Stockwatch Energy today
Energy Summary for Jan. 5, 2022
2022-01-05 20:22 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added 86 cents to $77.85 on the New York Merc, while Brent for March added 80 cents to $80.80 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.15 to WTI, up from a discount of $13.60. Natural gas for February added 16 cents to $3.88. The TSX energy index added a fraction to close at 170.60.
Oil prices headed higher as the U.S. government reported the sixth consecutive weekly decline in U.S. crude inventories. In another bullish sign, U.S. shale major Pioneer Natural Resources disclosed on EDGAR that it is unwinding virtually all of its hedges for 2022. Companies use hedges to lock in prices for some of their production and thus cushion themselves from sudden declines. By removing its hedges, Pioneer is betting that oil prices will continue to rise this year. It will have to pay about $328-million (U.S.) to unwind the contracts, but for perspective, its hedging losses -- essentially a wrong-way bet on prices -- tallied over $2-billion (U.S.) in the first three quarters of 2021.
Here in Canada, oil sands major Canadian Natural Resources Ltd. (CNQ) added 66 cents to $55.36 on 10.7 million shares. The stock is trading at the highest level in its more than 30-year history, surpassing 2014 and even 2008. Investors seem optimistic about the 2022 guidance that Canadian Natural plans to release next Tuesday, Jan. 11. It plans to stir up some extra hype by holding a conference call and webcast on the same day.
Separately, Canadian Natural received a lovely mention from the analysts at RBC Dominion Securities, in their new report entitled "Top 30 Global Ideas for 2022." Just seven TSX-listed stocks made the cut. Of those seven, Canadian Natural was the only oil and gas producer. "[Canadian Natural's] long-life, low-decline portfolio -- anchored by moderate sustaining capital -- affords the company with superior free cash flow generative power," proclaimed analyst Greg Pardy. He has an "outperform" rating on the stock and a price target of $60. This target represents just an 8-per-cent gain over today's closing price of $55.36, which is more muted than most of the others in the report, but Canadian Natural also pays a 58.75-cent quarterly dividend, for a generous yield of 4.2 per cent.
Two other stocks also basked in outside attention. Alex Verge's Journey Energy Inc. (JOY) added 13 cents to $3.04 on 1.17 million shares -- its first time above $3 in 2-1/2 years -- while Ed LaFehr's Baytex Energy Corp. (BTE) added five cents to $4.04 on a heavier-than-usual 17 million shares. Both seem to have benefited from a "BNN bump" given to them by Josh Young, co-founder chief investment officer of Bison Interests. He headed to BNN late yesterday afternoon to discuss oil markets and single out Journey and Baytex as his favourites.
Mr. Young proclaimed the world to be "in a new paradigm for oil." Simply translated, the new paradigm is a bull market. Even more simply, "things look great," chirped Mr. Young. He noted that crude inventories are falling, industry spending is "very muted versus historical," and the only thing investors need to do is "look at the fundamentals." He likes the fundamentals at Journey because it "screens very favourably" for free cash flow and does not have a wide audience in the market (today was the first day that its volume surpassed one million shares in nearly a year). As for Baytex, Mr. Young sees it potentially having "one of the highest valuations in the peer set," as it looks "really similar to some of the U.S. top-tier names, like an EOG [EOG Resources] or a Pioneer [the above-mentioned Pioneer Natural Resources]."
Mr. Young's name will already be familiar in some energy circles. About five years ago, his Bison Interests amassed over 19.1 million shares of an Alberta Montney junior called RMP Energy. Its overall cost base is not clear, but 6.7 million of the shares were acquired at an average of 64 cents each. The rest could have cost anywhere from 62 cents to $3.53. One hopes that Mr. Young stayed at the low end of the range, as RMP was trading at just 75 cents when he joined its board and became chairman in January, 2017. Over the following months, he helped RMP shed about $80-million worth of assets, change its name to Iron Bridge Resources and ultimately sell itself to the private Velvet Energy for 84.5 cents a share in September, 2018. (Velvet itself was acquired by Spartan Delta Corp. (SDE: $6.27) in August, 2021.)
Further afield, Randy Neely's Egypt-focused TransGlobe Energy Corp. (TGL) edged down six cents to $3.94 on 60,300 shares, giving back some of the 20 cents it added yesterday on a board update. The company is appointing Jennifer Kaufield as a director. She was most recently the chief financial officer and vice-president of finance at Titanium Corp. Inc., and before that held various financial roles at mining and technology firms such as Placer Dome and Catena Networks. TransGlobe chairman David Cook praised her "wealth of diversified experience." Ms. Kaufield will fill the seat of Steve Sinclair, a five-year director who plans to retire in May.
Another international producer, Serafino Iacono's NG Energy International Corp. (GASX), lost 30 cents to $1.90 on 739,100 shares. The drop is partly a correction, considering that it spent the past two weeks racing up to as high as $2.33 from just $1.77. Investors have been eagerly awaiting news on whether NG Energy has officially joined the club of Colombian gas producers. They got an update yesterday: almost, but not quite.
Specifically, CEO Mr. Iacono said NG Energy has laid the flow lines to connect its Maria Conchita gas block to the national grid, and is now "completing the consultation process with [local] communities." The company also needs to secure an amended environmental permit, and it needs to convert its letters of intent with its proposed customers into final take-or-pay contracts. The end result is that Mr. Iacono could not specify the exact timing of production (something he was originally predicting by the end of 2021). Ever the promoter, he simply wished investors a "happy new year," called 2021 "great" and predicted that 2022 will be "truly transformative."
Mr. Iacono is likely best known for his previous promotion, Pacific Rubiales, a Colombian oil producer where he was co-chairman from 2008 to 2016. During this period, the stock went from about $2 to over $35, and then all the way down to 38.5 cents and into bankruptcy. How investors feel about Mr. Iacono tends to align with when they got in or out of that stock. He moved on to NG Energy in 2017 (helped by an old friend, shell promoter Frank Giustra). Pacific Rubiales underwent a massive restructuring and has since re-emerged (without Mr. Iacono) as Frontera Energy Corp. (FEC: $9.93).
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