Stockwatch Energy today
Energy Summary for April 20, 2021
2021-04-20 19:59 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost 94 cents to $62.44 on the New York Merc, while Brent for June lost 48 cents to $66.57 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.35 to WTI, unchanged. Natural gas for May lost two cents to $2.73. The TSX energy index lost 4.65 points to close at 112.71.
Oil prices may have been down today, but many were able to keep it in perspective: One year ago today brought the worst day for oil prices in history. On April 20, 2020, the WTI benchmark closed at an astonishing minus $37.63 (U.S.) -- its first time ever in the negatives -- while Brent languished at just $25.57. The WTI oddity reflected erratic trading and sheer desperation to exit long positions ahead of the imminent expiry of the May delivery contract. The next day, with the June contract stepping up as that month's benchmark, WTI pulled back into the positives and closed at around $9 (U.S.). It has since climbed into the $60s (U.S.).
Meanwhile, Canada's oil patch saw the first green shoots of the first quarter reporting season. This will not begin in earnest until next week, but as usual, kicking things off early was PrairieSky Royalty Ltd. (PSK). PrairieSky is not a direct oil and gas producer, but collects royalties from producers across Western Canada, providing a useful measure of industry activity. Today PrairieSky lost 88 cents to $13.01 on 2.21 million shares. This was likely a sell-the-news reaction to the financials (the stock having previously added $3 over the last three months). PrairieSky trumpeted a net profit for the quarter of $18.4-million. This was more than double the $8.6-million that it earned in the same period last year. As well, the company also noted that 100 wells were spudded on its royalty lands during the first quarter, up from 74 wells in the fourth quarter and just 44 in the third quarter.
PrairieSky attributed the rising drill count to the sharp rally in oil and gas prices, which encouraged producers to increase their drilling activity. Analysts agreed. "As demand for oil returns to prepandemic levels and prices rise ... E&Ps [explorers and producers] get back on the bit, fighting in search of free cash flow for investors," wrote iA Capital Markets analyst Michael Charlton in a research note about PrairieSky this morning. He added that PrairieSky might even be able to boost its dividend again soon. The company previously nudged its quarterly dividend up to 6.5 cents from six cents in February, when it released its year-end financials. The current dividend yield is 1.8 per cent.
Further afield, the Lundin family's Africa Energy Ltd. (AFE) stayed unchanged at 26.5 cents on 29,000 shares, after finally closing the farm-out of its block 2B asset off the coast of South Africa. The long closing period came after an even longer search for a farmee. In fact, nothing about block 2B has been fast for Africa Energy. It first proposed the acquisition of a 90-per-cent interest in this block in December, 2015. The deal took so long to secure government approval that it did not close until October, 2016, at which point Africa Energy hoped to find a farmee to drill a well in 2017 or 2018. It marketed the block by pointing to an oil discovery that was drilled way back in 1988 and flowed 191 barrels of oil a day -- not especially enticing, especially considering that the follow-up well that Africa Energy wanted to drill would cost an estimated $25-million (U.S.). The company did not manage to find a farmee to help shoulder this cost in 2017 or 2018. Then 2019 was similarly luckless.
At last, in February, 2020, Africa Energy secured not one but two joint venturers. It agreed to farm out a 50-per-cent interest in the block to Azinam Energy and a 12.5-per-cent interest to Panoro Energy, both of which agreed to bear "disproportionate" costs of drilling the first well. This would leave Africa Energy holding a 27.5-per-cent interest and being fully carried for the first well. At the time, Africa Energy (still optimistic after all those long years) expressed jubilant hope that the joint venturers would be able to drill the well by the end of 2020. That of course did not happen, but now, 14 months after the farm-out agreement was signed, it has finally closed. Africa Energy is now hoping that the well will be drilled this year instead. "We have already started the rig contracting process," declared a surely relieved Garrett Soden, Africa's president and chief executive officer. He added that the company is "look[ing] forward to proving up more resource offshore South Africa."
Mr. Soden's comment about "proving up more resource" is a reference to Africa Energy's separate South African joint venture, at the offshore 11B/12B block. The company picked up an interest in this block in late 2017 (when it was clear that the block 2B promotion was not going to cut it on its own). At block 11B/12B, Africa Energy and its joint venturers, which include France's Total, Qatar Petroleum and Canadian Natural Resources Ltd. (CNQ: $37.10), drilled their first well in 2019 and their second in 2020. Both made gas and condensate discoveries. Neither, however, has had a sustained effect on Africa Energy's share price. The stock has fallen from last October's peak of 61 cents, reached at the height of the excitement over the second well, to today's level of 26.5 cents.
Part of the problem is the block's location in rough waters about 175 kilometres off the coast, introducing plenty of infrastructure challenges. Another problem (and here we return to our opening theme) is the infamous foot-dragging of the South African government. France's Total, the operator of the block, has repeatedly expressed frustration with the government's slowness in enacting federal laws to regulate a potential petroleum industry. (The country currently relies primarily on coal.) Last week, Reuters reported that Total has sent the government a letter providing notification that it has "decided to postpone [its] application for the additional drilling and associated activities in block 11B/12B at this time." Total's environmental consultant in South Africa confirmed the letter's authenticity.
Africa Energy did not mention the news or even discuss block 11B/12B in today's press release. It may have more to say when it releases its first quarter financials, which tend to arrive in the first or second week of May, or at its next annual meeting, which this year will be held on June 10.
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