Stockwatch Energy for yesterday
Energy Summary for Nov. 30, 2020
2020-11-30 20:10 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery edged down 19 cents to $45.34 on the New York Merc, while Brent for January lost 59 cents to $47.59 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.55 to WTI, down from a discount of $11.40. Natural gas for January added four cents to $2.88. The TSX energy index lost 5.80 points to close at 85.54.
Oil traders sifted through a barrage of headlines. On the demand side, Moderna is asking U.S. regulators to authorize its COVID-19 vaccine for emergency use, boosting hopes that a widespread vaccine -- and therefore a recovery in fuel demand -- is all but imminent. Good news was more elusive on the supply side, as OPEC (on the first day of a two-day policy meeting) made no announcements about whether it will delay a planned production hike in January. The cartel will discuss this further when it meets with Russia and other non-OPEC producers tomorrow. Lastly, back on the demand side, Goldman Sachs is predicting a three-million-barrel-a-day drop in oil demand this winter, amid surging COVID-19 cases. The investment bank is still notably bullish on oil prices and expects them to rebound next year to $65 (U.S.). (Many other forecasters are in the mid-$50s (U.S.) camp.)
Here in Canada, Alberta Cardium producer Obsidian Energy Inc. (OBE) stayed unchanged at 56 cents on 119,300 shares, failing to impress investors with either its new guidance or the new presentation on its website. It hauled out the trumpets this morning to announce the "reinitiation of our Cardium development program." More specifically, it is boosting its full-year budget by $3-million (to $56-million) so it can start a three-well program in the coming days, targeting the Willesden Green area. The drill program will occur too late in the year to have much effect on full-year production. Even so, Obsidian is nudging up its guidance to a range of 25,300 to 25,500 barrels a day, compared with the prior range of 25,000 to 25,500 -- in other words, a 0.6-per-cent increase at the midpoint. The added production should be more noticeable in 2021. Obsidian is working on its guidance for the first half of 2021 and plans to release it in the coming weeks.
Turning to the new on-line presentation, it made much of the new guidance and of Obsidian's grand plans for the Cardium -- not just through drilling, but through the company's desire to create "the Cardium champion" by merging with Bonterra Energy Corp. (BNE: $1.59). The fact that Bonterra does not want to merge with it has not given Obsidian even the slightest pause; it simply went hostile with the offer and is leaving it open for tender until Jan. 4. Shareholders' acceptance would create "an outcome far superior to what Bonterra can achieve on a stand-alone basis," declared Obsidian. It talked of various cost-saving opportunities, the "regaining [of] market relevance" as a larger and higher-profile company producing over 35,000 barrels a day, and even the possibility of reinstating a dividend once the balance sheet is stronger.
Long gone, of course, are the days when Obsidian was a 35,000-barrel-a-day dividend-payer all on its own. Long-term shareholders will recall that the company paid its last dividend in 2015 and fell below the 35,000-barrel-a-day mark in 2017 (it is now at 25,000). As for Bonterra's shareholders, they seem to have little incentive to help reverse Obsidian's fortunes. Obsidian is offering two shares of itself for every share of Bonterra, thus valuing Bonterra's stock at $1.12. Today Bonterra closed at $1.59.
Further afield, Colombian gas producer Canacol Energy Ltd. (CNE) edged down one cent to $4.03 on 860,700 shares, after resolving a dispute with local pipeline operator Promigas. The background to the dispute was discussed in the Energy Summary for Sept. 21. Essentially, Promigas was hired to build a pipeline for Canacol that was supposed to be completed in December, 2018, but was not fully ready until August, 2019. The delay allegedly prompted Canacol to refuse to enter an agreed-upon 10-year transportation contract with Promigas. Promigas accused Canacol of breaching their agreement and claimed to be facing nearly $300-million (U.S.) in potential economic harm, ultimately announcing in September that it would "exercise the necessary legal actions ... in the compensation of the damages caused." Now the companies have managed to resolve their issues and have signed new 10-year shipping agreements to replace the disputed ones.
Canacol played the hero as it claimed to have signed the agreements "to guarantee the energy security of Colombia." The company's "primary mission," it intoned, is nothing more and nothing less than to get its gas to customers without delay. Rather amusingly, Canacol did not breathe a word of what it said back in September -- that pipeline operators cannot legally deny access to the national gas transport system, because in Colombia this is considered a public good. The implication was that there was no possibility of disruption to Canacol's gas deliveries and, one presumes, no threat to energy security. This would explain why shareholders mostly shrugged off today's news. Regardless, Canacol seemed to enjoy cloaking itself in hero's garb, even if the real benefit was simply avoiding a costly legal battle.
Back in Canada, Dale Shwed's B.C. Montney producer, Crew Energy Inc. (CR), lost 1.5 cents to 46 cents on 418,000 shares. It did not release news today, but it was the subject of a mixed review this morning from DBRS Morningstar. DBRS reiterated Crew's credit rating of B (low) -- deep in junk territory -- and kept its trend at "negative." There were a few compliments showered in, however. DBRS noted that Crew, although primarily a producer of low-margin gas, has been enjoying relatively good prices lately because of its "diversified exposure to multiple gas markets and successful hedging program." Gas prices have been strengthening into the winter and Crew is planning a more ambitious capital program to take advantage of that. Crew has also "managed its liquidity position reasonably well," opined DBRS. The company has sold $58-million worth of infrastructure assets so far this year and has used the money in part to reduce debt. As of Sept. 30, it was $42-million drawn on a $150-million credit facility, with no note maturities until 2024.
DBRS concluded that Crew's credit metrics may have been "very weak" for 2020, but DBRS can see them "recovering in 2021 and strengthening further in 2022," which may lead the ratings agency to upgrade its trend to "stable." Gas prices will play a large role in any potential upgrade, as will Crew's own actions. The above paragraph mentioned a more ambitious capital program planned in the fourth quarter. Specifically, Crew announced earlier this month that it will spend $40-million to $45-million in the fourth quarter, roughly equal to the $45.2-million that it spent in the first nine months of the year combined. No 2021 guidance has been released yet. Crew says it will come in December.
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