Stockwatch Energy today
Energy Summary for Sept. 27, 2021
2021-09-27 20:34 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery added $1.47 to $75.45 on the New York Merc, while Brent for November added $1.44 to $79.53 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.70 to WTI, unchanged. Natural gas for October shot up 57 cents to $5.71. The TSX energy index added 4.35 points to close at 142.74.
Oil and gas bulls bounded gleefully into the week. Goldman Sachs has hiked its year-end Brent forecast to $90 from $80, one week after head commodities researcher Jeff Currie hinted at this prospect during a Bloomberg Television interview. On the gas side, the imminent expiry of the October contract (which rolls off tomorrow) sparked a surge of buying activity, compounded by tightening supplies and low storage levels.
Canadian oil and gas stocks rose with prices. Notable gainers included Crew Energy Inc. (CR), up 41 cents to $3.15, Crescent Point Energy Corp. (CPG), up 54 cents to $5.88, and Enerplus Corp. (ERF), up 93 cents to $10.02 (its first time above $10 since 2019).
In the oil sands, Cenovus Energy Inc. (CVE) added 40 cents to $12.52 on 20.8 million shares. It is about to line its pockets with a fresh $114-million. Specifically, it has arranged a secondary offering of shares of Neil Roszell's Headwater Exploration Inc. (HWX), which added 25 cents to $4.83 this morning, before trading in its shares was halted ahead of the offering announcement.
Cenovus obtained 50 million shares of Headwater last December. That was when Headwater bought Cenovus's Marten Hills assets in the Alberta Clearwater, an emerging oil play that has also attracted Tamarack Valley Energy Ltd. (TVE: $3.24), Rubellite Energy Inc. (RBY: $2.30), Topaz Energy Corp. (TPZ: $17.59) and others. Headwater paid a total of $100-million to Cenovus, comprising $35-million cash and 50 million shares valued at $1.10 each. Those shares have more than quadrupled in value. Cenovus is now selling just half of the shares, for an amount more than 10 per cent higher than the entire price tag of the assets.
The 25 million shares that Cenovus will continue to hold after the offering represent a 12.3-per-cent interest in Headwater. (If the full overallotment option is exercised, Cenovus will own 21.25 million shares, or 10.5 per cent.) Cenovus has not said whether it plans to hold on to these shares and thus retain some Clearwater exposure. The Marten Hills assets had largely been languishing in Cenovus's portfolio for years; the company even considered selling them in 2017. Yet Headwater is having a grand old time, claiming last month the assets' production averaged more than 6,100 barrels a day in the second quarter (up from 2,800 when they were sold in December).
All Cenovus has said for sure is that it will use the proceeds of the new financing to lower its debt. The company is aiming for net debt of $10-billion by the end of the year, down from $13.1-billion at the start of the year and $12.3-billion at midyear.
In other balance sheet news, Cenovus has filed on EDGAR a preliminary shelf prospectus qualifying up to $5-billion (U.S.) in debt or equity offerings over the next 25 months. This looks to be basic housekeeping, as the previous version of this prospectus -- also for $5-billion (U.S.) -- was filed in September, 2019, and is thus coming up for expiry. Then and now, Cenovus noted that the prospectus covers secondary offerings as well, if arranged. One of Cenovus's big-name shareholders is ConocoPhillips. The U.S. major received 208 million Cenvous shares (relative to two billion currently outstanding) as part of an asset sale in 2017. It then announced in May, 2021, that it would start selling the shares on the open market. The most recent EDGAR filing on the matter disclosed that Conoco held 149 million shares of Cenovus as of Sept. 14.
Further afield, Paul Baay's Touchstone Exploration Corp. (TXP) lost nine cents to $1.74 on 491,900 shares, giving back some of the 34 cents it added Friday after cheering a new drill result in Trinidad. The company's Royston-1 exploration well at its Ortoire block hit 393 feet of hydrocarbon pay. President and chief executive officer Mr. Baay said he was expecting just 200 feet. "[This] further verifies the opportunity in the block," he declared. He has already been steadily hyping this opportunity since 2019, when Touchstone spudded the first well of a five-well program at Ortoire. Royston was the fifth. All five have been a success, and Touchstone's stock has accordingly climbed to $1.74 from 17 cents in the last two years.
The stock is, however, down from the peak of $3.04 that it achieved in February of this year. Investors have been growing impatient with Touchstone's lack of progress bringing any of its Ortoire wells on production. The company was originally hoping to achieve production at the block in early 2020. A year and a half later, the block remains a non-producer.
Mr. Baay urged patience during a [paid promotional message] interview on Friday. ([paid promotional message] is a self-described "financial media portal" that also offers "smart investor relations delivery." That last bit is a recent addition to its website, though anyone familiar with the outfit has known it as a paid stock tout for years.) Mr. Baay said delays and setbacks are par for the course during an exploration program, especially one where the prospects are "just so large, they have a big impact, so we get this volatility." He noted that Royston was the largest target at Ortoire so far. The full test process will take a few months, but Mr. Baay said preliminary results should start to arrive in late October or early November.
Mr. Baay did not give a revised estimate on when Ortoire might finally achieve production. As it happens, analyst Charlie Sharp of Canaccord Genuity predicted on Sept. 3 that this milestone will be reached in early 2022. Mr. Sharp was required to disclose that Canaccord is (among other things) a "market maker or liquidity provider" in Touchstone's securities. He was, at least, slightly more subtle than the [paid promotional message] interviewer, who peppered Mr. Baay's remarks on Friday with chipper commentary such as, "Excellent, exciting times, good stuff."
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