Stockwatch Energy today
Energy Summary for May 24, 2022
2022-05-24 20:38 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery lost 52 cents to $109.77 on the New York Merc, while Brent for July added 14 cents to $113.56 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.55 to WTI, unchanged. Natural gas for June added six cents to $8.80. The TSX energy index added 6.36 points to close at 259.70.
Oil sands producer Cenovus Energy Inc. (CVE) added 34 cents to $27.75 on 10.4 million shares. Chief executive officer Alex Pourbaix rang in the shortened work week with a lengthy interview published this morning in The Globe and Mail's Report on Business Magazine. He shared his thoughts on -- as the magazine paraphrased it -- his "mission [of] satisfying the world's appetite for oil while closing in on net zero."
Most of his thoughts were already familiar to shareholders. Mr. Pourbaix went over everything from Cenovus's takeover of Husky Energy (a multibillion-dollar megadeal in early 2021) to the "moonshot challenge of our age" (reaching net zero emissions by 2050). The Husky deal added pressure to Cenovus's balance sheet, but Mr. Pourbaix said this is on the mend. Just last month, he emphasized, Cenovus tripled its quarterly dividend to 10.5 cents from 3.5 cents, for a yield of 1.5 per cent. (This is still one of the smallest payouts among major oil sands producers.) Mr. Pourbaix also promoted Cenovus's involvement in the Oil Sands Pathways to Net Zero Alliance, which in his view is setting some "very, very aggressive" environmental targets. Some critics disagree, but in Mr. Pourbaix's tactfully expressed view, some critics have "a view that really underestimates the challenges," both on the ground and in the broader Canadian economy.
Reflecting on the global economy, Mr. Pourbaix opined that oil prices are caught up in a "perfect storm" of supply issues, from years of underinvestment to the current war between Russia and Ukraine. As demand for oil remains strong, Mr. Pourbaix said he foresees "a period of quite volatile, trending toward higher, oil prices." He did not try to predict exactly how high. He reckoned, however, that they will not get up to $200 (U.S.) -- despite some prominent traders' predictions -- as anything above $150 (U.S.) will lead to "significant demand destruction."
Lastly, in a throwaway comment that would nonetheless have perked up ears in some parts of the country, Mr. Pourbaix provided a brief update on the West White Rose project. This is a $3.2-billion proposed oil field off the coast of Newfoundland, inherited by Cenovus through the takeover of Husky. Construction of West White Rose was about 60 per cent complete when Husky halted work during the downturn in 2020 and was then acquired by Cenovus in 2021. Cenovus has yet to say whether it will resume construction. At the prodding of joint venturer Suncor Energy Inc. (SU: $49.61), Cenovus said last fall that it would make its decision "by mid-2022." Mr. Pourbaix massaged the timeline a bit today, saying the "very important decision" is "probably a few months away."
Over in Western Canada, Rob Zakresky's B.C. Montney producer, Leucrotta Exploration Inc. (LXE), stayed unchanged at $2.16 on 365,900 shares. It announced this morning that shareholders have approved its proposed takeover by Vermilion Energy Inc. (VET), up 71 cents to $25.51 on 2.48 million shares. Management said the deal received "approximately 100-per-cent" approval. (Oh, how the "approximately" must grate.) It should close by the end of the month.
Upon closing, Mr. Zakresky and his people will immediately turn their focus to their next promotion, carrying on a proud tradition of creating spinouts with colourful names. Investors will recall that Leucrotta (named after a mythical beast) was born by spinout when Mr. Zakresky sold Crocotta Energy (also named after a mythical beast) in 2014. (The buyer, Long Run Exploration, was sold to a Chinese outfit in 2016.) The next Zakresky promotion -- initially referred to simply as ExploreCo -- is to be dubbed Coelacanth Energy. The coelacanth ("see-la-kanth") is a rare, elusive species of deep-sea fish that was previously thought to have gone extinct 65 million years ago, until being unexpectedly found alive and well off the coast of South Africa in 1938. Today's press release did not go into this history; indeed, it quickly switched back to using ExploreCo, the PR crew apparently needing more time to get used to the new mouthful of a moniker.
The fish are bottom-dwellers, but presumably Mr. Zakresky hopes that the share price of his Coelacanth will not share that characteristic. Under the deal with Vermilion, shareholders will receive $1.73 cash and one share of Coelacanth (plus a partial warrant) for each share of Leucrotta. Vermilion will also become a sizable investor in Coelacanth, buying $14.4-million of its shares at 27 cents. Mr. Zakresky has applied to list Coelacanth on the TSX-V. A listing date remains undetermined.
South of the border, Wolf Regener and David Neuhauser's Oklahoma oil producer, Kolibri Energy Inc. (KEI), bounded up 43 cents o $2.46 on 271,500 shares. The stock is still finding its footing after completing a 1-for-10 rollback just three trading days ago. There was, however, some news to help explain the excitement, courtesy of another drilling update this morning. President and CEO Mr. Regener -- who has been unleashing a steady stream of hype since Kolibri began its two-well drill program in January -- declared today that the second well, Barnes 8-4H, "continues to perform exceptionally well." The well now has 30 days of production history. Over the last seven days, it has flowed 615 barrels a day, well above management's hopes of about 500 barrels a day.
Both wells have now surpassed management's stated expectation (the first one, Barnes 7-3H, averaged more than 900 barrels a day over its first 30 days). Mr. Regener has been telling investors to expect more drilling later in the year. The promise raised some eyebrows, given Kolibri's working capital deficit of $3-million (U.S.) and lack of further borrowing capacity under its $16-million (U.S.) credit facility as of March 31. Last week, however, the company secured a new credit facility, which starts at $20-million (U.S.) and could apparently get as high as $75-million (U.S.) (though the conditions for this were left unspecified). Mr. Regener gleefully proclaimed that the next drill program will start in the third quarter. He did not discuss size or costs.
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