Stockwatch Energy today
Energy Summary for May 5, 2021
2021-05-05 20:34 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery edged down six cents to $65.63 on the New York Merc, while Brent for July added eight cents to $68.96 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.18 to WTI, down from a discount of $11.70. Natural gas for June lost three cents to $2.94. The TSX energy index added 3.28 points to close at 124.17.
Michigan Governor Gretchen Whitmer is sticking to her position that Enbridge Inc. (ENB: $49.00) must stop operating its Line 5 pipeline because it is a "ticking time bomb." Ms. Whitmer first declared last November that Line 5 is a threat to Great Lakes (despite operating safely in the lakes for nearly seven decades now) and must be shut down by May 12, 2021 -- one week from today. Enbridge challenged the order in court and pointed out that the state does not have the authority to issue the order because pipelines are a federal matter. In light of Line 5's importance as a fuel supplier throughout the region, various other Midwest states and the government of Canada have also urged Ms. Whitmer to reconsider her position.
Today she indicated that she will not. "The governor fully stands behind her decision to revoke and terminate [Enbridge's] easement," read a statement from Ms. Whitmer's office today. It added that Enbridge's continued operation of this "ticking time bomb" beyond May 12 will be considered "unlawful." The pipeline company has not responded. It is unlikely to stray from its own position, which is that it will not shut down the line without a court order.
Here in Canada, oil sands giant Imperial Oil Ltd. (IMO) added 93 cents to $37.44 on 3.36 million shares. The stock has added $7 since the start of April, benefiting from increased oil prices and the crowd-pleasing decision last week to hike its dividend. (The new quarterly payout of 27 cents, up from 22 cents, represents a yield of 2.9 per cent.)
Imperial got another dose of good news yesterday at its annual shareholder meeting. As discussed in previous Energy Summaries, an activist shareholder submitted a proposal to be voted on at the meeting, seeking to obligate Imperial to achieving net zero emissions by 2050. Imperial was against this idea. It took pains to emphasize that it is very environmentally conscious -- why, just look at its 122-page sustainability report, released barely two weeks after the proposal slid onto the meeting's agenda -- but it felt that long-term net-zero commitments are "premature" until the technology exists to achieve them. It asked shareholders to vote the proposal down.
They did. According to the voting results filed late yesterday on SEDAR, the proposal met with resounding defeat, with more than 86 per cent of Imperial's shares voting against it. Interestingly, however, the deciding bloc of "no" votes came from Imperial's parent company, ExxonMobil. Exxon owns just under 70 per cent of Imperial's shares. If those shares were to be excluded, then the proposal would have gone through, with 58 per cent of the non-Exxon votes being cast in favour. This would have echoed the recent experience of Ovintiv Inc. (OVV: $31.93). Ovintiv faced a climate-related proposal at last year's meeting and asked shareholders to reject it, but they surprisingly sent it through with 56 per cent of the vote. The success at Ovintiv, and the relatively near miss at Imperial, may prompt more of these proposals from eco-minded shareholders -- probably targeting companies without a large and supportive blockholder waiting in the wings.
Elsewhere in Alberta, Doug Bailey's Razor Energy Corp. (RZE) shot up 19 cents to 81 cents on 2.28 million shares, on top of the 36.5 cents it added yesterday -- a 217-per-cent gain in two days. The excitement started in the wake of yesterday's announcement that Razor has started field construction at its geothermal power project in Swan Hills. Razor eagerly hyped the project's status as "the first co-produced geothermal power project in Alberta, and Canada."
Investors were intrigued. Razor began making noises about this project two years ago, when its existing oil and gas assets -- which had rarely inspired much excitement in the market anyway -- were in the grips of a production decline. (They produced around 5,000 barrels a day in 2018, but were down to 3,500 as of the fourth quarter of 2020.) While other geothermal projects drill deep into the ground, seeking optimal sources of hot brine to be used for electricity generation, Razor decided to focus on co-production. This involves taking a standard, already operating oil and gas field (with relatively shallow wells) and recovering the hot fluids that happened to flow to surface alongside the hydrocarbons. The so-called "waste heat" could be harnessed and used to produce "green geothermal electricity" without interrupting the traditional oil and gas operations, according to Razor.
The idea, while still in the pilot stage, is intriguing and potentially lucrative in light of the market's rising interest in greener power sources. Razor is certainly getting plenty of help with the hype. Doug Schweitzer, Alberta's Jobs and Economy Minister, even popped up in yesterday's press release to hail Razor for its "amazing innovation." The nameplate capacity of Razor's will be 21 megawatts. (As a rule of thumb, one megawatt can power 1,000 homes for one year.) Razor reckoned that building the project to this capacity will cost $30-million. While it noted that it has received government grants to help with this cost, it did not specify what it expects its own financial contribution to be, nor did it lay out a schedule.
Meanwhile, first quarter reporting season rolled along. Gary Guidry's Gran Tierra Energy Inc. (GTE) released its financials and watched its stock briefly cross the $1 mark today before settling at 91 cents, up eight cents, on 15.4 million shares. Gran Tierra is a Colombian oil producer. It announced last month that its first quarter production averaged 24,500 barrels of oil a day. Analysts were thus expecting the company to report first quarter cash flow of eight U.S. cents a share, and that is what it did. More importantly, Gran Tierra used the financials as an opportunity to sharply increase its cash flow predictions for the full year. It previously expected its cash flow to match this year's budget of around $140-million (U.S.). Now, citing rising oil prices, the company has hiked the cash flow forecast by no less than $90-million (U.S.) -- which, given that the budget is staying unchanged, means that the company expects to have an extra $90-million (U.S.) this year to put toward its debt.
Gran Tierra steered clear of mentioning the actual level of its debt, an understandable decision once one takes a look at its SEDAR filings: Its net debt was an eye-watering $779-million (U.S.) as of March 31. That is nearly triple the company's current market cap of $333-million (Canadian). Investors nonetheless seem pleased to see the company buckling down on debt repayment. The 91-cent stock, though it still has a long way to climb to its 2018 high of $5 (or its 2014 high of $8), has rallied nicely from its 2020 low of just 24.5 cents.
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