Stockwatch Energy today
Energy Summary for Jan. 22, 2021
2021-01-22 20:46 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery lost 86 cents to $52.27 on the New York Merc, while Brent for March lost 69 cents to $55.41 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.70 to WTI, down from a discount of $13.65. Natural gas for February lost four cents to $2.45. The TSX energy index lost 2.06 points to close at 95.34.
Despite a so-so end to the week for oil prices, there were some signs of optimism within the sector, as Schlumberger became the third major oil services company in a week to predict that the downturn is nearing an end. Schlumberger, Halliburton and Baker Hughes all released quarterly financials this week and expressed optimism that oil demand will strengthen throughout 2021. Notably, Schlumberger posted fourth quarter revenue of $5.53-billion (U.S.), which was up from $5.25-billion (U.S.) in the third quarter and represented the first sequential revenue increase since the third quarter of 2019. "We believe ... oil demand [will] recover to 2019 levels no later than 2023," declared Schlumberger's chief executive officer, Olivier Le Peuch. He added that some analysts are forecasting an even earlier recovery. In either case, he sees a "multiyear recovery cycle" coming up.
Canadian oil stocks are particularly well positioned "to flourish in a post-COVID world," opined Scotia Capital analyst Jason Bouvier in a research note this morning. He noted that Canadian oil companies have taken pains to reduce their costs and prioritize their balance sheets. "If the industry is able to maintain its capital discipline, we think the improving balance sheets will lead the way to both rising dividends and trading multiples," he declared, hinting that these developments could occur as quickly as 2021 or 2022. He listed his "top picks" as Suncor Energy Inc. (SU: $22.53), Canadian Natural Resources Ltd. (CNQ: 30.96), Enerplus Corp. (ERF: $4.26), Crescent Point Energy Corp. (CPG: $3.80) and MEG Energy Corp. (MEG: $4.95).
Further afield, Egyptian oil producer TransGlobe Energy Corp. (TGL) edged down three cents to $1.42 on 64,000 shares, giving back some of the four cents it added yesterday after releasing an operational update for the fourth quarter of 2020. It pegged its production at 12,400 barrels of oil equivalent a day. (This comprised 10,265 barrels a day from Egypt and 3,175 from closer to home, namely Alberta.) Full-year average production of 13,500 barrels a day was right in line with TransGlobe's guidance of 13,300 to 13,800. Investors were hoping that the company would land at the high end of its guidance, as production in the first nine months of the year was already 13,774 barrels a day. Unfortunately, the fourth quarter brought some delays with Egyptian well completions.
More encouragingly, and more importantly, the fourth quarter brought the news that the Egyptian government had agreed to consolidate and extend TransGlobe's core Eastern Desert licences on improved financial terms. The stock has shot up to $1.42 from just 67 cents since TransGlobe made this announcement in early December. It made sure to mention it again in the new update, adding that the agreement is expected to be formally ratified by parliament next quarter. TransGlobe will then be in a better position to pursue its guidance for 2021. No guidance was provided in the press release, but TransGlobe provided hints here and there, talking up a "material capital program" to support "accelerat[ing] exploitation of the Eastern Desert merged concession with the aim of increasing oil production." It is also mulling a drilling and completion program in Canada. Over all, president and CEO Randy Neely said he is "excited" about 2021 and "working diligently on high-grading opportunities." For specific details, investors will have to keep waiting.
In Alberta, Athabasca Oil Corp. (ATH) added 1.5 cents to 21 cents on 10.3 million shares. It has filed an early warning report that explains its recent abnormally high trading volume: Equinor, the Norwegian oil company that unloaded all of its oil sands assets to Athabasca in 2017 for $431-million cash and 100 million shares, has now sold every single one of those 100 million shares. This completes Equinor's exit from any interest in the oil sands. It was not exactly a triumphant exit. When the two companies shook hands years ago, Athabasca was trading at nearly $1.50 and the 100 million shares that it issued to Equinor (then called Statoil) had a deemed value of $147-million. The stock has since had a painful fall to less than 20 cents. On Jan. 19, the day Equinor sold the shares (and the day that Athabasca's trading volume surpassed 135 million), the total price fetched for the 100 million shares was $18-million -- representing an 87-per-cent drop in four years. Athabasca has struggled to cope with low oil prices and a debt-ridden balance sheet. A daunting $450-million (U.S.) worth of notes will come due in about 13 months, on Feb. 24, 2022. Athabasca said in December that refinancing these notes will be "a key 2021 priority."
Elsewhere in Alberta, George Fink's Cardium-focused Bonterra Energy Corp. (BNE) added three cents to $2.68 on 48,400 shares. This weekend will be its shareholders' last chance to consider accepting the below-market hostile takeover offer from fellow Cardium producer Obsidian Energy Ltd. (OBE), down one cent to $1.10 on 309,800 shares. Obsidian is offering two shares of itself for each share of Bonterra. When this offer was first pitched in August, the implied value of Bonterra's stock was $1.06, even though Bonterra was trading at the time at $1.50. The discount has persisted over the months, and now the implied value is $2.20 whereas Bonterra is trading at $2.68. The deadline to accept the offer is this Monday at 5 p.m. MT.
A week ago, Obsidian made what seems to have been its final effort at persuasion -- unless it extends the deadline, which it has done once before -- by telling shareholders that Bonterra is "neglect[ing] the growing trend and reward of consolidation, risking being left behind as companies combine to access greater efficiencies, improved financial positions and higher share prices." Bonterra fired back two days ago that it is doing just fine on its own, thank you very much. It noted that it "remains focused on generating strong, sustainable free funds flow which can be directed to debt reduction and capital spending." Further details arrived in a SEDAR filing that provided a three-year outlook for Bonterra, assuming that the deal falls flat. Notably, in 2022, Bonterra expects to be producing 13,700 barrels of oil equivalent a day and to have a debt-to-cash flow ratio of 2.4 times. That compares with the 2020 comparative figures of 10,600 barrels a day and 10.4 times, respectively.
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