Energy Summary for Nov. 25, 2021
2021-11-25 20:10 ET - Market Summary
by Stockwatch Business Reporter
U.S. markets were closed for American Thanksgiving. West Texas Intermediate crude for January delivery lost 36 cents to $78.03 in electronic trading on the New York Merc, while Brent for January added three cents to $82.28 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.30 to WTI, unchanged. Natural gas for December added five cents to $5.12. The TSX energy index added a fraction to close at 171.00.
Despite a spike in oil and gas prices, the Alberta economy remains in rocky territory and may not return to pre-COVID levels until 2023, according to a new forecast from ATB Financial. The 83-year-old provincial Crown corporation released its latest Alberta Economic Outlook this morning. Although the report found that the province's economy is "moving in the right direction at a good clip," it also predicted that "annual output does not recover the ground lost in 2020 until next year, with GDP per capita not catching up to its prepandemic level until 2023."
ATB blamed the "uneven nature of the recovery." Some industries, such as cannabis and financial services, are already doing better than they were before COVID. Others, such as restaurants and tourism, are still lagging. As for the energy industry, it presents an unusual case. High oil and gas prices are understandably causing many to rub their hands together in anticipation of another economic boom. Yet there are "a number of factors [that] are keeping a lid on the oil and gas capital spending that is required to drive another boom," warned ATB. It mentioned continuing pipeline constraints, the need to repair balance sheet damage sustained during 2020, and new regulations and shifting public attitudes around the environment.
"While another boom is not impossible," concluded the ATB, "things have been -- and are likely to stay -- different this time around." It predicted that spending in the energy sector will "rise only modestly in the coming years rather than trigger a boom like we saw a decade ago." Even so, the institution could not deny that high prices are giving the province a "welcome economic boost."
Within the sector, oil sands giant Suncor Energy Inc. (SU) added 28 cents to $34.02 on 5.92 million shares. It enjoyed a lovely mention this morning from CIBC analyst Dennis Fong. "We recently hosted management from Suncor Energy for a series of marketing meetings," wrote Mr. Fong in a new research note, in which he hiked his price target on the stock to $48 from $44. He dubbed himself "encouraged by the progress made to ramp up Fort Hills." This is one of Suncor's main oil sands assets, though it was partially shut down last year as oil prices collapsed. Suncor is aiming to get Fort Hills back to pre-COVID production by year-end. Mr. Fong also praised the company's "continued focus on capital discipline and cash returns to shareholders." After gutting its quarterly dividend last year, Suncor recently doubled it to 42 cents from 21 cents, for a yield of 4.9 per cent.
The praise-laden note notches another victory for Suncor in a continuing charm offensive. This week also saw Suncor's chief executive officer, Mark Little, take part in an hour-long love-fest of an interview by the Business Council of Alberta -- complete with the interviewer's conclusion of, "Thank you for your leadership and for charting the course for the sector." As well, Suncor won a nod of approval yesterday from Imagine Canada, a charity that helps other charities and non-profits get money. Imagine Canada announced that it has certified Suncor as a "Caring Company" to recognize its "excellence in community investment and social responsibility."
Though oil prices rather than accolades are doing the real promotional lifting for Suncor, investors are enjoying the ride. The $34 stock is sitting at its highest level in 20 months.
Further afield, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), added five cents to $3.27 on 213,700 shares. It has closed a $500-million (U.S.) seven-year note offering. The proceeds will go toward redeeming other notes with less favourable terms, while also providing "additional liquidity to be used towards capital expenditures," said Canacol. It has played coy about the specific expenditures it might mean. The company is currently conducting an active exploration program, and is also rumoured to be eyeing acquisitions. Success on either front may help the company improve its 9.2-year reserve life index (RLI -- a measure of how long a company's reserves will last at current production rates). Energy investors tend to prefer RLIs of 10 years or more.
Nearby, a would-be Colombian gas producer, Frank Giustra and Serafino Iacono's NG Energy International Corp. (GASX), edged up two cents to $1.83 on 33,200 shares. It has filed its financials for the third quarter. As the company has no production or revenue to speak of, it treated the financials at least partly as an exercise in daydreaming about its core blocks, Maria Conchita and SN-9. (The SN-9 block happens to be next to one of Canacol's core producing blocks, Esperanza.)
To hear NG Energy talk, the dreams are moving steadily closer to reality. The company closed an $8-million private placement last month to build infrastructure at SN-9, where a four-well exploration program -- paid for by a third party in exchange for preferential service treatment -- is tentatively scheduled to begin by year-end. At Maria Conchita, the company is working on a pipeline to take a 40-year-old past-producing well and put it back on production, also tentatively expected by year-end.
NG Energy admitted that it has experienced "delays due to the COVID-19 pandemic and the difficulties of mobilization on Colombian roads because of social unrest and blockades." Investors have heard that before; NG Energy was originally hoping to start drilling and exploring in the first quarter of this year. It is running nearly a year behind schedule. Yet investors seem eager to see its activities start at last. The above-noted financing was done at $1; a subscriber who put in $10,000 then would now be sitting on $18,300.
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