Stockwatch Energy today
Energy Summary for Jan. 10, 2022
2022-01-10 20:14 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery lost 67 cents to $78.23 on the New York Merc, while Brent for March lost 88 cents to $80.87 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.24 to WTI, down from a discount of $12.14. Natural gas for February added 16 cents to $4.08. The TSX energy index added a fraction to close at 177.63.
One of the surprise gainers of the day was Art Millholland's Canadian Overseas Petroleum Ltd. (XOP), up 25 cents to 59 cents on 1.11 million shares. This is the highest-volume day in its 17-year history. For most of that history, it leaned into the "Overseas" part of its name, exploring the U.K. North Sea, Liberia, Namibia, Mozambique, Nigeria and more. Today's excitement showed that the company did not have to travel nearly as far as it thought. The stock soared on news from right next door in Wyoming.
Specifically, Canadian Overseas Petroleum (which tends to go by the abbreviated name COPL) has made a "significant conventional light oil discovery" in the Powder River basin. Its new exploration well hit 140 feet of net reservoir sand across four intervals, with oil recovered from the bottom two. COPL noted that all four sands showed damage from drilling and casing. As such, "indicative flow rates were not achieved" -- meaning there are no test results for investors to look at -- but COPL claimed that it can estimate the size of the discovery at an impressive 1.5 billion to 1.9 billion barrels.
"Conventional light oil discoveries of this magnitude have been rare in continental North America for years, if not decades," marvelled president and chief executive officer Mr. Millholland. He reminded investors that COPL entered Wyoming barely a year ago through the $54-million (U.S.) takeover of Atomic Oil. Atomic was producing about 1,600 barrels a day at the time, and Mr. Millholland had vague, long-term ambitions of tripling this figure. Now he is gleefully envisioning production "on a scale many multiples greater than our original expectation."
Shareholders seemed intrigued, despite the lack of a test-worthy well. The move into Wyoming last year came at a time when shareholders were frustrated with COPL's seeming lack of any noteworthy wells whatsoever. The company's glory days were long behind it, coinciding roughly with Mr. Millholland's arrival in 2009 and his vow to recapture his earlier success in the North Sea. His former promotion, Oilexco, had been a high-flying North Sea explorer, though it ultimately collapsed into insolvency and was scooped up by Premier Oil in 2009. Undaunted, Mr. Millholland came to COPL (then Velo Energy) and tried to make another North Sea splash. This failed, and COPL left the North Sea in 2012. It then spent several years trying (and again failing) to become a producer in West Africa.
By the time COPL turned its focus to the U.S. in late 2020, hyping the Atomic acquisition as the deal that would finally turn it into a producer, shareholders were aloof. The stock stayed roughly where it had been since 2017: stuck at half a penny. The low price also reflected the many dilutive financings that COPL had completed to keep itself afloat, pushing its share count above nine billion. To try to boost its profile -- particularly with the new Wyoming assets performing "significantly ahead of expectation," according to Mr. Millholland -- the company conducted a 1-for-100 rollback in October, 2021. This pushed its share price to 50 cents. As is typical after such a large rollback, the stock barely halted its long slide, closing yesterday at just 34 cents. Adjusting for the 1-for-100 rollback and a separate 1-for-4 rollback in 2010, the stock was a fleeting shadow of its 2009 high of $348.
With today's jump to 59 cents, the stock is still a shadow of its former self, but it finally has some good press behind it. Mr. Millholland says he will waste no time "exploiting the discovery" with a follow-up drill of four horizontal wells "We look to the future with renewed confidence," he proclaimed. (The future will likely include a financing. Horizontal wells in this basin cost about $5-million to $9-million (U.S.), depending on lateral length. COPL had $6.4-million (U.S.) in working capital as of Sept. 30.)
Meanwhile, Randy Neely's Egypt- and Alberta-focused TransGlobe Energy Corp. (TGL) edged down 14 cents to $3.86 on 81,100 shares, after providing a quarterly operations update. The company pegged its average production for the fourth quarter of 2021 at 12,800 barrels of oil equivalent a day. This is down from 13,300 barrels a day in the third quarter, as new Canadian wells failed to offset declines in Egypt. TransGlobe shrugged this off and emphasized that it still easily met its full-year 2021 production guidance of 12,000 to 13,000 barrels a day (with the actual figure coming in at 12,900). "We are starting 2022 off on great footing," cheered president and CEO Mr. Neely.
A reliably friendly cheerleader agreed. In a research note this morning, Canaccord Genuity analyst Charlie Sharp hailed the "positive" update on TransGlobe's "excellent" operations. He also followed Mr. Neely's lead in dropping hints that TransGlobe will soon offer a dividend (a rumour that Mr. Neely has been stoking for a full year). Mr. Sharp reiterated his "buy" rating on TransGlobe and kept his price target at $5.50, relative to today's close of $3.86. Various disclaimers at the bottom of the note indicate that Mr. Sharp's employer, Canaccord, is a corporate broker and "market maker" for TransGlobe and also receives compensation from the company for investment banking services.
Another international operator, Gil Holzman and Colin Kinley's Eco (Atlantic) Oil & Gas Ltd. (EOG), added 1.5 cents to 39.5 cents on 190,000 shares. Today it proposed the "strategic acquisition" of Azinam Group, owner of offshore assets in Namibia and South Africa, in exchange for a 16.6-per-cent interest in the combined company. They expect to close the deal by the end of the month.
Azinam is one of the many energy units of the Seacrest Capital-backed Azimuth Group. (The others are Azinor, Azilat, Azeire, Azipac and -- for some reason -- OKEA.) It is already a familiar name to Eco's investors, as well as investors in Eco's largest shareholder, the Lundin promotion Africa Oil Corp. (AOI: $1.81). Eco farmed out some of its Namibian interests to Azinam in 2012. More recently, in 2019, Azinam farmed out a South African interest to Africa Oil. Then in 2020, fellow Lundin promotion Africa Energy Corp. (AFE: $0.265) -- which also counts Africa Oil as a major shareholder -- entered a separate joint venture with Azinam on a different South African asset, the high-profile block 2B. Eco's new deal to acquire Azinam will tighten these links even further.
The press release made no secret of the fact that the Lundins are at the centre of this web. "[We] welcome the stronger alignment with Africa Oil Corp and the broader Lundin Group," declared Mr. Holzman, Eco's co-founder and CEO. Africa Oil's CEO, Keith Hill, popped in to add that "Africa Oil is very supportive of this acquisition." Both of them drew special attention to block 2B. Investors may recall that when Africa Energy farmed out most of its 2B interest, Azinam became the operator, and was expected to drill the much-hyped Gazania exploration well in 2020 or 2021. It did not do so. The Lundins, seemingly keen to regain control of the timing, are now slotting in Eco as the operator, raising the odds that Gazania will finally get drilled in 2022.
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