Stockwatch Energy today
Energy Summary for Dec. 20, 2021
2021-12-20 20:08 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost $2.63 to $68.23 on the New York Merc, while Brent for February lost $2.00 to $71.52 (all figures in this para U.S.). Western Canadian Select traded at a discount of $15.05 to WTI, up from a discount of $17.40. Natural gas for January added 14 cents to $3.83. The TSX energy index added a fraction to close at 153.17.
Oil prices tumbled as the COVID Omicron variant raged. The Netherlands went into lockdown yesterday, while Denmark and Ireland imposed new restrictions and other European countries considered the same. The U.S. government vowed to announce "new steps" in response to the pandemic tomorrow. Here in Canada, the provincial government Quebec is reintroducing strict public health measures, including the closures of bars, theatres and entertainment venues.
The staunchest oil bulls remained undaunted. In a research note over the weekend, senior analyst Edward Moya of New York brokerage OANDA mused, "COVID news may continue to be a drag for oil prices for the rest of the year, but prospects of $100 (U.S.) oil at some point next year will lead to some buying on every critical support level." His comments echoed those of Damien Courvalin, head of energy research at Goldman Sachs, who on Friday predicted that oil prices could hit triple digits in late 2022 or 2023.
Within the energy sector, Gabriel de Alba's Frontera Energy Corp. (FEC) added 40 cents to $8.45 on 2.09 million shares, shaking off any oil price blues with a cluster of news from Colombia. The company currently produces about 40,000 barrels of oil equivalent a day, most of which is oil. Now it is expanding its gas output through the takeover of Petroleos Sud Americanos (PetroSud). Frontera has also won a new asset in Colombia through the government's most recent block auction.
The PetroSud purchase got top billing. The target is producing 1,300 barrels a day, but Frontera is aiming to boost this 2,000 to 3,000 barrels a day in 2022 to 2024 (though this would still be short of the pre-COVID production of 3,500 barrels a day, which Frontera opted not to mention). The price tag is $9-million (U.S.) cash and the assumption of $18-million (U.S.) in debt.
Two-thirds of PetroSud's production is gas. Frontera seems particularly interested in PetroSud's El Dificil field, which is just north of Frontera's existing gassy assets at the VIM-22 block, the VIM-1 block and the La Creciente field. This "emerging core area" will benefit from PetroSud's production and infrastructure, cheered chief executive officer Orlando Cabrele. He added that Frontera will in turn benefit from being able to "commercialize recent gas discoveries ... in a very competitive market."
("Very competitive" seems to be his way of describing a market that is trying to avert a full-blown crisis. Colombia's main domestic gas supplies come from a mature complex of state-operated fields, which are more than 40 years old and are declining rapidly. According to Canacol Energy Ltd. (CNE: $3.12), the largest independent gas producer in the country, Colombia's proved gas reserves are falling at about 7 per cent annually, while demand is increasing by 3 per cent annually. This implies that the country is at risk of running out of reserves in about 7-1/2 years. The looming shortage means that Colombian gas prices tend to hover well above North American counterparts, drawing increasing attention from companies such as Frontera.)
This gassy gusto is also behind Frontera's participation in Colombia's latest block auction. The company announced today that it is the preliminary winner of the VIM-46 block, which is southwest of PetroSud's El Dificil block and is sandwiched between La Creciente and VIM-22. Mr. Cabrele reiterated his comment about this being an "emerging core area" for Frontera. He noted that Frontera is eager to explore its new asset, but did not set a timeline. It may be waiting until the government finalizes the award. The same may be true of other companies that participated in the auction, including Canacol and Parex Resources Ltd. (PXT) (the latter of which says on its website that it bid on and preliminarily won 18 of the 30 auctioned blocks).
Here in Canada, Jim Riddell's Alberta Montney and Duvernay producer, Paramount Resources Ltd. (POU), added 35 cents to $21.73 on 534,800 shares. It got a lovely mention on Friday from Moody's Investors Service. The credit rating agency upgraded Paramount to B1 from B2 (still in junk territory, but a nicer neighbourhood) and reiterated a "positive" outlook. "The upgrade ... reflects the significant amount of debt repayment from free cash flow that has led to strong leverage metrics and an improved liquidity profile in 2021," wrote Moody's analyst Paresh Chari.
Paramount has reduced its net debt to $576-million as of Sept. 30 from $854-million at the start of the year. Its confidence in its improving balance sheet led it to unveil a two-cent monthly dividend in June, later tripling this to a six-cent monthly dividend in November. The current yield is 3.3 per cent. Investors seemed pleased; the stock, at $21.73, has quintupled from about $4.25 over the last year. It is still a long way down from its 2014 high of $66. In the update from Moody's, Mr. Charesh hinted at Paramount's uncomfortable past, noting its "history of a negative free cash flow and challenged liquidity profile."
Elsewhere in Alberta, Tony Marino's new promotion, Tenaz Energy Corp. (TNZ), stayed unchanged at 27.5 cents on 415,000 shares. It closed a $1.8-million rights offering on Friday after the close. This is one of the last steps in a recapitalization that has been in progress since August, carried out by a brand new board and management, including Mr. Marino as president and CEO (positions he formerly held at Vermilion Energy Inc. (VET: $14.06)).
Through various financings since August, Tenaz has raised over $31-million, issuing about 175 million new shares in the process (with Mr. Marino picking up 9.2 million of the shares for a total of $1.6-million). It now has 283 million shares outstanding. Friday's announcement noted that Tenaz will conduct a 1-for-10 rollback on Dec. 23 and reduce the share count to 28 million.
It is unlikely to stay this trim for long. Mr. Marino has stated repeatedly that he is taking Tenaz shopping for "international oil and gas assets capable of returning free cash flow to shareholders." He seems less interested in developing Altura's existing Alberta assets and their production of a ho-hum 1,000 barrels a day. Investors were initially hoping to see an international deal announced by Christmas, but this is looking less and less likely. Mr. Marino has played coy about his timeline, merely saying he wants to build a "leading intermediate-sized [company] over the next few years." The intermediate range is broadly considered to be 10,000 to 100,000 barrels a day.
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