Stockwatch Energy today
Energy Summary for July 23, 2021
2021-07-23 20:09 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added 16 cents to $72.07 on the New York Merc, while Brent for September added 31 cents to $74.10, with both benchmarks ending a volatile week almost exactly where they started (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.15 to WTI, down from a discount of $14.00. Natural gas for August added six cents to $4.06. The TSX energy index added a fraction to close at 125.71.
Quarterly reporting season among Canada's energy producers got off to a cheerful start. Oil sands company MEG Energy Corp. (MEG) added 51 cents to $8.60 on 6.85 million shares, after announcing a second quarter profit of $68-million. That compares with a loss of $80-million in the same period last year. Production came to 91,800 barrels, exceeding analysts' predictions of 89,800 barrels a day, and cash flow of 53 cents a share just edged out analysts' predictions of 52 cents a share.
President and chief executive officer Derek Evans patted MEG on the back for "another strong operational quarter." Indeed, he continued, the company is so confident in its operations that it has decided to increase its full-year production guidance. This is the second guidance tweak this year. MEG was initially aiming for a full-year average of 86,000 to 90,000 barrels a day. In May, it tightened this to a range 88,000 to 90,000 barrels a day, and now it has pushed it up to a range of 91,000 to 93,000.
While Mr. Evans gave the credit for the higher production to MEG's "outperformance" in the field, investors will also have noticed a sizable increase in the company's budget. Both the initial guidance and the revised guidance in May assigned MEG a budget of $260-million. Now the company has hiked that figure by nearly one-third, all the way to $335-million.
The extra $75-million is not directly aimed at expanding production in 2021. Mr. Evans explained that the money will go toward a planned production boost to 100,000 barrels a day in the second half of 2022, at an expected cost of $125-million (the rest of which will be spent in early 2022). "[We will go] back up to full operational utilization," he cheered. MEG was previously producing close to 100,000 barrels a day in mid-2019, but then its production started to drop because of the Alberta government's curtailment policies and then the global COVID downturn. Before all that happened, MEG had its sights on getting as high as 113,000 barrels a day in 2020, but Mr. Evans has not refloated that particular number. One hundred thousand is plenty optimistic for now.
Separately, MEG issued a notice to redeem $100-million (U.S.) of senior notes. The notes are not due until 2025, but MEG has been pecking away at them with its extra free cash flow. Out of the original balance of $750-million (U.S.), just $396-million (U.S.) will remain outstanding after the latest redemption.
In other debt news, Keith MacPhail and Ronald Poelzer's Montney-focused NuVista Energy Ltd. (NVA) lost 16 cents to $3.53 on 1.07 million shares, after closing a previously announced $230-million note financing. Unlike MEG, NuVista set lofty production ambitions nearly a year ago, claiming last September to have "set the table for ... growth to between 70,000 to 90,000 [barrels of oil equivalent a day]." Its production at the time was around 50,000 barrels a day. Based on a recent presentation on its website, NuVista is aiming to achieve the above goal in 2024. The idea behind today's financing is presumably to ensure that NuVista can focus on this without getting distracted by debt obligations. It is using today's notes, which mature in 2026, to repay different notes that were going to mature in 2023. Unfortunately, the 2026 notes bear interest at 7.875 per cent, whereas the 2023 notes had a coupon of just 6.5 per cent. Investors have frowned on the costlier debt. NuVista's stock has fallen to $3.53 from $3.95 since it announced the financing on July 12.
Further afield, Dr. Art Halleran's Turkish gas explorer, Trillion Energy International Inc. (TCF), edged up half a cent to 23.5 cents on 192,200 shares. Its CEO, Dr. Halleran, spent the week trying to stir up some excitement at the on-line Emerging Growth Conference (hosted by Emerging Growth, which is an offshoot of Global Discovery Group, which is -- here it comes -- a marketing company). The conference was for small caps only. Attendees quickly got used to hearing statements like the following one from Dr. Halleran, who of Trillion declared, "Our shares are extremely undervalued."
Dr. Halleran's confidence stems mainly from Trillion's 49-per-cent-owned SASB gas field in the Black Sea. Trillion is about to spud the first wells at the SASB field in about a decade. The field is a past producer, peaking at about 30 million cubic feet of gas a day in 2011, but that number has since dwindled to nearly nothing. Dr. Halleran reckoned that the field still contains around one billion cubic feet of gas to be developed. He pointed to four different pools that have been discovered but have never produced anything, plus six additional "low-risk" development prospects and 14 exploration prospects. Trillion will focus initially on the already-discovered pools. "Geologically," claimed Dr. Halleran, "there is no risk to these prospects."
The adverb is an important qualifier. Investors have already seen evidence of financial risk, based on a $17.5-million (U.S.) debt financing that Trillion arranged in April but still has not closed. Dr. Halleran told the conference that the financing is still in progress and is just waiting on "one piece of paper from the government." Yet he called himself "impatient" to start drilling. With that in mind, Trillion made a determined scramble for cash earlier this month -- a warrant exercise here, a bit out of the treasury there -- and is aiming to spud the first of two planned wells this fall. "First production will be December, 2021," vowed Dr. Halleran. He emphasized that this will have no effect on the larger financing, which "will be done for sure" in September or October and will let Trillion drill even more wells in 2022. By late 2023, projected Dr. Halleran, Trillion should be enjoying a dreamy $5-million (U.S.) a month in cash flow. (Turkish gas can be lucrative stuff. Benchmark prices in Turkey are currently nearly double their North American counterparts, and are often even higher.)
Investors remained aloof. At 23.5 cents, Trillion is down nearly two-thirds from its March, 2021, high of 66 cents. Dr. Halleran simply shrugged off the decline as evidence of how "undervalued" Trillion is. He expressed confidence, as every promoter should, that the stock will head higher once the drill bit starts turning.
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