Stockwatch Energy today
Energy Summary for Feb. 1, 2022
2022-02-01 20:11 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery edged up five cents to $88.20 on the New York Merc, while Brent for April lost 10 cents to $89.16 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.00 to WTI, unchanged. Natural gas for March lost 12 cents to $4.75. The TSX energy index added 6.86 points to close at 199.72.
Oil sands producer Imperial Oil Ltd. (IMO) added $2.79 to $54.80 on 3.25 million shares, after kicking off the fourth quarter reporting season in the Canadian oil patch. Unlike Chevron, which was the first to publish its results on the U.S. side of the border and saw them come in below expectations last Friday, Imperial did Canadians proud. Production and profits were largely in line with analysts' predictions, while cash flow was slightly higher. Imperial also hiked its quarterly dividend to 34 cents from 27 cents. The new yield is 2.5 per cent.
On a full-year basis, Imperial's net income of $2.47-billion in 2021 was its highest profit in over 30 years, and a sharp turnaround from its loss of $1.85-billion in 2020. The 2020 loss reflected over $1.1-billion in impairment charges related to non-oil-sands assets (which Imperial is now trying to sell). On a fourth quarter basis, profit came to $1.35 a share, mildly behind analysts' predictions of $1.37 a share. Production of 445,000 barrels a day matched analysts' predictions, while cash flow of $2.39 a share was nicely above predictions of $2.27 a share.
One surprise in the update was the omission of a special buyback program. Imperial already had a regular buyback program, allowing it to purchase 35 million shares from June, 2021, to June, 2022. In November, 2021, chairman and chief executive officer Brad Corson vowed that Imperial would finish buying back all of those shares by the end of January. He confirmed today that Imperial did just that. Given that Imperial cannot renew the regular program until June, investors and analysts were expecting it to announce a special program alongside today's financials. It did not. "We are quite surprised by this," wrote the quite surprised TD analyst Menno Hulshof in a research note this morning. As a result, despite the better-than-expected financials, he gave the announcement a rating of "mixed" and left his price target at $52. The market was more upbeat and sent the stock up to a close of $54.80.
Even more upbeat were shareholders of CGX Energy Inc. (OYL), up 84 cents to $3.68 on 4.74 million shares, and Frontera Energy Corp. (FEC), up $2.23 to $12.85 on 1.39 million shares. The two of them have made a potentially large oil discovery off the coast of Guyana. Their Kawa-1 exploration well at the Corentyne block has hit 54 metres of hydrocarbon-bearing reservoirs in three formations.
The above is based on early-stage logging data, with much work still to be done before CGX and Frontera can determine the size of the discovery or whether it is commercially viable. This has not stopped a cacophony of anonymous on-line chatter predicting that the companies are sitting on anywhere from 750 million to six billion barrels. Both companies are certainly overflowing with adjectives. Today's joint press release hyped the "successful," "positive," "significant," "important" and "potentially transformational" result. Management also made sure to stir up some area excitement, pointing to Corentyne's more developed neighbour, the Exxon-operated Stabroek block. (Exxon has made over 20 commercial discoveries at Stabroek since 2015 and has had only three dusters, hence the enthusiasm about CGX and Frontera's work next door.)
The encouraging (if preliminary) update comes at a particularly good time for CGX, which is fast running out of cash. It last raised $73.6-million in a rights offering in November (with Frontera being almost the sole participant). In December, executive co-chairman Suresh Narine fretted that the drilling of Kawa-1 was taking longer than expected, in turn driving up the cost. "CGX may be required to seek additional financing," he warned. In the new update, he dropped the "may," telling investors that CGX is "assessing several strategic opportunities to obtain additional financing to meet the costs of the longer-than-expected drilling program." He promised to provide an update on costs and further exploration results toward the end of the month.
Back in Canada, Michael Binnion's Questerre Energy Corp. (QEC) edged down half a cent to 33 cents on 52,300 shares, after indulging in a bit of cage-rattling in Quebec. More specifically, it announced that it is commissioning a study on a new well completion technique to replace fracking. "We hope to apply to complete two wells in Quebec to prove the efficacy of this new approach," said president and CEO Mr. Binnion. He is, of course, perfectly aware that the Quebec government will not want this whatsoever. Yet in a separate manouevre last month, he all but dared Quebec to stop him.
The face-off began in earnest on Jan. 20. Questerre had already been in Quebec for two decades trying to develop its sizable gas resources, but the provincial government played hot and cold for years, ultimately announcing an outright ban on exploration and development last October. This was effectively a revocation of assets that numerous companies (including Questerre) had worked on for years. Premier Francois Legault expressed little interest in compensating those companies, stating in December that they deserved "as little compensation as possible." He was (one hopes) quite taken aback when Questerre found a creative response on Jan. 20, announcing a joint venture with the local Wolinak of Abenaki First Nation, which might allow development on its traditional land. This idea also received the support of the Indian Resource Council of Canada. All of this puts the premier in the unenviable position of either softening the ban or enforcing it against the express economic wishes of indigenous groups.
Today's announcement tightens the screws. Questerre, ever so obligingly, would like to find a less controversial completion method for its potential wells than fracking, seeing as Quebec's main Utica shale is naturally fractured anyway. It is thus commissioning a report on a potential new method. The author of the report will be none other than Maurice Dusseault, a distinguished engineering geology professor who happens to have worked with the Quebec government on various environmental assessments. "With new clean technologies and innovation to responsibly produce and use energy, [Questerre] can sustain both human progress and [the] natural environment," proclaimed Mr. Binnion. In other words, your move, Mr. Legault.
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