Stockwatch Energy today
Energy Summary for July 5, 2021
2021-07-05 19:54 ET - Market Summary
by Stockwatch Business Reporter
U.S. markets were closed for American Independence Day. West Texas Intermediate crude for August delivery added $1.17 to $76.33 in electronic trading on the New York Merc, while Brent for September added 99 cents to $77.16 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.95 to WTI, unchanged. Natural gas for August added seven cents to $3.77. The TSX energy index added 3.03 points to close at 143.11.
Oil prices rose as OPEC+ abandoned talks to potentially increase production. As discussed in Friday's Energy Summary, the group was close to an agreement to hike production by 400,000 barrels a day in August, but the United Arab Emirates derailed the negotiations at the last minute by demanding a higher production quota for itself. After a weekend of tense diplomacy (and some rather undiplomatic television interviews by some delegates), OPEC announced today that the meeting has ended without a deal. "[The] meeting has been called off," stated OPEC's Secretary-General in a curt update on OPEC's website. The group was not even able to agree on when the next meeting will take place. The Secretary-General would only say that the timeline "will be decided in due course and we will inform you accordingly."
The lack of a deal suggests (for the moment) that OPEC will not increase production in August. More broadly, the breakdown shows a widening rift between Saudi Arabia and the UAE, one that threatens OPEC's self-image as a steward of the oil market -- much like last year's price war between Saudi Arabia and Russia, which caused unprecedented price swings. The spectre of a repeat skirmish may prompt the group to revive talks at any moment. "The physical market is incredibly tight," pointed out Amrita Sen of the London-based consulting firm Energy Aspects (quoted in Bloomberg). The general consensus is that OPEC+ will find a way to end the stand-off in the coming days.
Here in Canada, oil sands giant Canadian Natural Resources Ltd. (CNQ) gained 93 cents to $45.86 on 5.14 million shares. It has also gained a new partner at its 50-per-cent-owned Sturgeon Refinery. The Alberta government (but not the company) announced this morning that it is acquiring the other 50-per-cent interest in Sturgeon from the private North West Refining. As part of the deal, North West will receive $425-million to forgo tolling revenue from Sturgeon, and Canadian Natural will receive $400-million. Given that the provincial government was the majority toll payer at Sturgeon -- which gets one-quarter of its feedstock from Canadian Natural and the rest from the province-owned Alberta Petroleum Marketing Commission -- the government calculated that the above $825-million payment will save $1-billion in future tolling payments that it would have paid anyway over the next five years.
The Sturgeon refinery is not generally associated with words like savings. The 79,000-barrel-a-day facility, which is the first new refinery built in Canada since 1984, was proposed in 2008 and projected to cost $4-billion. After years of delay, it finally achieved commercial operations in June, 2020, with the cost having ballooned to nearly $11-billion. Canadian Natural already wrote down the value of its interest in Sturgeon to nothing at the end of 2019. As for the Alberta government, it faced criticism for years over the way it helped to finance the project, through loan guarantees and long-term tolling commitments. The contracts were structured so that the province would be on the hook for tolling fees no matter how delayed or poorly operated the refinery might be. A 2018 report from the provincial auditor-general found that the contracts showed "poorly designed risk management processes."
The Alberta government brushed all that aside today, optimistically declaring that its newfound equity interest in the project will "enable greater government returns in the project's upside." Essentially, the government will be paying the toll fees in part to itself, and it will have a greater say in decisions that could "improve uptime [and] enhance operating efficiency and costs." Canadian Natural will remain the main provider of "operational leadership," clarified the government. The company has not commented on the new partnership.
A much smaller Alberta company, Alfred Sorensen's Pieridae Energy Ltd. (PEA), added three cents to 43 cents on 662,100 shares, after announcing the sudden departure of chief financial officer Rob Dargewitcz. Mr. Dargewitcz joined Pieridae barely a year and a half ago, in November, 2019. The company cheered his 15 years of past experience at Shell Canada. Interestingly, after Shell but before Pieridae, Mr. Dargewitcz spent five years as treasurer of the North West/Canadian Natural joint venture that was building the above Sturgeon refinery. Whether today's Sturgeon-related announcement has any bearing on Mr. Dargewitcz's exit from Pieridae is not clear; Pieridae merely said he is leaving to "pursue other opportunities." It will now start the search for a new CFO.
This is not the only search under way at Pieridae. As discussed in Friday's Energy Summary, Pieridae's stock plunged after it missed a key investment deadline for its proposed Goldboro LNG (liquefied natural gas) terminal in Nova Scotia, prompting Friday's announcement of a "strategic alternatives" review of Goldboro. Pieridae's preference would be to find an industry partner to help with Goldboro's $10-billion (U.S.) price tag. Again, any connection to Mr. Dargewitcz's exit is unclear, but the perception that the CFO is jumping ship would not bode well.
Speaking of unfavourable developments, Gil Holzman and Colin McKinley's Eco (Atlantic) Oil & Gas Ltd. (EOG) lost 11 cents to 45 cents on 732,900 shares, after a much-hyped well in Guyana came up empty. The well was the Jabillo-1 exploration well at the Exxon-operated Canje block off the Guyanese coast. As discussed in the Energy Summary for June 28, Eco recently agreed to acquire a minority interest in JHI Associates, which owns a minority interest in the Canje block. It specifically hyped the deal by pointing to the "near-term exposure to [a] low-risk, high-impact two-well drilling program," with Jabillo-1 being one of those wells. In fact (as Stockwatch pointed out), Exxon is actually conducting a three-well program at Canje, a detail Eco presumably chose to omit because the first well came up dry in May.
Now Jabillo-1 has come up dry as well, taking the wind right out of Eco's JHI promotion. Mr. Holzman tried to puff some air back in, turning the focus to the next well at Canje, which will be called Sapote-1 and should be spudded "in the upcoming weeks." Lengthy offshore drilling times mean that investors will likely have to wait until October for results. With any luck, however, Sapote-1 will break Exxon's losing streak. The Jabillo-1 well was its fourth Guyanese duster in nine months.
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