Stockwatch Energy for yesterday
Energy Summary for March 29, 2022
2022-03-29 21:07 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost $1.72 to $104.24 on the New York Merc, while Brent for May lost $2.25 to $110.23 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.80 to WTI, up from a discount of $11.00. Natural gas for April lost 17 cents to $5.34. The TSX energy index lost a fraction to close at 223.67.
WTI oil prices fell briefly below $100 (U.S.) this morning, on signs of potential progress in peace talks between Russia and Ukraine, but then climbed back into the triple digits, as traders turned their attention to renewed COVID lockdowns in China. Russian and Ukrainian negotiators met today in Turkey for the first face-to-face discussions in nearly three weeks. "We still have a long way to go," warned Russia's chief negotiator in a subsequent interview with the TASS news agency. That and the Chinese jitters helped prices claw back some earlier losses.
Here in Canada, the spotlight was on the new climate change plan unveiled today by the federal government. The plan relies heavily on emission cuts from the oil and gas industry to ensure that the country can hit its overall targets for greenhouse gas emissions. Among other things, Ottawa wants to see the industry cut emissions by two-fifths by 2030. Prime Minister Justin Trudeau, speaking at a conference in Vancouver, said the government is "laying down a clear, reasonable contribution for the sector to make, so we can drive work forward on our commitment to cap and cut emissions."
Whether the industry would agree is up for debate. The desired emission level -- 110 million tonnes by 2030 -- is one that the industry has not seen in more than three decades. As for being "clear," the government later specified that 110 million tonnes will not necessarily be the emission cap, and for now is just a projection of what the government thinks might be possible. An actual cap is still in the planning stages. So are the details of incentives, particularly a carbon capture tax credit, to help the industry achieve the ambitious goals.
The reaction in the oil patch was circumspect. "We look forward to the consultation process," said the Canadian Association of Petroleum Producers, in a mostly bland statement (though it threw in a reference to the war in Europe and the risks of being "misaligned with the realities of energy demand, leading to increasing reliance on dictatorships"). Meanwhile, interim director Kendell Dilling of the Oil Sands Pathways to Net Zero Alliance said her group is reviewing the plan. "There are significant differences between [Ottawa's plan] and our plan," she added, "[but] it's clear we agree on the need to reduce emissions significantly by 2030, and that collaboration is essential." By "our plan" she was referring to the various goals of the above alliance, which comprises Canadian Natural Resources Ltd. (CNQ: $77.80), Imperial Oil Ltd. (IMO: $58.96), Suncor Energy Inc. (SU: $40.73), Cenovus Energy Inc. (CVE: $20.89), MEG Energy Corp. (MEG: $17.70) and ConocoPhillips Canada.
The other big energy news was still yesterday's $477-million takeover bid from Vermilion Energy Inc. (VET), down 63 cents to $26.57 on 5.82 million shares, for B.C. Montney junior Leucrotta Exploration Inc. (LXE), up one cent to $1.96 on 10.7 million shares. The deal attracted a flurry of analyst reactions today. "[Vermilion] is redefining its long-term runway," marvelled Raymond James analyst Jeremy McCrea, hiking his price target on the stock to $38 from $35. Meanwhile, ATB Capital's Patrick O'Rourke hiked his price target to $31 from $24, praising the "high-quality and opportunistic acquisition." Leucrotta got its own heaping of target upgrades from Mr. O'Rourke, Stifel's Robert Fitzmaryn and Acumen Capital's Trevor Reynold.
ATB's Mr. O'Rourke also speculated that Vermilion is not finished shopping yet. He said management has "strongly suggested" an interest in further acquisitions, most likely in Europe (where Vermilion gets over one-quarter of its current production). No doubt Mr. O'Rourke's employer, ATB, would be happy to help Vermilion with any dealmaking. A $7 boost to the previously below-market price target is certainly one way to make friends. Perhaps less worried about that is Stifel's Cody Kwong, who lowered his target to Vermilion to $33.50 from $34. He flagged the "perception of a generous purchase price, well licence concerns in the Blueberry River First Nation land (in B.C.), achievement of its net debt target pushed back, and 18 months of investment before meaningful FCF [free cash flow] will be achieved."
Further afield, Paul Baay's Trinidad-focused Touchstone Exploration Inc. (TXP) added 14 cents to $1.56 on 281,000 shares, more than regaining the six cents it lost yesterday after releasing its year-end financials. Investors liked them better on second glance. Full-year production of 1,300 barrels a day and cash flow of three U.S. cents a share were in line with analysts' predictions. The company also swung to a profit of $5.7-million (U.S.) in 2021 from a loss of $11.0-million (U.S.) in 2020, although in both years the figures were magnified by impairments and reversals.
Mr. Baay, president and chief executive officer, strove to keep the excitement going in an interview today with [paid promotional message] (an IR firm that Touchstone paid an undisclosed amount to publish the interview). "The two big takeaways were the positive earnings ... [and] the cash position," said Mr. Baay. He clarified that Touchstone had $18-million (U.S.) cash on hand at year-end. This "gets us the funding we need for our program," particularly at the not-yet-producing Ortoire block, which was originally supposed to start production in early 2020. Mr. Baay is optimistic that it will finally start in May. "I'm feeling confident," he proclaimed. "I know I've been saying that for 18 months," but the infrastructure is finally almost done and "the May date looks really solid." Over the longer term, he sees "a pretty clear runway to get to 30,000 [barrels a day] ... over a pretty short period of time."
Back in Alberta, the Gray family's Cardium-focused Petrus Resources Ltd. (PRQ) added 22 cents to $2.15 on 531,400 shares. It has been talking up its production and firming up a proposed rights offering. Production, as laid out in a new corporate update on Petrus's website, averaged 7,200 barrels a day in February, up from 7,000 in January (and from just 5,900 in the fourth quarter of 2021). Petrus is increasingly confident in its goal of hitting 9,000 to 9,500 barrels a day by the end of this year.
Petrus's largest shareholders seem particularly confident. The company is currently pursuing a $20-million rights offering -- and just has posted instructions on its website for current investors wishing to participate -- which will be fully backstopped by members of the Gray family. Don Gray is Petrus's founder and chairman (though he may be better known as the co-founder and former CEO of the above-mentioned Vermilion Energy Inc. (VET: $26.57)). Don Gray and two of his brothers, Stuart Gray and Glen Gray, together own 70.8 per cent of Petrus's 106 million shares. If no other shareholders exercise their rights and the three Gray brothers carry out the full backstop commitment, they will own 74.4 per cent. There is a fourth Gray brother, Ken Gray, who is not participating in the backstop. He is, however, deeply involved in Petrus, where he serves as president and CEO.
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