Stockwatch Energy for yesterday
Energy Summary for May 18, 2021
2021-05-18 20:08 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery lost 78 cents to $65.49 on the New York Merc, while Brent for July -- though it briefly topped $70 for the first time in two months -- then lost 75 cents to $68.71 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.79 to WTI, unchanged. Natural gas for June lost 10 cents to $3.01. The TSX energy index lost 1.35 points to close at 128.86.
Investment in new oil and gas projects must cease immediately if the world has any hope of achieving net zero emissions by 2050, according to a new report from the International Energy Agency (IEA). The report, entitled "Net Zero by 2050: A roadmap for the global energy system," found that governments' current climate pledges are not sufficient to meet global emission reduction goals. "Doing so requires nothing short of a total transformation of the energy systems that underpin our economies," wrote IEA executive director Dr. Fatih Birol. Fossil fuels account for nearly four-fifths of today's energy supply. Dr. Birol reckoned that this figure must get down to less than one-fifth in less than 30 years.
To carry out the massive proposed shift into renewables, the IEA laid out over 400 recommendations in its 224-page report. Among (many) other things, the recommendations include "no new oil and gas fields approved for development," starting immediately. Oil and gas producers can keep operating their existing assets, said the IEA, but their focus "switches entirely to output -- and emissions reductions."
It remains to be seen how stringently governments and energy producers might adhere to the recommendations. Here in Canada, in the oil sands, new projects -- as in greenfield ones -- have already been on the decline for years. The last oil sands megaproject, Suncor Energy Inc.'s (SU: $28.79) $17-billion Fort Hills mine, was finished in 2018. (Teck Resources was then going to build the $20-billion Frontier mine, but walked away in February, 2020. It blamed a lack of "the three P's" -- pipelines, partners and supportive oil prices. Others blamed too much of a fourth P, politicking.) Today's oil sands producers are focused on in situ expansions of existing mines. These are known as brownfield developments. They are less expensive and less politically volatile, and dozens of them already have regulatory approvals (with their owners just waiting for the three P's to align before building them). It is not clear whether the IEA would consider these to be new investments or part of existing ones.
Speaking of Suncor Energy Inc. (SU), down 28 cents to $28.79 on 10.1 million shares, its investors have just found out about the loss of a prominent shareholder -- one of the most prominent in the world, in fact. Warren Buffett's Berkshire Hathaway has filed a quarterly report on EDGAR disclosing that it no longer owns any Suncor shares. Less than a year ago, it owned 19.2 million shares, for a 1.2-per-cent interest.
Berkshire Hathaway has had a position in Suncor since the fourth quarter of 2018, during which it bought 10.7 million shares. The shares spent that quarter falling to around $35 from over $50, so one hopes that Mr. Buffett got in at the low end. He did some more buying over the next year and a half, with the result that Berkshire Hathaway held 19.2 million shares as of June 30, 2020. A good chunk of the buying happened during the COVID-riddled second quarter of 2020. (Unfortunately, Berkshire Hathaway failed to average down in the first quarter of 2020, when Suncor's stock hit its all-time low of $14.02.) Berkshire Hathaway then sold 5.3 million shares in the fourth quarter of 2020 and the remaining 13.8 million in the first quarter of 2021. Over those two quarters, Suncor's stock was as low as $14.28 and as high as $29.56. Alas, because Berkshire Hathaway's buying activity happened in periods when the stock was $19 or higher -- and often $40 or higher -- even the best-timed sales would still put the overall investment underwater. Clearly the Oracle of Omaha sees better opportunities elsewhere.
Further afield, Colombian oil producers battened down the hatches as the country erupted in anti-government protests. The latest -- and so far most violent -- outbreak in a continuing two-year crisis began about three weeks ago, when protests broke out over proposed tax reforms and then escalated over accusations of police brutality. Similar protests demanding or opposing various government initiatives have been boiling over sporadically since 2019. The economic devastation of COVID-19 has added an extra layer of desperation and tragedy to the most recent flare-up. In the last three weeks, as of this writing, at least 42 people have been reported killed in the protests and thousands are injured or missing.
Energy producers rarely comment on political upheavals unless necessary. The protests in Colombia have not targeted the energy industry and -- until now -- were not affecting most energy companies' operations. This did not last. Gary Guidry's Gran Tierra Energy Inc. (GTE), down five cents to 79 cents on 3.43 million shares, was the first to acknowledge the threat last night. The protesters have blockaded key transportation routes, hindering the movement of oil sales even though the protests are not oil related, said Gran Tierra. It said the blockades are now "affecting almost all energy companies in the country." For its part, it has had to shut in some of its operations. It may have to reduce its 2021 guidance unless blockades lift within two weeks.
The news undoubtedly gave long-term investors an uncomfortable sense of deja vu. During both 2019 and 2020, Gran Tierra had to slash its production guidance numerous times for various reasons, including blockades (carried out by farmers who were upset over the government's agricultural policies). The company set a fairly conservative target for 2021 -- 28,000 to 30,000 barrels a day -- and seemed to be crossing its fingers for a year free of guidance gutting. Unfortunately, the guidance is now at risk yet again.
Two other Colombian oil producers followed Gran Tierra in acknowledging the protests this morning. Parex Resources Inc. (PXT), down 19 cents to $20.34 on 2.62 million shares, announced lower-than-usual production in early May and withdrew its prior production guidance for the second quarter. It also loosened its guidance for the second half of the year -- during which it now expects to produce 44,000 to 50,000 barrels a day, rather than 48,000 to 50,000 -- in case of additional protests (a worrisome thought). More serenely, it added that the blockades already appear to be lifting. Most serenely of all, Frontera Energy Corp. (FEC) added one cent to $5.89 on 181,600 shares, as it claimed to be seeing no effect from the protests whatsoever. It maintained its full-year guidance of 40,500 to 42,500 barrels a day.
© 2021 Canjex Publishing Ltd. All rights reserved.