Stockwatch Energy today
Energy Summary for June 28, 2022
2022-06-28 20:56 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery added $2.89 to $111.76 on the New York Merc, while Brent for August added $2.89 to $117.98 (all figures in this para U.S.). Western Canadian Select traded at a discount of $18.25 to WTI, down from a discount of $17.55. Natural gas for July added five cents to $6.55. The TSX energy index added 9.63 points to close at 241.90.
Canadian oil stocks climbed with oil prices. Jim Riddell's Alberta-focused Paramount Resources Ltd. (POU), up $2.01 to $32.84 on 365,000 shares, also headed higher thanks to a share buyback program announced this morning. The company has received TSX approval to buy back up to 7.6 million of 141 million shares.
Whether Paramount makes use of the program remains to be seen. It previously received TSX approval a year ago to buy back 7.3 million shares, but has bought back just 197,500 shares since then, spending a total of $2.69-million. It does, however, pay about $14-million every month in dividends. (The 10-cent monthly dividend represents a yield of 3.7 per cent. The above Mr. Riddell, who is Paramount's chairman and chief executive officer and controls over 35 million of its shares, receives $3.58-million in dividend income from these shares every month.) The other priority for Paramount's free cash is debt repayment. It is aiming to get to $300-million in net debt by mid-2022 -- so, any day now -- compared with $854-million at the start of 2021.
Paramount was not the only Alberta oil producer announcing a share buyback program. Scott Ratushny's Cardinal Energy Ltd. (CJ), up 34 cents to $7.77 on 3.4 million shares, has received TSX approval to buy back up to 12.3 million of the 162 million shares it has outstanding. It claimed that the program would fit in with its goal of "enhancing shareholder returns through dividends, share buybacks and continued debt reduction." For most of the last two years, Cardinal was only interested in the third item on the list. It finally reinstated its dividend last month (after suspending it in early 2020) and is now launching a buyback program (its first since 2019).
This is especially good news for a major shareholder that made his presence known in late 2020. N. Murray Edwards, the billionaire chairman of oil sands giant Canadian Natural Resources Ltd. (CNQ: $71.83), first disclosed in December, 2020, that he owned 17.2 million of Cardinal's shares. His current position (thanks to warrant exercises) is 25.5 million shares. How much he paid for all of them is not clear, but a little over half of them -- 14.4 million -- cost him a total of $11.5-million. The entire position is currently worth $198-million and will provide $15.3-million in annual dividend income. (The newly reinstated dividend of five cents a month represents a generous yield of 7.7 per cent.)
Further afield, Craig Steinke's Namibian wildcatter, Reconnaissance Energy Africa Ltd. (RECO), added 10.5 cents to $5.675 on 456,700 shares. The stock has climbed from $4.58 since the start of last week, with investors eagerly awaiting the start of a much-hyped drill program in the Kavango basin. This morning, Reconnaissance confirmed that the first of four planned wells has been spudded.
This is the first drilling that Reconnaissance has done at Kavango in more than a year. It drilled two test wells in early 2021, the process stirring up so much excitement that the stock touched a high last summer of $13.84, but the enthusiasm did not last. Although both wells showed early-stage indications of oil and gas, neither got a flow test and the eventual data quality was poor. Reconnaissance also fell behind schedule in starting its next phase of drilling, which it was originally aiming to do about nine months ago.
Despite the delays, Reconnaissance had no trouble selling a $47.4-million bought deal at $6.35 in March. (The above Mr. Steinke, Reconnaissance's founder and chairman, has a strong financing network. His last two companies, Realm Energy and Renaissance Oil, were both promotions with prominent Canadian mining financier Ian Telfer. Mr. Telfer likely had a hand in Reconnaissance too, as his wife, Nancy Burke, was one of Reconnaissance's major founding shareholders, although financings diluted her below the 10-per-cent insider threshold in January, 2020.) An investor who put in $10,000 in March would now be sitting on $8,932. Just a week ago, however, they would have been sitting on $7,208. Reconnaissance is no doubt hoping that this trend will continue. It expects its new well to reach total depth within 60 days.
Two other international operators offered updates, this time from Colombia. Charle Gamba's Canacol Energy Ltd. (CNE) added eight cents to $2.66 on 521,500 shares, after publishing its annual environmental report card (otherwise known as its report on ESG -- environmental, social and governance). Canacol is Colombia's largest independent gas producer. It understandably emphasized what it sees as "the vital role natural gas has to play in displacing more carbon-intensive energy options," according to president and CEO Mr. Gamba. He added that improving the company's "sustainability leadership" is a "fundamental axis of effort."
The bevy of buzzwords would not appeal to the casual reader, but Mr. Gamba may have his sights set on a higher target: president-elect Gustavo Petro. Mr. Petro won Colombia's presidential race earlier this month, after campaigning on a platform that included halting new oil permits and potentially setting a deadline to wind down existing exploration. The idea -- or the cockamamie fantasy, to critics -- is that renewable energy will replace fossil fuels long before the oil runs out. Analysts have pointed out that parts of Mr. Petro's agenda will require legislative approval that he is unlikely to obtain. Even so, Canacol seems to see an advantage in billing itself as a "pro-active leader in Colombia's energy transition."
Lastly, Serafino Iacono's Colombian gas producer, NG Energy International Corp. (GASX), added one cent to 88 cents on 530,900 shares. It has been busy this month with its Magico-1 well, the first exploration well at its SN-9 block. Today it sent up a cheer after the well reached the target reservoir and found "several prospective gas-bearing zones." The news was too preliminary to garner much interest from investors -- though CEO Mr. Iacono was happy to share how "very excited" he is -- but they should get more details in the coming weeks, as the zones undergo testing.
The announcement did not include an update on NG Energy's other core asset, the Maria Conchita block. Last month, NG Energy recorded its very first sales revenue when it received a prepayment for gas production from Maria Conchita. It said it would initially hold production flat at 3.5 million cubic feet a day (about 580 barrels of oil equivalent a day) and then increase this to 16 million. Between the lack of updates on Maria Conchita since then, as well as the election victory of Mr. Petro, NG Energy's stock has fallen to 88 cents from $1.20 over the last three weeks. With any luck, the new Magico-1 well will live up to its name and work some magic on the share price.
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