Stockwatch Energy today
Energy Summary for June 3, 2021
2021-06-03 20:14 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery edged down two cents to $68.81 on the New York Merc, while Brent for August lost four cents to $71.31 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.08 to WTI, up from a discount of $14.48. Natural gas for July lost four cents to $3.04. The TSX energy index added a fraction to close at 137.23.
The International Energy Agency (IEA) is changing its tune -- slightly. Less than three weeks after it released a contentious report claiming that global climate ambitions are doomed unless all new oil and gas investment is halted immediately, the IEA has put out a new report about the post-COVID "rebound in energy investment," which it dubbed "a welcome sign."
The new report, entitled "World Energy Investment 2021," predicts that total global energy investment will reach $1.9-trillion (U.S.) in 2021, a 10-per-cent increase from 2020. Not all of this is oil and gas investment, of course. The figure also includes spending on infrastructure, refining, renewables, electricity networks and so on. Yet upstream oil and gas spending makes up a large chunk, and is expected to keep pace and show a 10-per-cent increase to around $350-billion (U.S.) in 2021. This is still well below pre-COVID levels. (Past IEA reports have pegged upstream oil and gas spending at $483-billion (U.S.) in 2019, with the high point being $577-billion (U.S.) in 2014.) The IEA noted that producers face "multiple dilemmas" and "strong pressure" as they put together their 2021 budgets. These include supply and demand uncertainties, the desire to repay debt and boost shareholder returns, and rising shareholder pressure to tackle emissions.
Over all, the IEA was pleased to see more spending allocated to low-carbon fuels and carbon capture, and it noticeably did not repeat its call to shut down all new oil and gas investment immediately. It did, however, intone that "much greater resources have to be mobilized and directed to clean energy technologies to put the world on track to reach net zero emissions by 2050."
Here in Canada, one company that has been banging the drum for months about its clean technology investments is Andy Mah's Advantage Energy Ltd. (AAV), up 37 cents to $4.59 on 8.61 million shares. The Alberta Montney producer -- which until two weeks ago was called Advantage Oil & Gas, a name it noisily scrubbed away in favour of new branding that reflects its "clean, affordable, reliable and sustainable Canadian energy" -- pleased shareholders this morning with an announcement about its Entropy subsidiary. Entropy is a joint venture established in March by Advantage and Allardyce Bower Consulting. The two companies had just created a "breakthrough" CCS (carbon capture and storage) technology, and created Entropy to own it and deploy it at various projects. The first such project would be Advantage's Glacier gas operations in the Alberta Montney. Today, Advantage announced that Entropy has signed memorandums of understanding with four different companies, marking "an important step in commercial deployment of Entropy technology."
The four companies are Athabasca Oil Corp. (ATH: $0.78) in the oil sands, the private Black Swan Energy in the B.C. Montney and two unnamed B.C. mid-stream operators. At this stage, the agreements are preliminary and seek only to have Entropy "jointly evaluate" potential CCS projects with each counterparty. This did not stop Advantage from cheering Entropy's "visibility to a significant pipeline of growth opportunities." Its optimism is understandable, but the technology will remain unproven from a practical and economic standpoint for quite a while longer. The first phase of deployment at Advantage's Glacier project is not due to come on-line until the first quarter of 2022, followed by the second phase in the second quarter of 2023.
Further afield, Craig Steinke's Reconnaissance Energy Africa Ltd. (RECO) shot up $1.40 to $9.44 on 3.82 million shares, after declaring itself two for two in its Namibian wildcatting program. The company's second well has hit 134 metres of oil and gas shows. Much like the first well, which hit 200 metres of oil and gas shows in mid-April, the second well provided "clear confirmation of a working petroleum system," cheered Reconnaissance. It seemed to feel validated, as it deliberately drilled both wells in the same subbasin, targeting the same system. The fact that the two wells are 16 kilometres apart suggests that the system is expansive. The data are early stage, however, and Reconnaissance is now evaluating both wells with the goal of completing its analysis by the end of July.
Reconnaissance also used the news release as an opportunity to jump on the green bandwagon, promising to earmark $10-million (U.S.) for ESG (environment, social and governance) initiatives in Namibia, while also vowing "aggressive targets" to reach net zero emissions. It did not provide any specifics or timelines. As a result, the commitments seem unlikely to shake off the environmental detractors that have been buzzing around Reconnaissance recently, including prominent names such as the National Geographic magazine. This has been putting out increasingly negative coverage of Reconnaissance since last October. Last week, the company even accused the magazine of publishing a "hit piece" to "facilitate activist short-sellers attempting to attack Reconnaissance's stock price."
The timing of last week's press release came just as Reconnaissance was trying to close a $36-million unit financing. It subsequently closed the financing for $41.4-million, including the full exercise of the overallotment option, suggesting that investors were certainly not put off by negative NatGeo coverage. Long-term investors have good reason to feel pleased with their positions. Less than a year ago, in August, 2020, Reconnaissance raised $23-million at a price of just 70 cents per unit (with each unit comprising a share and a warrant). Thanks to Namibian drilling optimism, the unit price in last week's financing was no less than $9.50. The stock closed today at $9.44.
Incidentally, the financings also pushed Reconnaissance's share count past 160 million from 72 million a year ago, and diluted some once-prominent shareholders below the 10-per-cent insider reporting threshold. These include Haywood partner and vice-president David Elliott. Haywood remains a vocal cheerleader of Reconnaissance, of course. It led last week's financing, and today one of its analysts, Christopher Jones, put out a boosterish research note about the "positive" drilling update. Mr. Jones sees Reconnaissance as a "top pick" and has a price target of $12.50.
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