Stockwatch Energy today
Energy Summary for Jan. 4, 2022
2022-01-04 20:19 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added 91 cents to $76.99 on the New York Merc, while Brent for March added $1.02 to $80.00, settling in the $80 range for the first time since November (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.60 to WTI, unchanged. Natural gas for February lost 10 cents to $3.72. The TSX energy index added 5.98 points to close at 169.77.
Oil prices headed higher as OPEC+ stuck to its planned 400,000-barrel-a-day production increase for February. In a meeting today, the group signalled that it expects the COVID Omicron variant to have only a short-lived effect on global oil demand. "This is in addition to a steady economic outlook in both the advanced and emerging economies [around the world]," opined a report by the OPEC+ joint technical committee (seen by Reuters). The group will hold its next monthly meeting on Feb. 2.
Within the energy sector, Alberta gas producer Peyto Exploration & Development Corp. (PEY) took a peek above $10 in intraday trading, before settling up 52 cents to $9.97 on 1.25 million shares. President and chief executive officer Darren Gee rang in the new year by publishing his latest monthly letter to shareholders on Peyto's website. "We finished off the year with a bang at Peyto," he cheered, noting that production reached 102,000 barrels of oil equivalent a day. This means that the company achieved its goal of hitting 100,000 barrels a day by year-end.
Mr. Gee acknowledged that this milestone happened only on days when the weather co-operated. Across the province, wells and infrastructure struggled during the recent cold snap (a phenomenon known as a freeze-off), choking off as much as 1.5 billion cubic feet a day of gas deliveries to industrial users (such as oil sands companies). Exports would have been the next to go, with cuts to residential consumers being the last resort.
Although residential supplies were not affected, Mr. Gee still took the deep freeze as "a stark reminder of just how dependent we are on fossil fuels for our survival ... [against] life-threatening cold." He opined that Alberta is increasingly finding itself in a "rather scary" situation, with shrinking gas reserves, high demand and relatively flat production. "[We are] potentially becoming reliant on someone else for our survival, much like Europe," he fretted. He added that Europeans are currently paying about eight times more for their gas than Albertans. While Mr. Gee let these dire observations pass without further comment, presumably the outcome he would like to see is lots more investment in companies like Peyto, doing their part to push production higher.
Charle Gamba's Canacol Energy Ltd. (CNE), up seven cents to $3.28 on 345,900 shares, is another gas producer, but in Colombia. Today it patted itself on the back for achieving monthly gas sales in December of 183 million cubic feet a day (about 32,100 barrels of oil equivalent a day). This brings its full-year average to 182 million cubic feet a day, easily within the (admittedly forgiving) 2021 guidance of 153 million to 190 million cubic feet a day.
Mr. Gamba also provided a drilling update. One new development well is on production, and another is just about ready for spudding. After that, the company will drill its first exploration well of the year, Carambolo-1. The Carambolo prospect is northwest of the Toronja discovery that Canacol made in 2017. Investors are keen to see exploration success from Canacol in order to boost its reserve life index (RLI -- a measure of how long a company's existing reserves will last at its current production rate). Canacol last pegged its RLI at 9.2 years, whereas investors prefer 10 years or greater. The company tends to release its annual reserve report in late February to early March.
Back in Canada, one of the big gainers of the day was Michael Binnion's Questerre Energy Corp. (QEC), up nine cents to 32 cents on 1.94 million shares. It had no news to explain the jump. The explanation seems to have come all the way from Norway, where Questerre has no assets but has a long history of connections. Norwegian banker Peder Paus (and the Canadian Mr. Binnion) co-founded Questerre in 2000, serving as chairman until his retirement in 2015. Questerre is listed on the Oslo Stock Exchange and likes to do its financings in Norwegian kroner. Its assets remain in Alberta, where it has a bit of Montney production, and in Quebec, where -- despite two decades of effort -- it has no production whatsoever.
Yet it is the Quebec assets that seemingly continue to entrance Questerre's Norwegian backers. Today's jump came in the wake of a boosterish research note from Teodor Sveen-Nilsen, an analyst at Norwegian investment bank SpareBank1 Markets. Mr. Sveen-Nilsen focused on the Quebec government's recent decision to ban oil and gas development (as discussed in Stockwatch on Oct. 20). In the analyst's view, Questerre is entitled to significant compensation from the government. This happens to be a view with which the Quebec premier disagrees heartily, having stated last month that local oil and gas explorers deserve "as little compensation as possible." Mr. Sveen-Nilsen nonetheless upgraded Questerre's stock to "buy" from "neutral" and hiked his price target to four kroner from 1.5. The new target is the equivalent of 57 cents, well above today's close of 32 cents.
As noted above, Questerre likes to do its financings in Norwegian kroner -- and investors may wish to note that SpareBank1 has acted as a manager and bookrunner in these financings. It most recently helped Questerre raise the equivalent of $14.5-million at 38 cents a share in May, 2019. Questerre has not raised money since then and had just $1.6-million in working capital as of Sept. 30, potentially signalling that another financing is on the way -- barring, of course, the (unlikely) possibility that the Quebec government suddenly opens its wallet.
The possibility of a payout would be grand for more than Questerre. While most Quebec-focused explorers pulled out years ago, dumping the assets or folding themselves into other companies, there are still a few with a presence in the province. One is Alfred Sorensen's Pieridae Energy Ltd. (PEA), up 6.5 cents to 37.5 cents on 341,200 shares. It holds nearly half a million acres in Quebec as a result of acquiring Petrolia Inc. in 2017 in order to go public. Today Pieridae pays virtually no attention to Quebec, focusing on its gassy assets in Alberta and its up-in-the-air LNG (liquefied natural gas) ambitions in Nova Scotia. It still has the land, however, and may have thus have enjoyed some spillover benefits related to today's optimism about Questerre.
Pieridae also had a separate update. It has updated its loan agreement with its senior lender, averting a $50-million loan fee that was due today. The fee will now form part of an overall $206-million loan due in 2023. Presumably the lender is hoping for a good outcome to the "strategic review" that Pieridae launched in July (code for companies putting themselves up for sale). This followed Pieridae's failure to meet the June 30 deadline for its FID (final investment decision) on its proposed Nova Scotia LNG project. The company has been trying ever since to find joint venturers, financiers or other methods to "make an LNG project more compatible with the current environment."
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