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Energy Summary for Feb. 23, 2021
2021-02-23 20:25 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery lost 50 cents to $61.20 on the New York Merc, while Brent for April lost 20 cents to $65.04 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.40 to WTI, down from a discount of $11.36. Natural gas for March lost eight cents to $2.88. The TSX energy index added 1.02 points to close at 113.45.
The value of Alberta's oil production has returned to pre-COVID-19 levels, according to the province's central chief economist, Charles St-Arnaud. He credited a recovery in domestic oil production combined with a surge in global oil prices. As a result, the Alberta government has "a better starting point in terms of revenues for fiscal year 2021, and probably also a smaller deficit than they would have expected only six months ago," mused Mr. St-Arnaud to Global News.
This will no doubt be welcome news to Alberta Finance Minister Travis Toews as he prepares to unveil his 2021 budget this Thursday. Almost exactly a year ago, on Feb. 27, 2020, Mr. Toews tabled the budget for 2020. He forecast $58 (U.S.) oil prices for the year and placed high hopes on the energy sector to lead the province to a balanced budget in three years. Less than two weeks later, a glum-looking Premier Jason Kenney said the province was entering "uncharted territory" as the unfolding COVID-19 crisis sent oil prices below $35 (U.S.). They went on to tip into the negatives in April before starting a rapid (but still fragile) recovery to today's level of over $60 (U.S.).
Alas, even $60 (U.S.) oil is not going to be enough to balance the books. Last year's budget projected a deficit of $6.8-billion, which was staggering at the time, but is dwarfed by the current deficit of $21-billion. Taxpayers have good cause to be nervous as they await Thursday's budget unveiling. Within the energy sector, however, there are signs of optimism. "Q4 2020 turned out to be about 20 per cent higher [in terms of drilling activity] than we originally forecasted," Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors (CAODC), told Global News. He added, "Q1 is actually turning out to be anywhere between 35 to 40 per cent higher." The CAODC's website showed 177 active rigs during the week of Feb. 8. That compares with as few as six rigs working at some points last June.
Within the sector, Crescent Point Energy Corp. (CPG) reached an intraday high of $5.04 -- its first time above $5 in 13 months -- before settling at $4.99, up 12 cents, on 12.4 million shares. It has risen from $4.18 since announcing last week that it would buy Shell's Kaybob Duvernay assets in Alberta for $900-million. Today, Scotia Capital analyst Jason Bouvier tried to keep the excitement going as he lauded the "attractive entry point" into Crescent Point's stock. He likes Crescent Point's "improving fundamentals," its "torque to improved oil prices" and of course the Duvernay acquisition, which "strengthens [the] portfolio." Readers would have had to go the disclaimer at the bottom of the note to learn that Mr. Bouvier's employer, Scotia Capital, is acting as a financial adviser to Crescent Point on this very acquisition.
In any case, Mr. Bouvier upgraded his rating on Crescent Point to "sector outperform" from "sector perform" and kept his price target at $6. That is higher than most other analysts' targets, which (following a swath of increases last week in the wake of the Duvernay announcement) are currently around $5 to $5.75. The stock closed today at $4.99.
Further afield, South American oil and gas producer Frontera Energy Corp. (FEC) edged up four cents to $6.35 on 417,700 shares, after trumpeting its inclusion in a list of "The World's Most Ethical Companies." The creator of the list is an independent organization called Ethisphere. Ethisphere has been making these lists annually for 15 years. It is an ambitious task (to say the least), comparing all manner of companies from manufacturers to software firms to oil and gas producers -- and spanning many countries and sizes -- but Ethisphere views itself as up to the challenge, relying on an advisory panel and its own proprietary Ethics Quotient. Companies must apply to be considered. According to Ethisphere's website, the application fee is a cool $3,000 (U.S.). It is difficult to measure whether appearing on these sorts of lists (there are numerous similar ones) is worth the investment. For one reason or another, Canadian oil and gas companies do not tend to show up in great numbers on Ethisphere's list. The last time this happened was 2014, when EnCana, a predecessor of Ovintiv Inc. (OVV: $29.38), was honoured with a spot.
Frontera put on a show of delight even as investors shrugged. "I am very proud that Frontera has been recognized as one of the world's most ethical companies," declared chief executive officer Richard Herbert. Certainly he can appreciate some good PR, following a rough 2020 in which Frontera slashed its budget by nearly two-thirds and saw its production plummet to around 43,000 barrels a day in the third quarter from 63,000 in the first quarter. More recently, the stock has been steadily climbing alongside oil prices. Since the start of the year, it has nearly doubled to $6.35 from $3.21.
Another international producer, Pan Orient Energy Corp. (POE), added one cent to 81 cents on 65,800 shares, after launching this year's drill program in Thailand. It will begin with two development wells at its 50-per-cent-owned L53 block. The first well, named L53-DD10, will aim for the same interval hit by the offsetting L53-DD7 well last year. The DD7 well was a surprisingly good well, adding about 800 gross barrels a day (or 400 net to Pan Orient's production, which for context was about 1,500 barrels a day as of January). Some of Pan Orient's wells produce at just one-10th that rate. As for the 2021 program's second well, it will be drilled north of the L53-DD2 well, which was drilled in 2018 and was another of Pan Orient's unexpectedly good hits. Pan Orient is hoping to repeat its success, forecasting a "substantial production increase" once it finishes the two-well program. Investors seemed mildly intrigued but cautious. Of the eight wells that Pan Orient drilled last year, four were winners, three were losers and one was middling, for an overall so-so success rate.
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