Stockwatch Energy today
Energy Summary for Feb. 4, 2022
2022-02-04 20:06 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added $2.04 to $92.31 on the New York Merc, while Brent for April added $2.16 to $93.27 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.58 to WTI, down from a discount of $13.33. Natural gas for March lost 32 cents to $4.57. The TSX energy index added 1.17 points to close at 201.09.
The Canadian government has re-entered the legal fray over Enbridge Inc.'s (ENB: $54.72) Line 5, once again asking a U.S. court to stop the governor of Michigan from shutting the pipeline down. The latest court filings include an amicus brief from Ottawa that argues against shutting down the line while talks are in progress between Canada and the United States.
This is not the first time Ottawa has sided with Enbridge over Line 5. In May of last year, the government filed an amicus brief reminding all parties of a 1977 treaty that (in its view) guarantees the unimpeded flow of oil and gas across the Canadian-U.S. border. It invoked the dispute resolution process under this treaty in October. This is why cross-border negotiations are now in progress, and is part of why Ottawa has now filed its latest amicus brief -- that, and the matter is now in a different court. It was previously in a U.S. federal court. Michigan Governor Gretchen Whitmer wanted it to be in a state court, and when a judge disagreed with her in December, her side simply dropped the federal suit and pivoted to a carbon-copy version at the state level. The legal jockeying necessitated new filings, even if many of the arguments are virtually identical.
Enbridge is trying to get the case moved back up to federal court. Its argument from the beginning, ever since Ms. Whitmer ordered a shutdown of the pipeline in 2020, has been that pipelines are a federal matter. It has continued to operate Line 5 despite Ms. Whitmer's order. She in turn has threatened to seize any profits that the company makes from running the line. The position of the Canadian government, as laid out in the new amicus brief, is that the court should take no action while treaty talks remain in progress.
Further afield, Wayne Foo's Colombian oil producer, Parex Resources Inc. (PXT), lost $1.36 to $27.02 on 1.44 million shares. The drop came in spite of higher oil prices and a new reserve report -- plus a dividend increase -- that Parex announced last night. Given that the stock spent the last two weeks adding more than $4.25, a pullback on actual news is not especially surprising.
President and chief executive officer Imad Mohsen kept the tone bright. "With an industry-leading balance sheet, a plan to return meaningful capital to shareholders and a reserve life index exceeding 10 years, Parex is extremely well positioned to generate shareholder value," he declared. He quickly noted that Parex is increasing its quarterly dividend to 14 cents from 12.5 cents, for a yield of 2.1 per cent. (Investors may have been hoping for a slightly larger bump, given that the implied yield was 2.4 per cent when Parex launched the dividend last summer.) In addition, Mr. Mohsen praised Parex for increasing its proved and probable reserves to 198.8 million barrels as of Dec. 31, 2021, from 194.4 million barrels a year earlier (though again, investors may have been hoping for something slightly more impressive). The company is planning an ambitious exploration program this year to boost reserves even further.
Back in Canada, Brian Schmidt's Tamarack Valley Energy Ltd. (TVE) edged up five cents to $5.12 on 61.7 million shares, regaining some of the eight cents it lost yesterday after arranging a $200-million debt financing. The debt is in the form of "sustainability-linked" notes. One of the hallmarks of these kinds of notes is a punitive increase in the interest rate if the issuer fails to achieve sustainability-based goals. In Tamarack's case, the coupon attached to the five-year notes is 7.25 per cent, but it will rise by as much as 100 basis points if the company does not meet targets related to emissions and indigenous work force participation.
This looks to be the first sustainability-linked bond (SLB) financing of any Canadian oil and gas producer. In general, the popularity of SLBs has been rising since 2020, although opinions remain mixed. Proponents say SLBs encourage social and environmental responsibility while allowing a broader mix of projects to secure financing. (By contrast, stricter "green" bonds require all or part of the proceeds to go toward clean tech, renewable energy or other projects specifically designated green.) Yet skeptics argue that SLBs can be little more than greenwashing. The targets can be narrow or riddled with loopholes, rendering the punitive interest rate pointless, while issuers get a lower-interest "green-ium" in the meantime. (When Telus sold $750-million of SLBs last year, its borrowing cost was an estimated six basis points better than if it had sold conventional debt.)
Tamarack would no doubt put itself in the proponents' camp. It already trumpeted its "transition to sustainability-linked lending" in December, and now it is venturing into SLBs. President and CEO Mr. Schmidt said the proceeds will go in part toward the acquisition of Crestwynd Exploration, a private Alberta Clearwater producer that accepted a takeover offer from Tamarack in December. Shareholders now know why Tamarack spent a good chunk of that press release talking up Crestwynd's "attractive environmental and ESG [environmental, social and governance] profile." The companies are aiming to close the $184-million takeover by Feb. 15.
Elsewhere in Alberta, Darren Gee's gassy Peyto Exploration & Development Corp. (PEY) added seven cents to $10.52 on 1.28 million shares. CEO Mr. Gee has published his latest monthly letter to shareholders on Peyto's website. As usual, he included an update on the company's spending and production. Full-year spending in 2021 came to $365-million, somewhat higher than the budgeted $350-million, but this reflected a busy fourth quarter. Peyto was able to boost its fourth quarter production to an average of 99,000 barrels a day (up from 89,000 in the third quarter). So far this year, production is doing even better at 101,000 barrels a day.
Also as usual, Mr. Gee took readers on a swinging journey from one train of thought to the next. He discussed the Russian-orchestrated European energy crisis and how it is "comforting to know that [Canada is] not dependent on a foreign entity for our survival." Then he intoned, "At least, not yet," and criticized governments for "continu[ing] to demonize our oil and gas sector." Then he brightened and exclaimed that in his 21 years at Peyto, he has never seen so many wells reach their payout threshold so quickly. "Faster payouts mean more capital can be either deployed into new drilling or paid back to shareholders," he noted cheerily, adding that these are "all good things as we enter 2022." Investors seem to agree with that part. At $10.52, Peyto's stock has more than doubled from $4.50 over the last year, and its five-cent dividend, which was hiked from just one cent in December, represents a yield of 1.9 per cent.
© 2022 Canjex Publishing Ltd. All rights reserved.