Stockwatch Energy today
Energy Summary for Oct. 1, 2021
2021-10-01 20:21 ET - Market Summary
West Texas Intermediate crude for November delivery added 85 cents to $75.88 on the New York Merc, while Brent for December added 97 cents to $79.28 (all figures in this para U.S.). Oil markets headed into the weekend with eyes trained on the coming OPEC+ meeting on Monday. Western Canadian Select traded at a discount of $11.97 to WTI, down from a discount of $11.70. Natural gas for November lost 25 cents to $5.62. The TSX energy index added a fraction to close at 145.35.
Oil sands giant Suncor Energy Inc. (SU) added 21 cents to $26.47 on 8.29 million shares. It has taken over sole operatorship of the Syncrude joint venture, in a move that president and chief executive officer Mark Little cheered as a "critical step toward driving greater efficiencies and competitiveness." Suncor owns a 58.7-per-cent interest in Syncrude. The other owners are Imperial Oil Ltd. (IMO: $41.04), which owns 25 per cent, China's Sinopec, at 9 per cent, and China's CNOOC, at 7.2 per cent.
Suncor has been working on the transfer of operatorship since November of last year. Syncrude used to be operated through a stand-alone governance structure, including a management services agreement with Imperial, but Suncor argued that switching to a Suncor-operated model would reduce costs and bureaucratic red tape. It claimed in November that the switch would create "synergies of $300-million annually." Interestingly, that number did not reappear in today's press release. Taking its place were vague promises from Mr. Little to "improve performance and unlock significant value."
No cash changed hands as part of the deal. The project was simply folded into Suncor's portfolio of operated assets, including its Fort Hills mine, its oil sands base plant, and its MacKay River and Firebag assets. Part of the above-noted "synergies" (whatever they are now estimated to be) will, as a result, be achieved through job cuts, particularly in HR, IT and other positions that already exist within Suncor and do not need duplicating at Syncrude. Suncor's estimate last November was that the synergies would help reduce Syncrude's overall cash operating costs to around $30 per barrel, relative to their previous level of $32 to $35 per barrel. This is a small reduction, but over a project producing more than 300,000 gross barrels a day, it adds up.
Further afield, the Lundin family's Africa Oil Corp. (AOI) added 15 cents to $1.89 on 754,500 shares. Another cheque has come in the mail from its 50-per-cent-owned Nigerian unit, Prime Oil and Gas, this time for $75-million (U.S.). Prime operates producing assets in Nigeria and provides its owners with irregular dividends out of this production (hence the cash today). It is the sole source, if an indirect source, of all of Africa Oil's current production. Africa Oil has yet to achieve this milestone at its other indirect or direct assets in Kenya, Ethiopia, Namibia, South Africa or (for a change of scenery) Guyana.
Prime did not come cheap, of course. Africa Oil took out substantial debt to cover the $520-million (U.S.) price tag when it bought its 50-per-cent interest in Prime in January, 2020. The dividends from Prime are thus partly earmarked for debt reduction. Thanks to today's $75-million (U.S.) payout, Africa Oil boasted that its remaining loan balance is just $23-million (U.S.). It also has $39-million (U.S.) cash. "I am delighted that we are now in a positive net cash position at [the] Africa Oil corporate level," cheered president and CEO Keith Hill.
Mr. Hill added that Africa Oil is "well positioned to deliver on its stated goal of shareholder capital return." The company has been dropping hints about this for several months, even promising last March to "consider instituting dividends in 2021," but with three months left in 2021, the promises and the time frame have both grown stretchier. The most recent presentation on Africa Oil's website talks of "look[ing] to institute dividend or share buybacks, subject to the necessary approvals," with no date mentioned. Shareholders have not seemed to mind. The stock has roughly doubled to $1.89 from about 90 cents over the last 11 months.
Elsewhere in Africa (and to a lesser extent Alberta), the mostly Egypt-focused TransGlobe Energy Corp. (TGL) added nine cents to $2.86 on 213,300 shares. During intraday trading, it briefly hit a high of $3.05, its first time above $3 since early 2019. It was trading at barely 50 cents this time last year. The rally started last December and has held strong ever since. The last six weeks have been particularly kind to the stock, adding almost a full dollar since mid-August.
TransGlobe tried to stir up more excitement with an operational update two days ago. It noted that its production in Egypt rose to 11,500 barrels a day in August, relative to just 10,700 barrels a day during the second quarter. This offset a production decline in Alberta to 2,000 barrels a day from 2,400. TransGlobe said not to worry; a fresh round of drilling in Alberta is starting early in the fourth quarter, or any day now.
As "exciting" as TransGlobe claims to find its Alberta assets, the country responsible for much of the stock's rally lately has been Egypt. The Egyptian government gave TransGlobe a much-needed boost last December when it agreed to extend and favourably modify the company's licences in its core Eastern Desert region. This agreement is, however, still awaiting official ratification by the Egyptian parliament. TransGlobe was originally expecting ratification in the spring of 2021. That did not happen, but that did not faze TransGlobe, as the agreement will be backdated to February, 2020, anyway. President and CEO Randy Neely reassured investors in August that the agreement is perfectly fine and is just caught up in the slow wheels of government.
The wheel is about to start turning again. In Wednesday's update, Mr. Neely said he is "excited ... [that] the Egyptian parliament [is] beginning its fall session in early October." Indeed, President Abdel Fattah El-Sisi recently officially invited parliament to convene next Tuesday, Oct. 5. It is still not clear when the lawmakers will get around to TransGlobe's ratification, but Mr. Neely has every confidence that this will happen "shortly."
© 2021 Canjex Publishing Ltd. All rights reserved.