Stockwatch Energy today
Energy Summary for Aug. 4, 2021
2021-08-04 20:06 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost $2.41 to $68.15 on the New York Merc, while Brent for October lost $2.03 to $70.38, (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.41 to WTI, up from a discount of $14.70. Natural gas for September added 13 cents to $4.16. The TSX energy index lost 5.15 points to close at 120.20.
Oil prices slid for the third day in a row, weakened by outbreaks of the highly contagious COVID-19 Delta variant in major oil consumers such as the United States and China. The mood in Canada was not much better, as quarterly reporting season plodded on. Jim Riddell's Alberta-focused Paramount Resources Ltd. (POU) lost $1.84 to $14.22 on 1.37 million shares. It reported a net loss for the second quarter of $74.3-million, or 56 cents a share. Analysts had been expecting a net profit of nine cents a share. Instead, wrong-way hedging contracts, higher depletion/depreciation charges and a loss related to a former investment (Strath Resources) dragged Paramount into the red.
Today's drop put the stock almost exactly back where it was in mid-June, right before Paramount put on a show of confidence by introducing a two-cent monthly dividend. The stock shot up to $16.31 from $14.24 in a single day, for an implied yield at the time of 1.5 per cent (1.7 per cent as of today). Mr. Riddell, Paramount's president, chief executive officer and chairman, took today's financials as an opportunity to remind investors of the dividend and underscore his confidence in Paramount's ability to pay it. He reiterated the company's spending and production guidance while increasing its free cash flow guidance to $185-million from $140-million.
Paramount was not the only Alberta producer to disappoint investors with its financials. Keith MacPhail and Ronald Poelzer's NuVista Energy Ltd. (NVA) lost 19 cents to $3.21 on 2.92 million shares, after turning a second quarter loss of $10.9-million, or five cents a share. As with Paramount, analysts had been expecting a profit, in this case three cents a share. As with Paramount, NuVista was felled by hedging losses. President and CEO Jonathan Wright tried to look on the bright side. NuVista's production averaged 51,500 barrels of oil equivalent a day, "near the top of the guidance range" of 50,000 to 52,000. The company might have exceeded the range were it not for weather-related mid-stream curtailments. In the longer term, according to Mr. Wright, NuVista remains confident in its goal of hitting 80,000 to 90,000 barrels a day "as early as 2023."
Further afield, the string of bottom-line disappointments continued with Gary Guidry's Colombia-focused Gran Tierra Energy Inc. (GTE), down 11 cents to 69 cents on 2.36 million shares. The Colombian oil producer had already made it clear that it had a tough second quarter. Blockades associated with anti-government protests forced Gran Tierra to take some of its production temporarily off-line, and to use costlier transportation methods for some of the remaining production. Between the higher costs and a $24-million (U.S.) hedging loss -- a common theme this quarter -- Gran Tierra's overall net loss came to $17.6-million (U.S.). This was, if nothing else, better than its gaping loss of $370-million (U.S.) in the same period last year, courtesy of $398-million (U.S.) in impairment charges. (It is worth noting that Gran Tierra reports under U.S. GAAP, which, unlike its friendlier counterpart IFRS, does not allow impairment reversals. Those write-offs are gone for good.)
Management held a conference call to reassure investors that the worst is behind it. "Gran Tierra is on track for a strong second half in 2021," declared Ryan Ellson, chief financial officer. Mr. Guidry, president and CEO, noted that the government negotiated an end to the blockades in July, enabling Gran Tierra to restore production. "We're at 29,000 barrels a day," he boasted. The company is aiming to average 30,000 to 32,000 in the second half. Its hedges in the second half are "modest," emphasized Mr. Guidry, and there are no hedges whatsoever in 2022. Mr. Guidry added that some level of hedging will be considered as Gran Tierra develops a five-year plan "over the next couple of months."
Back in Alberta, Doug Bailey and Frank Muller's Razor Energy Corp. (RZE) added three cents to 53 cents on 11,400 shares. (The stock is a thin trader. More than one-quarter of its shares are held by three investors, namely Mr. Bailey and Mr. Muller -- its CEO and its chief operating officer, respectively -- and Alberta Investment Management Corp., or AIMCo.) Today Razor trumpeted a "strategic light oil consolidation" in the Swan Hills area. It will pay $5-million for assets producing 950 barrels of oil equivalent a day.
The Swan Hills area is an interesting one. It was all the rage a decade ago, with adventurous juniors touting it as Canada's next oil hot spot, but one by one they succumbed to financial woes and were taken out at prices well below their peaks. The companies remaining in the play rarely discuss it. The swan song of Swan Hills, so to speak, may have been Crescent Point Energy Corp.'s (CPG: $4.45) $258-million takeover of the private Coral Hill Energy in 2015; now those assets are listed on its website as "non-core offerings" (meaning they are up for sale). Razor was undeterred and first arrived in Swan Hills in 2017. (Before that, founders Mr. Bailey and Mr. Muller were at the previous promotion, Striker Exploration, which they sold to Gear Energy Ltd. (GXE: $0.66) in 2016.) Alas, Razor was unable to revive much interest in Swan Hills, and its stock fell from a 2017 high of $4 to about 20 cents at the start of 2021.
A turning point came earlier this year. By then, Razor had settled on a new angle to promote Swan Hills: a non-traditional geothermal powerhouse. Most geothermal projects drill deep into the ground, looking for hot brine to use for electricity generation. Razor decided to focus on co-production, which involves taking standard, relatively shallow oil and gas wells and recovering the hot fluids that flow to the surface alongside the hydrocarbons. The hydrocarbons can be sold as usual, and the hot fluids -- traditionally dismissed as "waste heat" -- could be harnessed for electricity, according to Razor. Its stock shot up to 81 cents from 25 cents over the course of a few days in May, when Razor started construction of this "first-of-its-kind" power facility. The Alberta government even got involved, hailing Razor for its "amazing innovation."
Although the stock has pulled back to today's level of 53 cents, Razor gave today's announcement a bit of geothermal juice by announcing that its new assets are "highly analogous" to the ones at its Swan Hills geothermal plant. "The learnings, and cash flow and outcomes, can be directly applied [to the new assets]," it claimed. Moreover, Razor finally gave an estimated completion date for the geothermal plant, which will apparently be ready in the first quarter of 2022. The nameplate capacity of the plant will be 21 megawatts. As a rule of thumb, one megawatt is enough to power 1,000 homes for one year.
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