Stockwatch Energy today
Energy Summary for Sept. 3, 2021
2021-09-03 21:05 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery lost 70 cents to $69.29 on the New York Merc, while Brent for November lost 42 cents to $72.61 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.05 to WTI, down from a discount of $12.00. Natural gas for October added seven cents to $4.71. The TSX energy index lost a fraction to close at 126.22.
Philip O'Quigley's Falcon Oil & Gas Ltd. (FO) soared into the long weekend, adding eight cents to 16.5 cents on 15.4 million shares, thanks to a vindicating update from Australia. The company has tested its Amungee shale well in the Beetaloo basin and obtained pleasing results.
Falcon had to word the pleasing results with excruciating care. "The results suggest a normalized gas flow rate equivalent to between 5.2 million to 5.8 million standard cubic feet per day per 1,000 metres of horizontal section," reported chief executive officer Mr. O'Quigley. This is another way of saying that the well did not actually flow 5.8 million cubic feet a day. The maximum was four million, and the average (over 23 days) was 1.23 million. Yet a bit of numerical fiddling produced a lovely five-million-plus figure for the headline.
Some background is necessary. The Amungee well is actually several years old, with Falcon and its joint venturer, Origin Energy, having drilled it in 2015 and fracked and tested it in 2016. The test produced a yawn-worthy 1.1 million cubic feet a day. Falcon and Origin were ready to move their Beetaloo buzz over to a different well, Kyalla, when the local government imposed a two-year fracking ban. After the joint venturers were finally able to start work at Kyalla in 2019, the test result in 2020 was an appalling 400,000 to 600,000 barrels a day. They quickly dug up their old Amungee promotion. Theorizing that something might have gone wrong with the frack job, they decided to run a more careful test, the results of which came today.
The results confirmed that the vast majority of the production came from a single 200-metre section of the 1,100-metre horizontal leg of the well. Most of the leg is essentially plugged by a casing deformation. This could be geological or engineering-related or both; the companies are unsure. The important thing, they emphasized, is the 200-metre section that is actually good. They interpreted the results as demonstrating a "normalized" (theoretical) production rate of over five million cubic feet a day.
Falcon's Mr. O'Quigley cheered the results as "really exciting news." Five million cubic feet a day is well above the three-million-a-day average seen as necessary for commercial success in the Beetaloo basin, he explained. He omitted the fact that this too is theoretical; the shale is not actually commercially active yet. Yet shareholders were in no mood to clip Falcon's wings today. The stock enjoyed one of its best and busiest days in over seven years.
Another international explorer also tried to stir up hype over a well's results, unfortunately with less success. Craig Steinke's Reconnaissance Energy Africa Ltd. (RECO) lost 38 cents to $6.70 on 1.25 million shares, on top of the eight cents it lost yesterday after finally releasing log and core analyses from its 6-2 test well in Namibia. The company originally promised to finish these by the end of July. Investors have been waiting with rising impatience.
Whether the results were worth the wait is another question. The findings -- prepared by Netherland Sewell and Associates Inc. (NSAI), a respected third party -- are of the nebulous sort where any number of geologists could find data to support any number of conclusions. In the two general camps of bullish and bearish, the bulls might focus on the 198 metres of "reservoir-quality" rock that NSAI identified over five separate intervals. The bears, however, might point out that some of the rock looks only barely reservoir-quality and the water cuts are sky high (56 to 100 per cent).
All in all, for a test well that was mainly looking for suggestions of oil, the 6-2 well did its job. Yet this location does not seem especially promising for testing. Reconnaissance is nonetheless considering a production test -- perhaps just on the best-looking zones -- and will make up its mind this fall or winter. Investors seemed subdued. That the 6-2 well did its job is hardly new information; Reconnaissance has been trumpeting oil shows since April. The stock accordingly reached a high over $13 in June from less than $1 a year earlier. It has since crashed to today's close of $6.70.
Slightly closer to home, Paul Baay's Trinidad-focused Touchstone Exploration Inc. (TXP) lost three cents to $1.37 on 237,700 shares. The dip came in spite of a glowing analyst write-up. "Touchstone is set for a return to high-impact news," proclaimed Canaccord analyst Charlie Sharp in a research note this morning. He noted that Touchstone spudded its most recent well on its Ortoire block, the Royston well, on Aug. 12 and will likely have results by the end of this month. This should be "the most significant market catalyst" in the near term. Yet it will not be the only near-term news; Mr. Sharp also expects Touchstone to finally achieve production at Ortoire -- from a different well, Coho -- "around the turn of the year." (Touchstone was originally aiming to put Coho on production in early 2020.)
Mr. Sharp concluded by hiking his price target on Touchstone to $2.80 from $2.55 and maintaining his "speculative buy" rating. As usual, the disclaimer at the bottom of the note was at least as interesting as the note itself. The analyst's employer, Canaccord, is not only a provider of investment banking services for Touchstone, but also a "market maker or liquidity provider in [Touchstone's] securities."
Down in Brazil, Richard Gonzalez's Petro-Victory Energy Corp. (VRY) added 40 cents to $2.40 on 14,900 shares, after closing a long-awaited batch of financings. Ten months have passed since the company first made friends with the European investment group Oppenheimer Resources. Oppenheimer agreed to lend Petro-Victory up to $5-million. Petro-Victory agreed to put $11.8-million (U.S.) in a fund created by Oppenheimer to invest in oil and gas companies. It planned to obtain the $11.8-million (U.S.) from an existing creditor, the Texas-based Petroleum Production Finance (PPF), in exchange for shares.
The complex transactions have been tweaked since the initial announcement -- for example, the loan is now coming from PPF instead of Oppenheimer -- but investors just seemed pleased that they have finally closed. Petro-Victory also cheered some warrant exercises that have put a fresh $2.0-million in its treasury. All of these proceeds are timely. Mr. Gonzales has spent months promising a "significant" production boost this year, if he could only lay his hands on some money for drilling and workovers. Today he dubbed himself "delighted" and "truly pleased" to have now done just that. While he did not provide a detailed update on the company's operations, he claimed that a work program is "ongoing" and will surely "benefit our shareholders."
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