Energy Summary for April 1, 2022
2022-04-01 19:55 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost $1.01 to $99.27 on the New York Merc, while Brent for June lost 32 cents to $104.39 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.40 to WTI, up from a discount of $11.90. Natural gas for May added eight cents to $5.72. The TSX energy index added 3.83 points to close at 226.87.
Oil prices ended the week with their largest weekly loss in about two years. On the back of U.S. President Joe Biden's announcement yesterday about the planned release of 180 million barrels from the U.S. strategic petroleum reserve, the International Energy Agency (IEA) announced today that its member countries will also conduct a co-ordinated release of emergency reserves. The move comes "in response to the market turmoil caused by Russia's invasion of Ukraine," said the IEA in a press release after today's special meeting. It expects to publish the specifics "early next week."
The IEA's member countries (which do not include Russia) previously agreed last month to release 62.5 million barrels from their emergency stockpiles. This was the first time in over a decade that they had agreed to a collective release, and only the fourth time in the IEA's history. Prior collective releases occurred in 2011, 2005 and 1991. As of today, the total emergency reserves of IEA member countries are about 1.5 billion barrels. This is equal to about 15 days of total global demand (around 100 million barrels a day) and 300 days of Russian oil exports (about five million barrels a day).
Here in Canada, companies jockeyed for position in the nascent carbon capture industry in Alberta. The province has announced a shortlist of companies whose carbon capture and storage (CCS) proposals have been deemed suitable for the next stage of evaluation. Now the companies are being "invited to work with [the] government to further evaluate the suitability of each [proposal]." Among the lucky (if preliminary) winners are oil producers Suncor Energy Inc. (SU: $41.02) and Whitecap Resources Inc. (WCP: $10.47), as well as pipeline operators TC Energy Corp. (TRP: $71.46), Enbridge Inc. (ENB: $58.08) and Pembina Pipeline Corp. (PPL: $47.60).
By way of background, Alberta is essentially trying to create an Edmonton-area CCS hub with a single operator, which will store its own carbon and will also have the right to charge other companies for access and transportation. The idea is that a centralized hub will be cheaper and easier to monitor than letting dozens of companies go their own way. To that end, the province put out a call for proposals last year, letting interested companies and consortiums vie for the role of hub operator (just in the Edmonton area to start, with other regional competitions to follow). Now the province has selected six projects of preliminary interest.
The five above-named companies are involved in four of the proposed projects. Suncor is working with ATCO and Shell Canada on what they are now calling the Atlas hub (formerly the Polaris hub). This is a large-scale proposal that they claim could capture more than 10 million tonnes of carbon dioxide annually. They are leaning on Shell's expertise as the operator of a nearby carbon storage facility, called Quest, which started operations in 2015 and stores about one million tonnes a year. Shell has said Atlas could start operating in the mid-2020s, subject to a final investment decision in 2023.
Meanwhile, Whitecap is working with the private Wolf Midstream, the Heart Lake First Nation and the First Nation Capital Investment Partnership (FNCIP) to develop their own, as-yet-unnamed hub. This would have a smaller initial capacity -- about two million to three million tonnes a year -- but the joint venturers say it would have "significant expansion capability." They also think they could build it quickly. According to a jubilant press release from Wolf today, the desired in-service date would be "prior to the end of 2024."
Enbridge is going solo on a third proposed hub, while TC Energy and Pembina are working together on a fourth. Two private companies, Enhance Energy Inc. and Bison Low Carbon Ventures Inc., are behind the fifth and sixth.
All of the above companies will enter the next phase of the competition. This will involve trying to prove to the province that their projects can provide the desired level of storage, meet "rigorous safety and environmental standards," and ensure "open access to all emitters and affordable use of the hub." The province has not said how long the evaluations will last or when it will select a winner.
A different Alberta producer, Doug Bailey and Frank Muller's Razor Energy Corp. (RZE), lost 12 cents to $3.00 on 135,400 shares. It has arranged a $5-million rights offering. Shareholders will receive one right per share, with each right entitling the holder to subscribe for a highly specific 0.0841016 of a share. Effectively, the purchase of one new share will require the exercise of over 11 rights. It will also cost $2.55. This is a steep discount to today's close of $3, but an even bigger premium over $1, where Razor was trading as little as six weeks ago.
Much of the recent excitement reflects the hype over a "first-of-its-kind" geothermal power plant that Razor is building in the Swan Hills area of Alberta. As discussed in past summaries (most recently on March 10), the project differs from other geothermal plants, as it will rely on standard oil and gas wells rather than deep brine wells. The project is running over budget and behind schedule but should finally be ready this September. Razor boasted on March 9 about a loan amendment that rendered the project "fully financed."
Evidently Razor still wants a bit of a financial cushion. The rights offering, if fully subscribed, will see Razor issue a total of 1.96 million shares (boosting its share count to a still-trim 25.2 million) for proceeds of $5-million.
There was no mention of a backstop. The circular for the rights offering indicates that Razor's directors and officers, collectively owning 5.6 million shares, intend to participate. Yet Razor's largest individual shareholder, Alberta Investment Management Corp. (AIMCo), with 4.6 million shares, says it will not. AIMCo already poured $1.8-million into Razor last October by buying 2.2 million shares at 84 cents. It is sitting this financing out, as well as sitting pretty on the October investment. Given today's close of $3, the $1.8-million investment in October is now worth $6.6-million.
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