Oil Sands Pathways Alliance," which was established by the above-mentioned three companies, as well as Imperial Oil Ltd. (IMO: $44.03) and MEG Energy Corp. (MEG: $11.40), last June. The name is a reference to the desired pathway to net zero emissions. Last month, the five-member group announced a three-phase plan to accomplish this goal, although only the first phase -- involving large-scale carbon capture and storage -- was sketched out in any detail. Earlier this month, ConocoPhillips Canada joined as the sixth member of the group, which as a result now represents about 95 per cent of Canada's total oil sands production.)
South of the border, Bruce Chernoff's North Dakota-focused PetroShale Inc. (PSH) added one cent to 41 cents on 272,200 shares, after releasing its third quarter financials. It swung to a profit of $14.9-million from a loss of $9.1-million a year earlier. Given that production remained flat at 11,800 to 11,900 barrels a day, PetroShale gave all the credit to rising oil prices. "The continued improvement in commodity prices has driven a meaningful expansion of corporate netbacks, cash flow and free cash flow," cheered president and chief executive officer Jacob Roorda. He added that the company's hedges are rolling off (a relief after experiencing a $14-million hedging loss in the third quarter) and PetroShale will thus enjoy "further upside to cash flow generation as the company enters 2022."
Like many energy CEOs these days, Mr. Roorda found himself unable to resist a peek at the bustling "shareholder returns" bandwagon, currently bursting at the seams with new dividend and share buyback announcements. PetroShale has never paid a dividend and has not been in a position to buy back shares since early 2020. Lately it has focused on improving its balance sheet, even closing a "transformative" debt recapitalization last April, through which it reduced its debt to $185-million from $318-million (although it simultaneously sent its share count ballooning to 520 million from 188 million). Mr. Roorda acknowledged today that "further debt reduction and a more robust balance sheet" will continue to be the priority for PetroShale's cash. Yet over the longer term, he hinted, the company is eyeing "positive investor returns."
Even further south, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), edged down one cent to $3.21 on 137,800 shares. The company has received the early tender results of its offer to buy $320-million (U.S.) worth of notes due in 2025. Holders of just under 90 per cent of the notes have tendered to the offer so far, implying that Canacol will redeem at least $287.6-million (U.S.) worth of the notes, although the final amount will not be known until after the offer officially expires on Dec. 7.
Even if the holders tender all $320-million (U.S.) of the notes, Canacol will have plenty left in its treasury, because it is simultaneously selling a different batch of notes for a total of $500-million (U.S.). This is naturally stirring speculation about what it will do with the extra cash. Canacol, which expects to close the new note financing tomorrow, has merely said it will use the proceeds to refinance existing debt and for "general corporate purposes." Yet acquisition rumours have been swirling since September, when the government of Ecuador claimed that Canacol had expressed interest in buying the Amistad gas field, a producing but underdeveloped shallow-water block in Ecuador's Gulf of Guayaquil.
Canacol has not confirmed any interest. At an investment conference last week, however, Ecuadorean Energy Minister Juan Carlos Bermeo said no fewer than five companies are sniffing around Amistad. The government is now preparing a geological data package on Amistad, with the goal of auctioning it off -- and perhaps some other blocks too -- in the first half of next year.
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