Stockwatch Energy for yesterday
Energy Summary for Jan. 8, 2021
2021-01-08 20:13 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added $1.41 to $52.24 on the New York Merc, while Brent for March added $1.61 to $55.99, with both benchmarks enjoying their biggest weekly gains in four months (all figures in this para U.S.). Western Canadian Select traded at a discount of $15.02 to WTI, up from a discount of $15.11. Natural gas for February lost three cents to $2.70. The TSX energy index lost 1.19 points to close at 100.20.
After the dark days of 2020, the first week of 2021 brought a bit of sunlight for the struggling offshore Atlantic Canadian oil industry, whose principal regulator has reconfirmed a "significant discovery" in the Flemish basin. The Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) has provided the first official resource estimate of the Harpoon discovery made by Norway's Equinor.
Harpoon is located on the Bay du Nord project, a 65-35 joint venture between Equinor and Husky Energy (now part of Cenovus Energy Inc. (CVE: $8.35)) about 500 kilometres off the coast of Newfoundand. Operator Equinor made the discovery through the Harpoon O-85 exploration well way back in 2013. It did not apply for a significant discovery licence until 2020, but kept busy in the meantime by making other discoveries in the basin and reaching a benefits agreement with the Newfoundland government over a potential commercial development. The C-NLOPB officially granted the significant discovery licence for Harpoon in October, 2020. Yet it did not release a resource estimate at the time, so the extent of the discovery was unknown. Now the regulator has pegged the recoverable oil volumes at 40 million barrels.
For context, the overall recoverable oil volumes at Bay du Nord were previously estimated at 407 million barrels. As noted above, Equinor has shown interest in developing the project, proposing a $5-billion development (U.S.) plan back in 2018. In March, 2020, however, the project was suspended because of COVID-19 and low oil prices. Even then, Equinor did not lose hope. In August, 2020, a voluminous environmental impact statement -- over 2,000 pages, plus an additional 1,100 pages of appendixes -- gave the 2018 plan some fleshing out, while suggesting that a final investment decision could arrive as early as 2021. This could allow for further drilling in 2022 and construction in 2023, with the "earliest possible date" for production being 2026, according to the tome. Equinor has not committed to any of these dates. At this point, the project remains speculative, but the resource update from Harpoon is encouraging.
Further afield, Colombian oil producer Parex Resources Inc. (PXT) reached an intraday high of $20.34 -- its first time above $20 in 11 months -- before reversing course to settle at $19.85, down six cents, on 790,000 shares. It did not have news today, but investors may have taken an interest in the news released yesterday by its main joint venturer, GeoPark Ltd. (U:GPRK: $12.83). GeoPark published an operational update for the fourth quarter. The two companies have worked together for years at the LLA-34 block, in which GeoPark has a 45-per-cent operated interest and Parex has a 55-per-cent non-operated interest. GeoPark disclosed that the block produced 57,242 gross barrels of oil a day in the fourth quarter of 2020. This is down from 60,058 gross barrels a day in the third quarter, a decrease that GeoPark blamed on "limited drilling and maintenance activities."
Investors seemed unfazed. Back in November, GeoPark released a 2021 budget showing that 23 to 25 wells are scheduled at LLA-34 this year, which should be more than enough to reverse the decline.(For context, assuming that the block produces around 60,500 barrels a day this year, that works out to around 33,300 barrels a day net to Parex. Parex's total forecast 2021 production, based on its guidance from November, is 48,000 barrels a day, with LLA-34 representing about two-thirds of that amount.
Back in Canada, Doug Bartole's Alberta-focused InPlay Oil Corp. (IPO) shot up seven cents to 33 cents on 1.11 million shares, pleasing investors with its 2021 guidance. The company will aim to produce 5,100 to 5,400 barrels of oil equivalent a day on a budget of $23-million. For context, analysts were expecting 5,000 barrels a day on a budget of $18-million. InPlay reckons that it is well on its way to achieving its targets, as it was able to "reactivate" its development program in late 2020 and is currently producing 5,300 barrels a day. Financially, it is in good shape as well, having been one of the first energy companies to secure funding from the Business Development Bank of Canada (it announced a $25-million loan facility in October). Management concluded that it is "very excited" about the coming year.
The enthusiasm was shared by Canaccord Genuity analyst Anthony Petrucci, who opined in a boosterish research note this morning that InPlay is "positioned for success (and [a] valuation bump) in 2021." By his calculations, the company is looking at $30-million in cash flow this year -- equal to $7-million free cash flow, after accounting for the $23-million budget -- if oil prices stay around $50 (U.S.) a barrel. Should oil prices reach $60 (U.S.), InPlay's estimated cash flow will reach $43-million, for $20-million in free cash flow. Mr. Petrucci marvelled at InPlay's ability to boost its annual production by nearly one-third over 2020 levels while keeping its spending well within its means. "[InPlay] has positioned itself for success in 2021," the analyst concluded, upgrading his rating to "speculative buy" from "hold" and hiking his price target to 50 cents from 30 cents. The stock closed today at 33 cents.
InPlay was not the only company to win an upgrade from Canaccord. Yesterday, Mr. Petrucci and fellow analyst John Bereznicki released their latest commodity price forecasts, boosting their 2021 oil price estimate to $50 (U.S.) from $42.50 (U.S.) and simultaneously updating their ratings on several stocks. The most noteworthy changes had to do with Crescent Point Energy Corp. (CPG: $3.47), Seven Generations Energy Ltd. (VII: $6.82), Surge Energy Inc. (SGY: $0.345) and Yangarra Resources Ltd. (YGR: $0.93), all of which have been upgraded to "buy" or "speculative buy" from "hold." Separately, RBC analyst Robert Kwan got in on the fun this morning, updating his own list of "Global Energy Best Ideas." The big change there was the replacement of TC Energy with Pembina Pipeline. A handful of oil and gas producers are also on the list, including Canadian Natural Resources Ltd. (CNQ: $34.14), Suncor Energy Inc. (SU: $23.49) and Tourmaline Oil Corp. (TOU: $18.35).
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