Stockwatch Energy for yesterday
Energy Summary for Feb. 24, 2022
2022-02-24 19:55 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery added 71 cents to $92.81 on the New York Merc, while Brent for April added $2.24 to $99.08 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.10 to WTI, up from a discount of $12.65. Natural gas for March added 12 cents to $4.62. The TSX energy index added 1.19 points to close at 199.46.
Global oil prices briefly broke through $100 (U.S.) -- and then kept going, reaching an intraday high of $105.31 (U.S.), for one of the largest single-day jumps on record -- as Russia launched a military attack on Ukraine. Troops entered the country from three sides, attacking by land, air and sea. Ukrainian President Volodymyr Zelensky likened the assault to Nazi Germany's invasion of its neighbours during the Second World War. "If you don't help us now," he said in an appeal to international governments, "... tomorrow the war will knock on your door."
Many Western governments (including Canada's) have announced sanctions on Russia, largely targeting banks, state-owned enterprises and powerful oligarchs. There is as of yet little appetite for sanctions on Russian energy. Such a move would risk widespread economic damage within Europe, which relies on Russia for about 40 per cent of total gas supplies. Even so, "supply outages cannot be excluded," warned Commerzbank this morning. It pointed out that Russian producers could still find themselves indirectly constrained if sanctions severely affect financial institutions. To counter this, the United States and other countries are reportedly mulling a release of emergency petroleum reserves.
Meanwhile, Canadian companies are positioning themselves as more reliable sources of energy in the long term. "If you don't deal with your security-of-supply issue, you could see a scenario like [this] happening again ... A Canadian solution makes a lot of sense," James Millar, external relations director at Pieridae Energy Ltd. (PEA: $0.445), told the Financial Post. Pieridae is an Alberta gas producer that is trying to build a terminal in Nova Scotia to send LNG (liquefied natural gas) to Europe. Separately, president and chief executive officer Gary Guidry of Gran Tierra Energy Inc. (GTE: $1.83) went on BNN today to promote his company's oil production in Colombia, which it sells entirely into the export market.
Within the Canadian oil patch, Grant Fagerheim's Whitecap Resources Inc. (WCP) added three cents to $9.28 on 6.18 million shares, after releasing its year-end financials and announcing another dividend hike. This is the fourth dividend hike since early 2021. The monthly payout of three cents, up from 2.25 cents, represents a yield of 3.9 per cent. Whitecap emphasized that the annualized cost of the dividend ($226-million) is barely one-10th of this year's estimated cash flow. During a conference call this morning, president and CEO Mr. Fagerheim said the new dividend is "sustainable down to a stress-tested level of $45 (U.S.) WTI and below that for the foreseeable future."
As for the financials, they were generally as expected, seeing as Whitecap already provided a production update when it released its year-end reserves earlier this month. Output in the fourth quarter averaged 120,000 barrels a day. Cash flow came to 55 cents a share, exactly as analysts predicted. The company turned a quarterly profit of $223-million.
Turning to 2022, Mr. Fagerheim stated during the conference call that it is "shaping up to be another strong year." The company is in the middle of a busy first quarter program, with up to 12 active drill rigs. Mr. Fagerheim said Whitecap is sticking to its current full-year guidance of 130,000 to 132,000 barrels a day but will review this once it finishes the first quarter program. It will also pursue share buybacks and potential future dividend increases or special dividends.
Further afield, the Lundin family's Africa Oil Corp. (AOI) stayed unchanged at $2.68 on 5.03 million shares, holding on to the 41 cents it added yesterday on rumours of a large deepwater oil discovery off the coast of Namibia. Sources told Reuters yesterday that France's TotalEnergies, the operator of the offshore block 29133B, had made a large discovery at its Venus-1X exploration well. TotalEnergies confirmed today that the well hit a "very promising" 84 metres of net pay in a "good-quality" reservoir. Africa Oil put out its own press release to cheer the "major" and "significant" find. It has no direct interest in block 29133B, but it owns a 30.9-per-cent interest in a company Impact Oil & Gas, which owns a 20-per-cent interest in the block. (TotalEnergies owns 40 per cent and the rest is owned by Qatar Energy and Namibia's state-owned NAMCOR.)
This is the second deepwater discovery in Namibia's Orange basin in less than a month. On Feb. 4, Shell, Qatar Energy and NAMCOR said their Graff-1 exploration well had made a discovery of unspecified but "encouraging" size. Months of work remain to be done to get a sense of the economic feasibility of either discovery. That has not stopped the Namibian government from predicting that it could join the ranks of global oil producers as early as 2026. (More circumspect government officials may wish to remember the lessons learned in 2013, when a junior explorer found oil in the offshore Walvis basin -- north of the Orange basin -- kicking off a boisterous champagne-fuelled celebration with the former prime minister in the State House. Absolutely nothing came of the non-commercial find, and the junior left Namibia in 2015 with its head held low.)
Back in Canada, Stephen Loukas's Obsidian Energy Ltd. (OBE) added 33 cents to $11.03 on 1.76 million shares, after releasing its year-end financials. Like Whitecap's, they contained few surprises. Obsidian had already forecast fourth quarter production of 26,700 barrels a day and cash flow of about $1.09 a share. The actual figures came in mildly below that at 26,400 barrels a day and $1.04 a share, but investors shrugged it off. Obsidian turned a profit of $21.7-million for the quarter and brought its net debt down to $413-million as of Dec. 31 (compared with $467-million a year earlier).
Obsidian also enjoyed a lovely mention today from Stifel analyst Cody Kwong. In his first research note on the company, Mr. Kwong dubbed the stock "a compelling way to gain leverage to a constructive oil quote in the Canadian E&P [exploration and production] landscape." He sees "a myriad of operational catalysts ... [which] could stimulate new institutional shareholders that haven't been paying attention to this story for numerous years." (Perhaps they have been too busy licking their wounds. Obsidian's $11 share price has rallied remarkably from a low of just 20 cents in 2020, but even $11 is a long way down from where it traded "numerous years" ago. Adjusted for a 1-for-7 rollback in 2019, the stock was worth nearly $80 in 2014 and over $334 in 2006.)
In any case, Mr. Kwong gave Obsidian a "buy" rating and a price target of $14. Investors may wish to note that the analyst's employer, Stifel, does business with Obsidian. Most recently, Stifel was a lead agent for Obsidian's $25.9-million public equity offering at $4.40 in November.
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