Stockwatch Energy today
Energy Summary for Dec. 21, 2021
2021-12-21 19:43 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added $2.89 to $71.12 on the New York Merc, while Brent for February added $2.46 to $73.98 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.70 to WTI, up from a discount of $15.05. Natural gas for January added four cents to $3.87. The TSX energy index added 5.92 points to close at 159.09.
Oil prices wobbled but ended the day higher. The morning brought further fretting about the COVID Omicron variant and its bearish implications for fuel demand. On the supply side, however, the bulls brightened as Libya declared force majeure on several export terminals, while preliminary U.S. data showed crude inventories falling for the fourth week in a row.
The most eye-catching commodity news came out of Europe. Russia has reversed the flow of what is normally a major source of Russian gas supplies heading into Europe, the Yamal pipeline. The reversal drew immediate accusations in Western Europe that Russia is deliberately withholding gas because of political tensions over a different Russian pipeline, the stalled Nord Stream 2. Russia has denied this and claimed that the decision is "purely commercial." With European gas markets already struggling with low storage heading into the winter, Russia's announcement pushed prices to record highs. The TTF gas benchmark got up to 149 euros per megawatt hour, the equivalent of about $50 (U.S.) per thousand cubic feet.
Within the international energy sector, Randy Neely's Egypt-focused TransGlobe Energy Corp. (TGL) shot up 50 cents to $3.80 on 233,900 shares. It has finally received formal ratification from the Egyptian government regarding its core oil assets in the Eastern Desert. Investors have been waiting for this for about seven months.
The initial announcement came a little over a year ago, when the government agreed to merge TransGlobe's Eastern Desert assets into one big concession, with an updated 15-year licence and better fiscal terms. The agreement was subject to formal ratification expected in April. Between this update and a rally in Brent prices, TransGlobe's stock spent late 2020 and early 2021 soaring to around $2 from 50 cents. When April came and went with no ratification, however, the stock spent months trading sideways. It jumped up past $3 in October as the Egyptian Parliament began its fall session. TransGlobe's president and CEO, Mr. Neely, faithfully predicted that ratification would occur by year-end. Today's announcement proved him right, with just a week and a half to spare.
A chipper Mr. Neely dubbed himself "thrilled" with the ratification. He also revived a different prediction, namely that TransGlobe will soon relaunch its dividend. The company was paying a 3.5-cent quarterly dividend until September, 2019. In January, 2021, fresh off the excitement of the Egyptian agreement, Mr. Neely spoke of "pav[ing] the way to resume dividend distributions in 2022." He then did not say another word about this (perhaps on edge as the Egyptian government dragged its feet months longer than expected). Today he felt confident enough to air the idea again, if a bit more cautiously, merely saying he "expect to revisit our dividend policy in 2022."
Another international producer, Paul Baay's Trinidad-focused Touchstone Exploration Ltd. (TXP), lost 18 cents to $1.60 on 1.02 million shares. It has completed the last of three production tests at its Royston-1 well on the Ortoire block. President and CEO Mr. Baay did his best to hype "indicated oil cuts [of] between 40 per cent and 60 per cent" and the "confirm[ation] that we have a long-term oil project." Of course, in non-promoter terms, this means that about half of the output in the latest test was water -- which is worse than useless, as it costs money to manage -- and that Royston is a "long-term" story rather than an overnight sensation.
Investors did not seem too surprised. As noted above, this was the third test. Royston previously gave investors a taste of an overnight sensation during the first test in November, when Touchstone gleefully reported that its first test had made an oil discovery, even though it had been expecting the prospect to be gassy. This was enough to send the stock soaring to $2.63 from $2.10 in one day. Alas, the excitement abruptly faded in early December, when the second test showed a dismayingly high water cut (about 90 per cent, compared with just 6 per cent in the first test). Today's third test, being not as bad as the second but not as good as the first, confirmed that water is going to be a challenge.
Although the results failed to impress the market, Touchstone retained a faithful cheerleader in Canaccord Genuity analyst Charlie Sharp. He proclaimed in a research note this morning that he found the latest test "very encouraging." Then he hastily reminded investors that these were all short-term tests anyway, and that long-term testing in 2022 will provide a better sense of the well's potential. He kept a "speculative buy" rating on Touchstone and reiterated his lofty price target of $3.40. A disclaimer at the bottom of the note disclosed that Mr. Sharp's employer, Canaccord, is a "market maker or liquidity provider" for Touchstone, which closed today at $1.60.
Here in Canada, Alberta gas producer Pine Cliff Energy Ltd. (PNE) added one cent to 63 cents on 237,300 shares, after announcing a $22-million acquisition. It is buying an unnamed private company in the Ghost Pine area. The assets are immediately east of Pine Cliff's existing Ghost Pine assets, and will boost its production by 1,900 barrels of oil equivalent a day (72 per cent gas) on the expected closing date of Dec. 31.
The acquisition marks a return to old habits for president and CEO Phil Hodge. He has long preferred dealmaking to drilling as a means of boosting Pine Cliff's production. Through nine acquisitions -- the new one will be No. 10 -- Pine Cliff has boosted its production to around 19,000 barrels a day from just 100 barrels a day since 2012. Lately it has been taking a breather to tend to its balance sheet, and has not closed a deal since May, 2019. In early 2021, with commodity prices heading up and its debt heading down, the company floated the idea of resuming its shopping spree. Mr. Hodge is doubtless pleased to be closing a deal just in time for 2022.
In recent months, Pine Cliff has also been enjoying support from a major shareholder. The stock has long been a sizable investment of Vancouver broker Robert Disbrow. He was a net seller of Pine Cliff in the summer and early fall, but since November, he has spent $662,000 buying a total of 992,500 shares. He now holds 37.8 million of the 339 million shares outstanding.
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