| West Texas Intermediate crude for January delivery added 42 cents to $46.99 on the New York Merc, while Brent for February added 32 cents to $50.29 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.15 to WTI, down from a discount of $13.95. Natural gas for January added nine cents to $2.68. The TSX energy index lost 2.08 points to close at 94.27. Canada's first COVID-19 vaccinations were given out today, in Quebec and Toronto, kicking off the largest immunization campaign in the country's history. Yet within the oil patch, the big news was not Canada's vaccine plans but rather its new climate plan, entitled "A Healthy Environment and a Healthy Economy." The blandly cheerful title belied the hard numbers within. Notably, the government is hiking carbon pricing to $170 per tonne of carbon dioxide equivalent by 2030, compared with today's level of $30 per tonne -- a nearly sixfold increase in less than a decade. There will doubtless be some pushback from the provinces on this, particularly Alberta. Whether carbon pricing is a matter of provincial or federal jurisdiction will ultimately be argued before the Supreme Court. In the meantime, oil and gas producers will continue their efforts to improve technologies, mitigate carbon taxes and otherwise manage costs. A research note this morning by the energy analysts at Scotia Capital speculated that higher carbon taxes will have the greatest effect on oil sands producers with downstream refineries, such as Suncor Energy Inc. (SU: $23.08) and Imperial Oil Ltd. (IMO: $24.52). The analysts further opined that Ovintiv Inc. (OVV: $18.65) and Enerplus Corp. (ERF: $4.31) are "the best positioned companies within our coverage space, as most of their production is outside of Canada [in the United States] and they have lowest GHG [greenhouse gas] intensity." International producers Canacol Energy Ltd. (CNE: $3.99) and Parex Resources Inc. (PXT: $18.28) also won nods of approval for their low carbon intensity. Lastly, gas producers Advantage Oil & Gas Ltd. (AAV: $1.76), ARC Resources Ltd. (ARX: $6.14), Birchcliff Energy Ltd. (BIR: $1.81), Peyto Exploration & Development Corp. (PEY: $2.90), Seven Generations Energy Ltd. (VII: $6.25) and Tourmaline Oil Corp. (TOU: $17.80) received favourable mentions because they own the majority of their infrastructure and are thus "in the best position to reduce emissions and manage costs." The carbon price hike comes at a time when many oil and gas companies are turning to consolidation in an effort to withstand weak oil prices. The multibillion-dollar merger of Cenovus Energy Inc. (CVE: $7.70) and Husky Energy Inc. (HSE: $6.47) is expected to close this week, assuming shareholders grant their approval at special meetings tomorrow. Separately, last week, Whitecap Resources Inc. (WCP: $5.02) -- which is already working on a $155-million takeover of the private NAL Resources -- announced that it will merge with TORC Oil & Gas Ltd. (TOG: $2.79). Shareholders of TORC will receive 0.57 of a Whitecap share in exchange for each TORC share. The resulting company will be "one of the largest pure-play conventional light oil producers in Canada," with production of over 100,000 barrels a day, proclaimed Whitecap. The $900-million deal should close in February. Whitecap's chief executive officer, Grant Fagerheim, headed to BNN on Friday to talk up the deal. He defended the lack of a premium being offered to TORC's shareholders. (In fact, the deal is slightly below market. At the time of the announcement, it valued TORC's stock at $2.47, whereas the stock closed that day at $2.59.) Mr. Fagerheim said the companies had been discussing transaction terms since September and both sets of management believed in putting "strong on strong with an at-market transaction." The key focus was on long-term returns for shareholders, claimed Mr. Fagerheim. He noted, for example, that Whitecap is boosting its dividend as part of the deal, and postclosing will have a monthly payout of 1.508 cents (up from 1.425 cents), for a yield of 3.6 per cent. The dividend and capital expenditures will be covered by cash flow even at oil prices as low as $37 (U.S.), said Mr. Fagerheim. As oil prices rise, Whitecap will continue to focus on shareholder returns, in the form of "modest growth and a growing dividend." Shareholders seemed to share his enthusiasm. Although Whitecap's stock edged down eight cents to $5.02 today, it has risen from $4.35 since the TORC announcement. Further afield, Gary Guidry's Colombia-focused Gran Tierra Energy Inc. (GTE) lost two cents to 51 cents on 3.04 million shares. It is unloading nearly all of its investment in Manolo Zuniga's Peru-focused Petrotal Corp. (TAL), down half a cent to 51 cents on 2.59 million shares. Petrotal more or less got its start as a company thanks to Gran Tierra. It bought all of Gran Tierra's Peruvian assets in 2017, about two years after Gran Tierra lost interest in them because a much-hyped well delivered disappointing results. (Gran Tierra also underwent a management coup in 2015 and the newcomers were more interested in Colombia.) In any case, as part of the deal, Gran Tierra became Petrotal's largest shareholder. It owned 246 million of Petrotal's 816 million shares. Now Gran Tierra is selling 218 million of the shares (the rest are still subject to escrow requirements) to Remus Horizons, a private energy investment fund. Remus will pay 16.76 Canadian cents for each of the shares. For context, the deemed price when Petrotal issued shares to Gran Tierra in 2017 was 18.69 U.S. cents, so the shares have lost about 30 per cent of their value. Petrotal traded at a peak of 55 cents in early 2020. It has since plunged on pipeline woes, production restrictions and general COVID-19 malaise. As for Gran Tierra, the $36.5-million in proceeds is most certainly welcome. The company has had a difficult couple of years suffering through one operational mishap after another, forcing it to repeatedly lower its production guidance throughout 2019 and 2020. Last week it set a relatively cautious budget for 2021 in an effort to win back the market's favour. It is aiming for production of 28,000 to 30,000 barrels a day on a budget of $130-million (U.S.) to $150-million (U.S.). This budget should just about match cash flow, and if oil prices rise and Gran Tierra enjoys free cash flow, it will use the cash to reduce its nearly $800-million (U.S.) debt. This may be what today's $36.5-million proceeds are earmarked for as well. Although Mr. Guidry (Gran Tierra's president and CEO) did not specifically say how Gran Tierra will use the money, he said the deal reflects the company's "focus on balance sheet protection and long-term value preservation." |