Covid Variant and Oil PricesWTI and Brent oil currently down 10% this morning. Hell of a drop all considered... is it warranted or just an over-reaction to this new covid variant? At this point, we do not know and will only find out in a couple weeks once we see the impact of this variant on case counts and vaccines ability to fight off the variant to slow deaths/hospitilizations.
For CGX/Frontera, if oil does stay low, it means very little short and medium term in Guyana. Even a discovery in Kawa-1 would not see any meaningful production for likely another 5-10yrs.
On the other hand, lower oil prices will impact every other company producing hydrocarbons globally. Ironically, many companies have not see full realization of oil prices in 2021 due to hedges made in 3Q-4Q 2020 (many of which were necessary and required from banks/lenders). Even more ironically, many companies have not put many hedges in place for 2022 over the past couple months since they all believed oil would continue rising. Gotta love risk and reward of oil predictons.
What does all this mean for CGX/Frontera... well, if this new variant is legit and will cause more global distrubitions, oil will likely retreat and companies will not have a large excess of free cash flow. Because CGX/Frontera have not inked a final deal for a JV parnter (at least publically), any big discovery in Kawa-1 could be seriously muted if any JV parnter does not have the cash to pony up (or chooses not too with oil being lower again). Heck, even Frontera will not have 100s of millions to keep pumping into Guyana long-term (even with a Kawa-1 discovery) if oil goes down again for a meaningful amount of time.
Beauty of gambling... when it works, everyone praises. When it fails, everyone places blame. Right now, De Alba et al are gambling on multiple fronts with Kawa-1/Guyana and we shareholders are seeing the full brunt of it. The share price of $1.29 CAD definitely attests to this at the moment (something I guarantee 99% of all long (and even short-term) shareholders thought would not be happening literal days/weeks before TD... especially when CGX was at $2.20 back in late August)!.
Happy Friday!