Stockwatch Energy today
Energy Summary for June 28, 2021
2021-06-28 20:12 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery lost $1.14 to $72.91 on the New York Merc, while Brent for August lost $1.50 to $74.68 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.75 to WTI, unchanged. Natural gas for July added 12 cents to $3.62. The TSX energy index lost 4.42 points to close at 137.45.
Oil prices had a stumbling start to the week, as traders awaited this Thursday's OPEC+ meeting. Analysts are expecting a continuation of gradual production increases. OPEC+ previously agreed to add 2.1 million barrels a day of curtailed production back to the market from April through July. On Thursday, the group will decide on its plans for August, with analysts forecasting an increase of 500,000 barrels a day. This higher supply expectation, combined with demand concerns amid a spike in COVID-19 cases in Asia and Europe, is weighing on oil prices. Gas prices, however, are currently at their highest levels in over two years. Power demand is surging as the market grapples with lower-than-average inventories and higher-than-average summer temperatures.
In Namibia -- which, despite its subtropical desert climate, is cooler than vast swaths of the heatwave-gripped Pacific Northwest right about now -- Craig Steinke's Reconnaissance Energy Africa Ltd. (RECO) added 30 cents to $11.29 on 4.33 million shares. It has issued a response to a recent short-seller's "biased and false short report." By way of background, as discussed in Friday's Energy Summary, Viceroy Research published a 32-page short report last Thursday, calling Reconnaissance "a disaster waiting to happen." The report alleged that Reconnaissance is trying to "swindle investors," has "a near-zero chance of finding any asset of value," and is led by management with "a long and checkered history of bribery and corporate and environmental scandals." Viceroy even said it has submitted its data to Canadian securities regulators in the hope that they will "take swift action to rein in such malfeasance."
After taking the weekend to stew, Reconnaissance put out a press release this morning to address the "falsehoods and distortions" from the short-seller (which it did not deign to name as Viceroy). It bristled at the near-zero-chance remark and claimed to have a "logical strategy" for its Namibian exploration program. Already, said Reconnaissance -- treading carefully here -- the program has turned up results that "suggest there is commercial potential." The mere suggestion has been enough to send Reconnaissance's stock past $11 from 50 cents over the last year. During this rise, directors and officers have bought nearly one million shares and sold barely 100,000, proving to Reconnaissance that they are not pump-and-dumpers but are "committed to the long-term viability and success of the company." Reconnaissance sniffed that the short-seller either "lacks the knowledge or experience" to provide a good assessment or is "intentionally distorting" the facts.
Not so, fired back Viceroy. It immediately headed to Twitter to declare that Reconnaissance's statement "addresses few of our data points poorly with no new data." It said it is working on a lengthier report and urged investors to "watch this space."
Another international junior with a connection to Namibia is Gil Holzman and Colin Kinley's Eco (Atlantic) Oil & Gas Ltd. (EOG), up seven cents to 48 cents on 747,700 shares. Today's gain had nothing to do with Namibia but rather Eco's other core area, Guyana. Eco has agreed to acquire a 6.2- to 10-per-cent interest in a Guyanese oil explorer called JHI Associates.
The deal effectively grants Eco entry to ExxonMobil's Canje block off the coast of Guyana. Exxon is already the toast of the Guyanese oil industry, having made 18 discoveries in the last six years at its offshore Stabroek block. Stabroek is currently producing over 120,000 barrels a day and is estimated to hold over nine billion barrels. It has also proved a useful foothold for area excitement. Eco, for example, never misses a chance to mention that its Orinduik block, a joint venture with Tullow Oil, France's Total and Qatar Petroleum, is right beside Stabroek. Past excitement about Stabroek sent Eco's stock tripling to around $1.50 from 50 cents before the Orinduik joint venturers had even drilled a single well. They finally drilled two successful wells in 2019, at which point Eco's stock doubled to nearly $3. Alas, follow-up analysis showed the oil in the Orinduik wells was of lower quality than expected, sending Eco's stock all the way back down to the current level of around 50 cents.
As the joint venturers do not plan to drill Orinduik again until 22, Eco has found itself in need of a fresh source of excitement. There is the Namibian angle, but Eco's Namibian assets are offshore and Reconnaissance is onshore, so this is of minimal help. Today's announcement about JHI showed that Eco would rather latch on further to Exxon. In addition to Stabroek, Exxon operates the neighbouring Canje block, which is partially owned by JHI. Now Eco will gain exposure by acquiring a 6.4-per-cent interest in JHI for $10-million (U.S.). For an additional $18.3-million (U.S.), it can boost this interest to 10 per cent. Eco will raise some money for this by closing a $6.1-million private placement at 41 cents.
All of the above companies are hoping for imminent excitement from the well currently being drilled at Canje, namely the Jabillo-1 exploration well. Eco specifically mentioned that a highlight of the deal is "near-term exposure to [a] low-risk, high-impact two-well drilling program [at] Canje." The reference to a two-well program might raise eyebrows among some investors. Exxon is actually conducting a three-well program at Canje this year. It already finished the first well, Bulletwood-1, which unfortunately already came up dry in May. This also happened to be Exxon's third Guyanese dry hole in six months. Eco shunted all of those details into the memory hole, keeping the focus firmly on Jabillo, which should have results next month. A third well called Sapote-1 will follow by year-end.
Eco is not the only one excited about these wells. A major participant in Eco's above-mentioned private placement will be the Lundin family's Africa Oil Corp. (AOI: $1.18), which already owns 33.9 million of Eco's 184 million shares, for an 18.4-per-cent interest. Africa Oil has agreed to subscribe for a further 5.9 million shares, which should boost its overall ownership to 19.9 per cent. The subscription is also a good chance to average down. Africa Oil has been investing in Eco since 2017, and the cost base on its 33.9 million shares is 59 cents. This investment looked excellent when Eco reached a high of nearly $3 in 2019 -- less so at today's closing price of 48 cents.
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