Stockwatch Energy today
Energy Summary for Oct. 4, 2021
2021-10-04 20:06 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery added $1.74 to $77.62 on the New York Merc, while Brent for December added $1.98 to $81.26 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.97 to WTI, unchanged. Natural gas for November added 15 cents to $5.77. The TSX energy index added 2.94 points to close at 148.30.
Oil prices bounded higher as OPEC+ stuck to a policy to increase its production only gradually. Some countries, notably the United States, were putting pressure on the group to accelerate its production boosts, in a bid to control prices that have raced to their highest level in three years. At today's meeting, OPEC+ showed no sign of buckling. It put out a brief statement afterward to reaffirm its view of "current oil market fundamentals and the consensus on its outlook."
Here in Canada, Ottawa has officially invoked a 1977 treaty with the United States to begin government-to-government negotiations over Enbridge Inc.'s (ENB: $50.85) Line 5 pipeline. The treaty provides for the unimpeded flow of cross-border pipelines. It could ultimately force both countries into binding arbitration, if formal negotiations break down. The timeline for either process is unclear.
The invoking of the treaty comes almost a full year after the fate of Line 5 was thrown into jeopardy. In November, 2020, Michigan Governor Gretchen Whitmer ordered the pipeline to be shut down, despite its seven-decade-long history of safe operations in the Great Lakes and the fact that it supplies more than half of the heating needs of Ms. Whitmer's own state. It is also an important supply source for Wisconsin, Indiana, Ohio, Pennsylvania, Ontario and Quebec. Fortunately for consumers who like staying warm in the winter, Enbridge ignored the shutdown order, arguing that pipelines are a federal matter. The issue has been before the courts ever since. The Canadian government has come out in support of Line 5, and has asked the U.S. government to do the same, but the latter has stayed quiet, waiting for the courts to handle it. The treaty will force the White House to ignore the issue no longer.
This is the first time the treaty has been invoked, although it is not the first time that this particular White House has come under fire for its handling of a pipeline. TC Energy Corp. (TRP: $61.82) is currently pursuing a $15-billion (U.S.) NAFTA claim over its Keystone XL pipeline, which was killed by U.S. President Joe Biden earlier this year. The odds of success in both cases are debatable. The United States has never lost a NAFTA suit, and presumably does not intend to start with Keystone XL. As for Line 5, the newly launched treaty process has no immediate predecessor, but an article in the treaty says "appropriate governmental authorities" can restrict pipeline operations for "environmental protection" or "pipeline safety."
Within the oil patch, Paul Colborne's Surge Energy Inc. (SGY) added 11 cents to $5.38 on 1.2 million shares. It has agreed to buy the private, PFM Capital-backed Fire Sky Energy for $58-million in shares and assumed debt. Fire Sky is a Saskatchewan light oil producer with current output of about 1,500 barrels a day. It will boost Surge's production to 21,500 barrels a day, and is also Surge's second Saskatchewan acquisition in about two months, coming closely after the $160-million purchase of Astra Oil in August.
Investors are of mixed minds over Surge's new buying spree. Between the announcement of the Astra deal in June and the closing in August, the stock (adjusting for a 1-for-8.5 rollback in late August) fell to just $3 from nearly $6. It has since rallied to today's close of $5.38, buoyed by higher oil prices. Surge is counting on these to stay high and help it generate enough cash flow to repay its debt. Net debt was $292-million as of June 30, 2021 -- a sharp decrease from $376-million as of March 30, 2020, but a lofty figure nonetheless (its current market cap is $385-million). The Astra deal added another $15-million in debt and Fire Sky will add another $3-million.
Mr. Colborne, Surge's president and chief executive officer, has steadfastly insisted that the balance sheet is getting stronger than ever. Today he proclaimed that the Fire Sky acquisition "accelerates Surge's return to its traditional value-based shareholder returns business model, including the potential for reinstatement of a dividend." A dividend was one of the first things Mr. Colborne introduced when he came to Surge in 2013. He was so keen on it, in fact, that for years he did not take a salary, boasting that he was standing "shoulder to shoulder" with investors by enjoying dividend payments. Of course, as the downturn wore on and Surge's dividend was repeatedly slashed (and ultimately suspended in 2020), he quietly switched to a $415,000 annual salary in 2017. If a dividend returns, he will be a happy man. He controls over 913,000 of Surge's 71 million shares.
Further afield, Charle Gamba's Canacol Energy Ltd. (CNE) added 18 cents to $3.65 on 887,300 shares, pleasing investors with an update from Colombia. The San Marcos-1 exploration well has hit 105 feet of net gas pay. This is Canacol's fourth exploration well this year, but only its second successful one. Out of a planned 12-well drill program (including exploration, appraisal and development wells) nine wells are now finished and seven are successes, a satisfying ratio.
Canacol also cheered this morning that its gas sales in September averaged 200 million cubic feet a day (about 35,000 barrels of oil equivalent a day). This is the highest level since before COVID struck in early 2020. Canacol initially showed no concern about COVID, boasting that its sales (which had averaged 211 million cubic feet a day in January and February) were mostly linked to long-term contracts. It quickly decided, however, not to play hardball in a global pandemic. It relaxed some of the contracts and let sales dip as low as 130 million cubic feet a day in May, 2020. They have been steadily recovering since then, and are now back above 200 million for the first time in a year and a half.
Another Colombian operator, Jose Francisco Arata's New Stratus Energy Inc. (NSE), edged up 2.5 cents to 30 cents on 30,100 shares. Mr. Arata is the former president of Pacific Rubiales, a former Colombian high-flyer that spiralled into bankruptcy in 2016 and re-emerged as Frontera Energy Inc. (FEC: $7.77) in 2017. Mr. Arata had already left by then, announcing his retirement in 2015. That did not last long and he popped up at New Stratus in 2017. He currently serves as CEO and chairman. Now the board that he chairs is getting a new member. New Stratus announced on Friday after the close that Greg Bay is joining the company as a director.
Mr. Bay is a managing partner and founder of Cypress Capital, a Canadian money manager affiliated with AFG Management. Currently his only other active board seat is on Canadian oil junior Gear Energy Ltd. (GXE: $0.94). He was also on the board of Canadian logistics provider Mullen Group Ltd., but had to step down last year, as he had served for 15 years and had thus reached maximum tenure.
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