Stockwatch Energy today
nergy Summary for Nov. 2, 2021
2021-11-02 19:49 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery edged down 14 cents to $83.91 on the New York Merc, while Brent for January added one cent to $84.72 (all figures in this para U.S.). Western Canadian Select traded at a discount of $15.10 to WTI, unchanged. Natural gas for December added 35 cents to $5.54. The TSX energy index lost 2.72 points to close at 163.29.
Attendees of the COP26 United Stations climate forum were in for a surprise today. The summit that thrives on anti-fossil-fuel preaching surely did not expect someone to come and try to sell them some oil. Yet that is exactly the goal of Newfoundland Premier Andrew Furey, one of the Canadian delegates to the event (running from Oct. 31 to Nov. 12 in Scotland). Even as Prime Minister Justin Trudeau pledged ever-tighter restrictions on the oil and gas industry, Mr. Furey claimed that he himself is there to push the message that Canadian oil -- particularly Newfoundland oil -- really isn't all that bad.
"The world needs petroleum products right now," said Mr. Furey in an interview from Glasgow today with the CBC. "And we have some of the best in the world. And we need to make sure that the world understands the product that we have." He was referring to Newfoundland's offshore oil industry, which contributes about 20 per cent of the province's GDP. "We need, as Newfoundlanders and Labradorians, to exercise that value while it's still valuable, and understand that it's not going to be valuable forever," said Mr. Furey. Even with the implied acknowledgement that production will wind down eventually -- and even with the province's existing commitment to net zero emissions by 2050 -- Mr. Furey's remarks are unlikely to endear him to many at the conference. Perhaps next he will peddle pipelines at the People's Summit for Climate Justice, happening alongside COP26 from Nov. 7 to 9.
Here in Canada, Paul Colborne's Surge Energy Inc. (SGY) lost nine cents to $5.17 on 868,200 shares, after closing its $58-million takeover of Fire Sky Energy. Fire Sky was a Saskatchewan light oil producer with output of about 1,500 barrels of oil equivalent a day. It pushed Surge's production up to 21,500 barrels a day, and is also Surge's second Saskatchewan acquisition in about two months, following the $160-million purchase of Astra Oil in August. Both deals mostly involved stock. Adjusting for a 1-for-8.5 rollback that Surge completed in August (before the Fire Sky deal but after the Astra one), Surge's share count has nearly doubled to 83 million from 44 million.
Mr. Colborne, Surge's president and chief executive officer, has repeatedly hinted that shareholders will soon have a reward to distract them from the dilution. When he announced the Fire Sky deal a month ago, and again when he promoted it on BNN a few days later, he claimed that the recent shopping spree "accelerates Surge's return to its traditional value-based shareholder returns business model, including the potential for a dividend." (Surge suspended its dividend in April, 2020.) Interestingly, today's press release contained no repeat of this claim. Mr. Colborne may have more to say when Surge releases its third quarter financials tomorrow.
Gary Guidry's Colombian oil producer, Gran Tierra Energy Inc. (GTE), lost 10 cents to $1.14 on 5.91 million shares, after it released its third quarter financials last night. The financials themselves contained few surprises, considering that Gran Tierra already told investors last month that its quarterly production was 29,000 barrels of oil equivalent a day. Yet they were overshadowed by news of yet another operational setback and guidance reduction.
Gran Tierra has suffered a string of these setbacks since 2019. Some of them were internal (such as pump failures at a key asset), while others were external (such as road blockades caused by local anti-government protesters). To put the problems in context, Gran Tierra entered 2019 producing over 40,000 barrels a day, yet its average output in 2020 was just 22,000 barrels a day. It swore that it would bounce back in 2021 and produce a relatively healthy 28,000 to 30,000 barrels a day. Already it has had to reduce this target once, to a range of 27,500 to 28,500 barrels a day, blaming those agitable anti-government protesters. Now, for the same given reason -- those pesky blockaders -- Gran Tierra has cut the guidance again, by a full 1,000 barrels a day. The 2021 production hype machine is out of commission.
Fortunately for president and CEO Mr. Guidry, high oil prices are picking up most of the slack, allowing him to keep the focus on Gran Tierra's rising revenue and free cash flow. "We are very excited about the remainder of 2021 and all of 2022," declared Mr. Guidry. He added that Gran Tierra is using the cash to pursue a "capital allocation strategy" that is currently prioritizing debt reduction. Long-term debt has fallen to $735-million (U.S.) from $774-million (U.S.) since the start of the year. During a conference call this morning, management was asked when it might start considering dividends or share buybacks. Chief financial officer Ryan Ellson, while not explicitly committing to either of those options, said Gran Tierra would need to get its debt to $500-million (U.S.) or lower, and expects to do just that in 2022.
Meanwhile, the Lundin family's International Petroleum Corp. (IPCO) edged down two cents to $7.18 on 63,900 shares, after it too released its third quarter financials. These were accompanied by the second increase to its production guidance in three months. Production in the third quarter averaged 46,800 barrels a day, exceeding International Petroleum's full-year guidance of 44,000 barrels a day, which was initially set at 41,000 to 43,000 barrels a day until the company increased it in August. The company now says it will produce a full-year average of at least 46,000 barrels a day.
Investors did not seem surprised. The original guidance, set in February, was markedly cautious, though International Petroleum injected hints of ambition by talking up the potential for share buybacks, asset acquisitions or even dividends. (The company was previously an acquisitive shopper, spending $1.3-billion buying assets in Canada from 2018 to 2020.) Today it finally made a move on one of those three fronts. Hyping "record high" free cash flow of $77-million (U.S.) in the third quarter, International Petroleum announced that it wants to buy back up to 10.8 million of its shares, or 7 per cent of those outstanding. It might have been hoping for a better reaction to the news than a mild drop in its share price. Even so, recent shareholders still have plenty of reason for satisfaction. The stock has climbed to over $7 from barely $5 since mid-August.
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