Stockwatch Energy today
Energy Summary for April 28, 2021
2021-04-28 19:48 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery added 92 cents to $63.86 on the New York Merc, while Brent for June added 85 cents to $67.27 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.35 to WTI, unchanged. Natural gas for May added six cents to $2.93. The TSX energy index added 3.72 points to close at 118.29.
The Alberta government has emerged victorious in a two-year legal battle that has confirmed its provincial right to control its oil and gas exports. The Federal Court of Appeal has set aside an injunction previously granted to British Columbia as part of a constitutional skirmish over Alberta's "Preserving Canada's Economic Prosperity Act" -- or, as it was widely nicknamed, the turn-off-the-taps bill.
Alberta brought in the controversial law in 2018, when the two provinces were bickering over the construction of the Trans Mountain pipeline expansion. While the law did not single out British Columbia specifically, the B.C. government saw it as a potential pressure tactic to force it into dropping its opposition to the pipeline, as Alberta could in theory start an oil boycott against its neighbour. B.C. headed to court to argue that Alberta had no constitutional authority to interfere in such a manner.
(To be more specific, while provinces are indeed allowed to restrict their own energy output -- this is part of their constitutionally protected right to control and develop their own resources -- they are not supposed to discriminate against individual markets, only markets as a whole. The most dramatic example of this came when Alberta throttled back its production by 15 per cent as a way to object to the short-lived National Energy Program in 1980. This program froze prices well below global market values. The federal government blinked within a year, negotiating price increases with Alberta, and the NEP was later abandoned in 1984. More recently, to cope with low oil prices and high inventories, Alberta introduced a mandatory curtailment policy affecting up to 8.7 per cent of its total oil production. This program lasted from January, 2019, to December, 2020.)
Getting back to B.C., it made its case to the Federal Court of Canada, which agreed in 2019 to suspend the Alberta law until the courts could decide whether it was constitutionally valid. Now the Federal Court of Appeal has overturned this injunction and dismissed B.C.'s lawsuit. The court noted that Alberta has at no point even tried to use the law to restrict oil supplies to its neighbour. The dispute is "more theoretical than real," ruled the court, and it would therefore be "prudent ... to refrain from assessing [the law's] constitutional validity." The court also ordered B.C. to pay Alberta's legal costs.
This is B.C.'s second major legal defeat in its dispute with Alberta over Trans Mountain, which has been under construction since 2019. In early 2020, the Supreme Court of Canada ruled that B.C. does not have the jurisdiction to restrict shipments of Alberta's oil sands crude. B.C. had wanted to require provincial permits before heavy oil could be shipped through pipelines in the province. Both the B.C. Supreme Court and the Canadian Supreme Court informed it that this would violate Ottawa's authority to approve and regulate any pipeline that crosses provincial borders.
Within the sector, producers prepared for the first quarter reporting season, which kicked off five minutes after today's close with Yangarra Resources Ltd. (YGR: $1.05) and Vermilion Energy Inc. (VET: $9.01) -- more on them tomorrow. First there was one more straggler from the fourth quarter reporting season. As usual, breezing in just before the filing deadline was Rob Zakresky's B.C. Montney-focused Leucrotta Exploration Inc. (LXE), unchanged at 62 cents on 293,500 shares. It released its year-end financials this morning. They were generally as investors expected. Production for the fourth quarter averaged 2,900 barrels of oil equivalent a day, barely changed from the third quarter average of 2,800, while cash flow per share edged down to breakeven from one cent.
Leucrotta used the financials mainly as an opportunity to remind investors about the big announcement that it made last month. On March 15, Leucrotta declared that it was selling "non-strategic lands" -- immediately suspected, and later confirmed, to be its 375-barrel-a-day Doe property -- for $30-million, while raising another $30-million through a bought deal. The bought deal closed on March 31 and the asset sale closed one day later. Leucrotta is planning to use the money to start an ambitious development program at its Mica asset. "We are finally in a position to develop the [Mica] resource for the benefit of all shareholders," cheered Leucrotta's president and chief executive officer, Mr. Zakresky, in today's update. He predicted that Mica will "ramp up to over 30,0000 [barrels a day] within a five-year time frame." In the nearer term, Leucrotta is aiming to get its production up to 4,500 barrels a day by the end of this year. It promised to release more detailed 2021 guidance "in the near future."
Further afield, Philip O'Quigley's Australian shale junior, Falcon Oil & Gas Ltd. (FO), edged down half a cent to 11.5 cents on 160,300 shares. It too released its year-end financials (on Tuesday after the close) and it too used them mostly as an opportunity to hype the future. In Falcon's case, this is partly because it has no meaningful production or revenue to speak of, so it has to hype the future. It patted itself on the back for its "strong financial position" and "efficient operation of the portfolio."
Long-term investors interested in Falcon's Australian joint venture might be surprised to hear it described as efficient. They have watched patiently as Falcon and its joint venturer, Origin Energy, waited out a two-year fracking ban from 2016 to 2018 in their corner of Australia -- specifically the Beetaloo basin in the Northern Territories -- only to hit regulatory delays that prevented them from spudding their much-hyped Kyalla well until late 2019. Then COVID-19 hit in early 2020, forcing them to suspend their activities yet again. They got back to work last summer and the long-awaited results started to trickle in at the beginning of this year. Alas, they elicited little more than yawns. Falcon announced in January that the Kyalla well flowed just 400,000 to 600,000 cubic feet a day (about 66 to 100 barrels of oil equivalent a day).
Falcon is undaunted, and optimistic that 2021 will run a lot more smoothly. Last month, it announced that the joint venturers will soon begin an EPT (extended production test) at the Kyalla well, using artificial lift techniques to try to coax out a better flow rate. They will also move ahead with drilling their next well, Velkerri. Falcon is fully carried for the costs of this year's program. It boasted in the new financials that it continues to be in a "strong financial position," with $11-million (U.S.) cash and no debt as of Dec. 31.
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