Stockwatch Energy today
Energy Summary for Feb. 8, 2021
2021-02-08 20:23 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added $1.12 to $57.97 on the New York Merc, while Brent for April added $1.22 to $60.56, going above $60 for the first time since January, 2020 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.66 to WTI, up from a discount of $11.74. Natural gas for March added two cents to $2.88. The TSX energy index added 1.97 points to close at 101.19.
Oil traders welcomed the return of prepandemic pricing. The global COVID-19 vaccine rollout, as well as rising hopes that the U.S. government will quickly pass a proposed $1.9-trillion (U.S.) stimulus package, are creating a swell of optimism on the demand side. Meanwhile, "the supply side is broken," as one Canadian portfolio manager put it. Rafi Tahmazian of Calgary's Canoe Financial made this comment to The Globe and Mail yesterday. He was referring mostly to the U.S. shale industry, which is finding it hard to boost production despite the rising prices, as the sector is grappling with high costs, heavy debt and a shortage of service providers (many of which already went bankrupt). Even beyond U.S. shale, the supply rebound has been sluggish. In some cases this is natural (as with Mexico's steadily declining oil fields) and in some cases it is not (as with the deliberate production-cutting agreement of OPEC+).
All of this has caught the attention of hedge funds, which are increasingly going long on energy positions -- a complete about-face from last year. "Oil companies, for the first time in a long time, are likely to make a big comeback," predicted Jean-Louis Le Mee, head of the London-based hedge fund Westbeck Capital Management. He added, "We have all the ingredients for an extraordinary bull market in oil for the next few years." Another hedge fund representative, co-founder David Tawil of Maglan Capital, predicted that prices will "go gangbusters" this summer. He sees Brent hitting $70 (U.S.) to $80 (U.S.) by year-end.
(The Globe was kind enough -- but we are not -- to refrain from mentioning that Mr. Tawil's Maglan Capital is currently holding some heavy bags related to its investment in Centaurus Energy Inc. (CTA: $0.055), a small Argentine oil junior. Maglan disclosed itself as a Centaurus investor in 2014 and currently owns 106 million of its 544 million shares. The entire amount that Maglan paid is undisclosed, but 53 million of the shares were acquired at a total cost of $14-million. Today the whole position of 106 million shares is worth just $5.8-million. Centaurus is currently in the process of merging with another Argentine junior, Crown Point Energy Inc. (CWV: $0.33), in a deal expected to close this quarter. With any luck, they will then "go gangbusters" and start dragging Maglan's investment out from deep in the red.)
Here in Canada, Jim Riddell's Alberta Montney- and Duvernay-focused Paramount Resources Ltd. (POU) added $1.11 to $9.62 on 1.63 million shares, clearly picking a good day to release good news. The company provided a fourth quarter operational update this morning while announcing a few non-core asset sales. Production in the fourth quarter averaged 73,000 barrels of oil equivalent a day, exceeding Paramount's guidance of 70,000 to 72,000. This brings the full-year average to 68,200 barrels a day. For context, Paramount was previously aiming for a full-year range of 65,000 to 70,000 barrels a day, but in September it decreased the guidance to a range of 63,500 to 67,000 barrels a day, citing a temporary plant outage. Now it turns out that Paramount did not need to decrease the guidance after all. The addition of five new wells in the fourth quarter -- each of which came in about $800,000 under budget, boasted Paramount -- more than made up for the September blip.
Paramount added that its production in December averaged a full 78,000 barrels a day. This puts the company already in line with its 2021 production guidance of 77,500 to 82,500 barrels a day. The market was pleasantly surprised at how ambitious these numbers were when Paramount first announced them in November, as analysts were expecting a much lower target. Any investors who bought at the time have had their optimism well rewarded, as the stock has since climbed to $9.62 from just $2.79 -- nicely above its prepandemic level of around $7.50 at the start of 2020. (The stock is still a long way down from its 2014 peak of over $66, but getting back to prepandemic levels will do just fine for now.)
Separately, Paramount announced that it has sold three batches of non-core gas assets for a total of $80-million, with the proceeds to be used for debt reduction. The sale will lower the company's 2021 production by an estimated 2,600 barrels a day. Paramount did not decrease the above-mentioned 2021 guidance in today's announcement, but said it will provide another update on the guidance when it releases its year-end financials on March 3.
Another of today's big gainers in the energy sector was not a producer but rather a service company. Cathedral Energy Services Ltd. (CET) added nine cents to 27.5 cents on 828,900 shares, after appointing Tom Connors as president and chief executive officer. Cathedral has been on the hunt for a new president and CEO ever since the current holder of those positions, Scott MacFarlane, announced last October that he would be stepping down in April. Mr. MacFarlane is an accountant who was previously Cathedral's chief financial officer from 2001 to 2013. During his time as CFO and then CEO, the stock has been as high as $16 (in 2008) and as low as 5.5 cents (in March, 2020). He has seen plenty of ups and downs, but the 2020 downturn was an especially brutal one (one competitor, Calfrac Well Services Ltd. (CFW: $3.74), ended up undergoing a contentious recapitalization followed by a 1-for-50 rollback in December). It seems that Mr. MacFarlane is quite ready to take a break -- particularly because, in addition to serving as president and CEO, he also resumed interim CFO duties after the previous CFO retired in 2018.
With an accountant at the helm, Cathedral has been a quiet little company, keeping its nose and its books relatively clean. Now investors seem to like the idea of a more expansion-minded CEO taking over. Mr. Connors has spent the last 18 years at the much larger Ensign Energy Services Inc. (ESI: $1.24), where among other things he expanded Ensign's directional drilling services business -- directional drilling being Cathedral's speciality -- from the United States into Canada. Mr. Connors is also "well known to the investment community and has substantial experience participating and presenting at investor conferences, investor/stakeholder meetings and road shows," declared Cathedral -- in other words, good at schmoozing. He will have ample incentive to lure new investors and move the share price higher. Through two separate deals with Cathedral, Mr. Connors will receive a total of 1.15 million units, each comprising a share and half a warrant.
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