Stockwatch Energy today
Energy Summary for April 14, 2022
2022-04-14 20:20 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery added $2.70 to $106.95 on the New York Merc, while Brent for June added $2.92 to $111.70, notching a weekly gain for the first time in four weeks (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.00 to WTI, down from a discount of $12.66. Natural gas for May added 30 cents to $7.30. The TSX energy index added 2.34 points to close at 237.76.
The government of Quebec has passed Bill 21, banning all oil and gas exploration and extraction in the province. It is the first jurisdiction in the world to explicitly renounce hydrocarbon development. The bill will come into force after the government finalizes associated regulations, including a proposed compensation scheme that would see just $100-million provided to companies for their expropriated permits.
This is a fraction of the $500-million they were seeking and will not come close to covering decades of expenses. Past provincial governments welcomed explorers into Quebec in the 1990s and 2000s, celebrating when they found enough resources in 2008 to theoretically power the province for a century. Then successive governments blew hot and cold for years. The situation iced over last year, when the current government vowed to enact an outright ban. Not even the current wartime energy crisis in Europe has changed its mind. Nor has it veered from its position that (in the words of Premier Francois Legault) it should pay "as little compensation as possible."
One of many critics of the bill is Michael Binnion's Questerre Energy Corp. (QEC), down one cent to 25 cents on 149,600 shares. Questerre has poured at least $175-million into Quebec over the decades. "We are incredibly disappointed that the government has chosen to proceed with this legislation," stated its president and chief executive officer, Mr. Binnion, in reaction to the passage of Bill 21. He noted that Quebec is choosing to remain dependent on imports, while "missing an important opportunity ... to [help] provide secure reliable energy for our European allies." Further, he said the law does nothing to reduce greenhouse gas emissions and was undertaken without proper consultation, including with indigenous groups.
Speaking of indigenous groups, Mr. Binnion reminded investors that Questerre has a joint venture with the Wolinak of Abenaki First Nation, which says the company can explore its traditional lands in the Becancour area. The agreement will test the government's mettle for enforcing Bill 21 if that means directly undercutting indigenous economic opportunities. The government has responded so far by avoiding the issue altogether. If it continues to do so, "the [Wolenak Abenaki] Council will have no choice but to proceed with its claim by obtaining an ancestral aboriginal title," said Mr. Binnion. He added that Questerre will also be "assessing our legal options to preserve the rights of our shareholders." In other words, Questerre is not going down without a fight.
Over in Alberta, oil sands producer MEG Energy Corp. (MEG) added 29 cents to $18.22 on 4.98 million shares, closing out a short but volatile week. Investors are wondering what to make of rumours surrounding one of MEG's major shareholders. That would be China's CNOOC, a sizable investor in MEG since 2005. Reuters and other news sources began reporting this week that CNOOC is considering exiting its operations in Canada, including its oil sands assets and potentially the MEG investment, amid fears of sanctions relating to the Russia-Ukraine war. China has refused to condemn Russia for invading Ukraine, adding to already strained relations between China and the West.
CNOOC has not confirmed the rumours. The potential sales come as CNOOC pursues a listing on the Shanghai Stock Exchange, having previously lost its NYSE listing last year as part of a U.S. government crackdown on companies associated with the "Chinese military-industrial complex." This also led CNOOC to delist its American depositary shares from the TSX. Last month, Chinese regulators gave CNOOC the all-clear for a homecoming listing in Shanghai (in addition to its Hong Kong listing), and this week, the company revealed that it is planning an initial public offering for more than $5-billion (U.S.). Its name in the headlines coincided with the rumours that it is preparing to unload its Canadian assets (and its U.S. and U.K. ones too).
CNOOC's Canadian presence includes ownership of 28.6 million shares of MEG, or 9.3 per cent of the 307 million shares outstanding. It started acquiring shares of MEG in 2005 (representing the very first time a Chinese company had taken an interest in a Canadian oil sands producer) and owned all 28.6 million shares by the time MEG went public in 2010. As MEG was private before then, the exact amount that CNOOC paid for its shares is not entirely clear, but documents reveal that it bought the vast majority of them -- 25.0 million shares -- for a total of $425.1-million. The full position of 28.6 million shares is currently worth $486-million.
Worth noting is that MEG announced last month that it has received TSX approval to buy back up to 27.2 million shares over 12 months. Investors seem confident that MEG can use this program to offset potential selling pressure. Today the stock closed at $18 for the first time all month.
Further afield, Richard Gonzalez's Brazilian oil junior, Petro-Victory Energy Corp. (VRY), marched up 55 cents to $3.10 on 19,800 shares. It has secured 19 new blocks in the core Potiguar basin through a national block auction. The new assets will double its block count to 38 and give it "one of the largest portfolios in Brazil's most prolific onshore basin," it cheered.
The "onshore" qualifier is important. Brazil currently produces about three million barrels of oil a day, the vast majority of which is offshore. The Portiguar basin, hailed today as the "most prolific onshore basin," is currently producing just 32,000 barrels a day. The basin has spent most of its history under the thumb of the state-controlled Petrobras. The hope is that opening it up to the private sector will boost investment and production.
Petro-Victory is keen to do just that. It is hoping for better luck in Brazil than it had in its first choice of country, Paraguay. (CEO Mr. Gonzalez, in addition to being the son of a former professional soccer player for Paraguay, is a former U.S. diplomat who served as honorary consul of Paraguay from 2007 to 2010.) Petro-Victory enjoyed some early success in Paraguay, even managing to make the first oil discovery in the country's Chaco basin in 2014. Alas, disappointing test results and a dispute with a joint venturer brought an end to that adventure, and later played a role in the company's 2020 rollback at an eye-watering 1 for 40. Adjusting for the rollback, an investor in Petro-Victory's 2014 IPO -- which was done at 40 cents, or $16 postrollback -- would now be sitting on an 80-per-cent loss.
Shorter-term investors have more reason for cheer. Petro-Victory entered Brazil in 2017, recorded its first revenue from oil production in 2020, and saw its stock finally start to perk up in 2021. For 2022, the company is pursuing an ambitious program to boost production (which remains far from prolific -- even by onshore standards -- averaging just 28 barrels a day in the third quarter). To help pay for this, it raised $10.8-million at $2 two months ago. Given today's close of $3.10, a subscriber who put in $10,000 then would now have $15,500.
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