Stockwatch Energy today
Energy Summary for Feb. 10, 2021
2021-02-10 20:20 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added 32 cents to $58.68 on the New York Merc, while Brent for April added 38 cents to $61.47 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.36 to WTI, up from a discount of $11.44. Natural gas for March added seven cents to $2.91. The TSX energy index added 2.01 points to close at 102.61.
Global oil prices have now risen for nine days in a row, their longest winning streak in over two years. Production cuts, vaccine optimism and a surprise decrease in U.S. crude inventories -- the U.S. Energy Information Administration reported today that inventories fell by 6.6 million barrels last week, whereas analysts were forecasting a nearly one-million-barrel increase -- put oil bulls in the mood to run. Meanwhile, gas prices, while generally less nattered about than oil prices, are doing just fine too, thank you kindly. The combination of an undersupplied market and a blast of winter cold has sent spot prices at some U.S. and Canadian gas hubs to their highest levels in two to three years. For context, it was not all that long ago (October) when some U.S. gas producers had to deal with negative prices, forcing them to pay people to take their gas away.
One U.S.-focused producer with exposure to both oil (in the North Dakota Bakken) and gas (in the Pennsylvania Marcellus) is Enerplus Corp. (ERF), up 61 cents to $5.87 on 6.86 million shares. Enerplus is currently working to boost its oil output through a $465-million (U.S.) acquisition that it announced two weeks ago. Specifically, it will buy Bruin E&P, a fellow Bakken player. To help finance the deal, it closed a $132-million financing last week at $4 a share, with participants already enjoying a 47-per-cent gain on paper. President and chief executive officer Ian Dundas strove to keep the excitement going during a BNN interview yesterday afternoon. Bruin "fits like a glove" with Enerplus, he proclaimed. He added that he has had his eye on Bruin for quite some time, but the deal never quite made it to the finish line, until there was a "recalibration" in the market and the two sides were finally "able to see eye to eye on value."
(Were Mr. Dundas not a CEO, he could surely find another calling as a diplomat. The blunter version of the story is that Bruin succumbed to the downturn and declared bankruptcy last summer, re-emerged last fall, and was clearly pounced on by Enerplus without delay. Seeing eye to eye is always easier when one side has previously been cut off at the knees.)
It just so happens that Mr. Dundas has not been the only one promoting Enerplus on BNN. The stock is likely benefiting from a "BNN bump" courtesy of Ninepoint Partners portfolio manager Eric Nuttall, who told BNN yesterday that Enerplus is one of his top three stock picks. (They are all oil and gas picks; Mr. Nuttall manages Ninepoint's energy portfolio.) Enerplus drew praise from Mr. Nuttall for arranging an "accretive" acquisition that has swept aside any concerns about its long-term inventory. He sees "108-per-cent upside in the name," which seems to mean that he thinks the stock could more than double.
In addition, Mr. Nuttall likes Tamarack Valley Energy Ltd. (TVE), which today added 11 cents to $1.98 on 18.4 million shares, after adding 18 cents on 14.6 million shares yesterday -- apparently quite enjoying its BNN bump. (Its average volume over the rest of this month was closer to three million shares, and it has not released news since Jan. 11.) Tamarack is "one of the cheapest energy stocks that I can find on the planet right now," declared Mr. Nuttall. That on its own is debatably complimentary, but Mr. Nuttall went on to praise Tamarack for its recent entry into "the most profitable oil play in Canada," the Clearwater in Alberta, which will aid the company in "generating gobs of free cash flow next year." He sees 125-per-cent upside in the stock. Today the stock reached an intraday high of $2.15, its first time above $2 in 13 months, and a 450-per-cent gain over its 52-week low of just 39 cents.
Lastly, Mr. Nuttall likes Alberta Montney producer Seven Generations Energy Ltd. (VII), which added 19 cents yesterday and another 28 cents today on heavier-than-usual volume, closing today at $8.02 -- another 13-month high. Mr. Nuttall opined that Seven Generations offers "the best of both worlds." About 45 per cent of its production is gas, so it will benefit from rising gas prices, while the rest of its production is condensate, a type of very light oil. (Condensate is what oil sands producers use to dilute bitumen so that the resulting mix, called dilbit, can flow through pipelines.) In this stock Mr. Nuttall sees the highest upside of all, 184 per cent.
Separately, after the close today, Seven Generations announced its proposed merger with fellow Montney producer ARC Resources Ltd. (ARX: $7.42). Early leakage of this news likely contributed to the recent excitement in both stocks. The deal will be discussed in tomorrow's Energy Summary.
Elsewhere in the Alberta Montney, the Rick Grafton-backed Pipestone Energy Corp. (PIPE) added nine cents to $1.27 on 464,100 shares, after releasing its year-end 2020 reserve report. It did not need Mr. Nuttall or anyone to help with its hype. The press release was chock full of descriptions of "strong year-over-year reserve volume growth," "record production" and general "leadership in combining capital cost-efficiencies with highly productive wells." On the reserve front, Pipestone increased 2P (proved and probable) reserves to 227.6 million barrels as of Dec. 31, 2020, from 183.5 million a year earlier. Proved developed producing reserves (the highest level of certainty) shot up to 31.7 million barrels from 18.5 million barrels. Pipestone patted itself on the back for achieving these reserve increases while still boosting its production to an average of 17,700 barrels a day in the fourth quarter.
This makes Pipestone one of the rare energy companies to see higher production in the fourth quarter than in the first quarter. While this would be typical -- indeed expected -- during a normal year, 2020 was of course far from normal, as many companies tried to cope with the downturn by shutting in large amounts of production over the spring and summer. Most of them were still in recovery mode by the fourth quarter. The above-noted Enerplus, for example, produced 98,200 barrels a day in the first quarter but just 86,200 in the fourth. By producing 14,000 barrels a day in the first quarter and then nearly 18,000 in the fourth, Pipestone finds itself in rare company. Of course, it has its financial backers to thank for that: They poured $70-million into the company in September and allowed it to start an ambitious drill program. Before that, its third quarter production was below the first quarter level. Presumably the backers are pleased with Pipestone's work. The company declared today that its January production averaged 20,200 barrels a day, its first time ever above 20,000.
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