Stockwatch Energy today
Energy Summary for Aug. 13, 2021
2021-08-13 20:40 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost 65 cents to $68.44 on the New York Merc, while Brent for October lost 72 cents to $70.59 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.65 to WTI, up from a discount of $13.71. Natural gas for September lost seven cents to $3.86. The TSX energy index lost 1.72 points to close at 121.18.
The oil sands may be just a few weeks away from getting its first major pipeline expansion in an achingly long time. According to a shipper notice seen by Bloomberg, Enbridge Inc. (ENB: $49.05) could put its Line 3 into service as early as Sept. 15. This would be just ahead of Enbridge's prior forecast of starting up the line in the fourth quarter. Bloomberg claimed that Line 3 will be "the first new cross-border export project built between Canada and the U.S. in years."
The description needs a minor footnote. The original Line 3, which runs from Alberta to Wisconsin, has been in the ground since the 1960s, but age and corrosion have forced it to run well below capacity. Enbridge is now upgrading the line and more than doubling its capacity to 760,000 barrels a day from 370,000. While the increase is considerable, the route is technically not new.
About 11 years have passed since the industry got any truly new pipelines. Since then, proposals for new pipelines, such as Keystone XL, Northern Gateway and Energy East, have been felled one by one by anti-pipeline activists and pandering politicians. Pipeline operators quietly took to expanding capacity incrementally on existing networks. In this manner, Enbridge has been able to add about 175,000 barrels a day of little-discussed capacity over the last two years. Yet nothing beats a pipeline for adding a dramatic chunk of fresh capacity in one swoop. The pipelines with the best odds of success seem to be expansive upgrades of existing lines, such as Line 3 or the Trans Mountain expansion that is forecast to enter service next year. Activists have been to their usual antics with those two, certainly, but despite years of delays and legal battles, both are still standing.
Within the oil sector (though not the oil sands) Rick McHardy's Spartan Delta Corp. (SDE) stayed unchanged at $4.57 on 71,900 shares. Investors yawned off its second quarter earnings of $19.6-million on revenue of $96.3-million. By comparison, in the same period last year, Spartan had higher earnings of $47.4-million on lower revenue of $11.5-million -- but that was purely reflective of accounting wizardry, stemming from an acquisition that Spartan closed in June, 2020.
That turned out to be just the start of a continuing shopping spree. Most recently, just two weeks ago, Spartan announced that it is buying Velvet Energy, a private Alberta Montney producer, for $743-million. The deal will add over 20,000 barrels of oil equivalent a day. Understandably, the deal overshadowed the second quarter report, with its average production of 39,600 barrels a day. Spartan is currently conducting a $150-million equity financing at $5.05 a share (about 10 per cent higher than today's close of $4.57) to secure more money to develop Velvet's assets. A new prospectus on SEDAR indicates that Spartan plans to close the financing on Aug. 18 and close the takeover of Velvet on Aug. 31.
Further afield, the Lundin family's Africa Oil Corp. (AOI) added 18 cents to $1.61 on 816,600 shares, garnering a much more enthusiastic reaction to its second quarter financials. It reported net income of $44.1-million. All of Africa Oil's income comes from its investments in other companies, and really one company in particular, a Nigerian producer called Prime Oil. Africa Oil acquired a 50-per-cent interest in Prime in January, 2020. It therefore records a 50-per-cent share of Prime's net income or loss as its own net income or loss.
This arrangement makes for nice and simple bookkeeping, at least until Africa Oil can start generating direct revenue from its own assets, which are mainly in Kenya. The company and its joint venturers have been drilling in Kenya since 2012 but have yet to achieve production. Today, president and chief executive officer Keith Hill noted that the Kenyan project "continues to gain momentum" (imperceptibly slow as it may sometimes seem). The joint venturers are aiming to drill two new exploration wells by year-end and submit a field development plan to the Kenyan government.
Investors remained focused on Prime's Nigerian assets. These regularly throw off generous dividends for Africa Oil, as discussed most recently in the Energy Summary for Aug. 3. The company has been using these dividends to repay debt. With the debt heading down, Mr. Hill decided to toss out an idea to perk investors up. He claimed today that Africa Oil is "considering the option to institute a shareholder capital return program by the end of this year." The program, he emphasized, could include share buybacks, dividends or even both.
Back in Alberta, Susan Riddell Rose's Perpetual Energy Inc. (PMT), added six cents to 38 cents on 153,900 shares, as it too pleased investors with its second quarter financials. Its reported net income was $27.0-million. That would be a thrilling figure for Perpetual -- whose market cap is a mere $23.9-million -- but unsurprisingly, it is entirely thanks to accounting magic, specifically over $30-million in impairment reversals. Perpetual would otherwise have landed in the red. It did, however, report operating cash flow of $2.9-million (up from $1.7-million in the first quarter) and production of 5,100 barrels of oil equivalent a day (coming in at the top end of its guidance).
Ms. Riddell Rose, Perpetual's president and CEO, used the financials largely as an opportunity to remind investors about the "full capital solution" that the company proposed last month. As discussed in the Energy Summary for July 16, Perpetual wants to sell all of its assets in the Clearwater play for $60-million to a company of its own creation, to be named Rubellite Energy. The deal will sharply reduce Perpetual's net debt (which was $109-million as of June 30). As well, since the deal includes a five-year option to buy shares of Rubellite, Perpetual will also retain some exposure to the Clearwater play, an up-and-coming favourite among companies such as Headwater Exploration Inc. (HWX: $3.84) and Tamarack Valley Energy Ltd. (TVE: $2.41).
The proposal is subject to shareholder approval at a special meeting on Aug. 31. "Perpetual believes that the Rubellite transactions will materially improve its liquidity ... [and ability to] grow and sustain production and adjusted funds flow," proclaimed Ms. Riddell Rose, giving investors a taste of what to expect at the meeting. Incidentally, the name of the proposed new company, Rubellite, looks to be a nod to Ms. Riddell Rose's husband, Mike Rose. Mr. Rose is the founder and CEO of Tourmaline Oil Corp. (TOU: $32.37) and the rubellite is a member of the tourmaline family.
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