Stockwatch Energy todayWOW! only in Quebec?
Energy Summary for July 21, 2021
2021-07-21 20:01 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery climbed $2.88 to $70.30 on the New York Merc, while Brent for September added $2.89 to $72.23 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.55 to WTI, unchanged. Natural gas for August added eight cents to $3.96. The TSX energy index added 3.18 points to close at 125.80.
Oil prices enjoyed a pleasant midweek boost. Between yesterday and today, the benchmarks have just about clawed back their steep losses from Monday, which was when OPEC+ announced a significant near-term production hike and gave oil prices their worst day in four months. Today's rise proved especially well-timed for Canadian energy stocks. It offered a welcome distraction from news that might otherwise have rattled the sector, such as a vague but portentous announcement from the government of Canada, or a blunt and heavy-handed announcement from the government of Quebec.
Ottawa's announcement was a call for feedback on "potential elements of proposed just transition legislation." Its hazily outlined goal had to do with "ensur[ing] a just and equitable transition to a low-carbon future." Understandably, the reaction in the oil patch was jittery. "We would ask the federal government to more clearly define their intentions for our industry," stated the Canadian Association of Energy Contractors (CAOEC). President and chief executive officer Mark Scholz noted that the energy sector is already the largest investor in green technologies in the country. "Given the Canadian energy industry's willingness and proven record of lowering emissions ... it is difficult to understand in what context legislation would be needed," grumbled Mr. Scholz. He can lower his hackles for now, as the government's announcement merely kicks off a public comment period that will last until Sept. 30.
As for the announcement out of Quebec, this involved (quelle surprise) a large energy project being rejected. The private GNL Quebec has been trying for seven years to build the $9-billion Energie Saguenay project, a proposed LNG (liquefied natural gas) terminal in Port Saguenay. The terminal would have taken feedstock from Western Canadian gas companies and turned it into 11 million tonnes of annual LNG exports. Despite the project's sterling green credentials -- it was pitched as a carbon-neutral facility that would displace dirtier fuel sources such as coal -- the Quebec government decreed today that the environmental risks are simply too great. Energie Saguenay is dead. This is a "deplorable" outcome, mourned the Montreal Economic Institute (MEI). It noted that the local municipalities had actually approved the project. Ignoring communities and bowing to "a handful of activists" sends "an extremely negative message to anyone who might be thinking of investing and creating jobs in Quebec," warned the MEI. (In other words, it was just another day in the Premier's office.)
Back in Western Canada, Cardinal Energy Ltd. (CJ) added 14 cents to $3.04 on 1.14 million shares. It is currently digesting its acquisition of Kevin Wesa's Venturion Oil, which it acquired late last week. Venturion was a private company producing 2,400 barrels of oil equivalent a day in the Wainwright area of Alberta. This is one of Cardinal's three core areas (the other two being Bantry and Mitsue, also in Alberta). As consideration for Venturion, Cardinal paid $27.5-million cash and issued 6.3 million shares valued at $3.11 each. It raised part of the cash portion by completing a $12.5-million note financing with insiders.
One of those insiders has been stocking up on shares. Director John Brussa, who according to SEDI subscribed for $700,000 of the notes, also bought 50,000 shares over the last week for a total of $146,100. He now owns 2.78 million of Cardinal's 151 million shares. Presumably Mr. Brussa has high hopes for Cardinal's near-term plans, which it outlined in a new presentation on its website. The company said it is aiming to produce 21,000 to 21,500 barrels of oil equivalent a day in the second half of 2021, and generate around $55-million in free cash flow over the same period. It will use this cash primarily to reduce debt. In 2022, however, it may aim higher, signalling in its presentation that next year's cash flow could go toward anything from debt reduction to acquisitions to even dividends. (Cardinal used to pay a 1.5-cent monthly dividend, but suspended it in March of last year.)
There is an even larger shareholder than Mr. Brussa who will likely get a say in such plans. Murray Edwards, the billionaire chairman of Canadian Natural Resources Ltd. (CNQ: $41.08), disclosed himself as a major investor in Cardinal last December, and currently owns 17.2 million of its 151 million shares. According to SEDI, he also took the lion's share of last week's $12.5-million note financing, putting in $10-million.
From Cardinal we shall wing our way over to Philip O'Quigley's Falcon Oil & Gas Ltd. (FO), which today stayed unchanged at 9.5 cents on 611,600 shares, after dropping half a cent yesterday. Yesterday's drop reflected troubling news at Falcon's Beetaloo shale promotion in Australia.
By way of background, Falcon and its joint venturer, Origin Energy, have been exploring the Beetaloo since 2014, but the process has been anything but easy. There was a two-year fracking ban that they had to wait out from 2016 to 2018. Then regulatory delays prevented them from spudding their much-hyped Kyalla well until late 2019. No sooner had they spudded the long-awaited well when the COVID-19 pandemic struck in 2020, causing even more delays. They finally got a trickle of good news -- but only a trickle -- when they announced a gas discovery in the Kyalla well in January, 2021. Unfortunately, the well flowed just 400,000 to 600,000 cubic feet a day (equal to about 66 to 100 barrels of oil equivalent a day). The joint venturers repeatedly reminded investors that those results were "preliminary" and the well would need further testing. They took a pause to finalize their 2021 work program, and finally got back to the Kyalla well for cleanup (in preparation for testing) in June.
This brings the story to yesterday. During the cleanup process, Falcon and Origin found "evidence of a potential downhole flow restriction." They did not provide any details. Downhole flow restrictions can have several possible explanations, such as sediment buildup, a collapsed or deformed bit of piping, or an object getting stuck in the wellbore. It could be a fairly easy fix, or it could cast grave doubts on the well's integrity. All Falcon and Origin would say is that they are investigating the cause and will use the results to "inform the development of a new go-forward plan." For Falcon's investors, this means more of the thing they have become so accustomed to over the years: waiting.
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