Stockwatch Energy for yesterday
Energy Summary for July 8, 2022
2022-07-08 20:12 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery added $2.06 to $104.79 on the New York Merc, while Brent for September added $2.37 to $107.02 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.80 to WTI, unchanged. Natural gas for August lost 27 cents to $6.03. The TSX energy index lost 2.32 points to close at 217.74.
Oil sands giant Suncor Energy Inc. (SU) lost 88 cents to $42.43 on 9.47 million shares. Its safety reputation has taken another blow, with yet another fatality at one of its oil sands projects. Late yesterday, Suncor issued a press release grimly disclosing the death of a contractor yesterday morning, following an unspecified "incident at a shovel maintenance pad" at its base mine. It did not release the name of the contractor. (This is common practice -- on the relatively uncommon occasions of a workplace fatality -- as companies generally wait to notify the next of kin and/or receive their consent before releasing a name.)
Suncor's president and chief executive officer, Mark Little, offered his condolences on this "incredibly sad and difficult day," and said investigators are now looking into the incident. The company is also setting up grief counselling and other support services.
Unfortunately, the need for such a set-up has been far too common at Suncor lately. Including yesterday, 13 employees and contractors have died at Suncor sites since 2014, including five since December, 2020 (or five in 19 months). The most recent until yesterday occurred in January, when a contractor died (and two others were injured) in a truck crash near the base plant. Mr. Little said at the time that such events were "not acceptable" and that he was "committed to implementing corrective actions."
The pressure for Suncor to improve its safety record ratcheted up further in April, when activist investor Elliott Investment Management took direct aim at the company's "operational and safety culture." In a scathing public letter, Elliott noted that Suncor's fatality count since 2014 is "more than all of its closest peers combined." The fund manager had other issues with Suncor as well, such as its 2020 dividend cut and its tendency since 2019 to miss its annual production forecasts, but the safety issue garnered considerable attention in the media. Suncor's only response at the time was a bland promise to consider Elliott's point of view. The two have since taken their talks behind closed doors.
In an unfortunate coincidence, yesterday's accident occurred just two days after Suncor began promoting an oil-sands-focused event that it planned to hold next Wednesday, July 13, where "safe and reliable performance" was to be one of the topics of discussion. Suncor has now cancelled the event in light of yesterday's death. It plans to reschedule it for some time in the fall.
The fall presentation will lack one high-profile speaker. Hours after the close today, with many having already left for the weekend, Suncor announced that the company and Mr. Little have "mutually agreed" that he will step down from all of his positions, effective immediately. The market will react to the news on Monday.
Elsewhere in Alberta, Andy Mah's Montney gas producer, Advantage Energy Inc. (AAV), added five cents to $8.71 on 1.6 million shares. This was on top of the $1.02 it added yesterday trumpeting better-than-forecast production in the second quarter (as discussed in yesterday's summary). After yesterday's close, president and CEO Mike Belenkie headed to BNN to stir up some more hype. "We are constantly growing," he declared. He patted Advantage on the back for drilling "great wells" at "some of the finest natural gas assets available."
Advantage would be happy to boost its production even more, continued Mr. Belenkie, if it were not constrained by pipeline infrastructure. He explained that this is an industry-wide problem in Western Canada. "We all have to produce into the TC [TC Energy Corp. (TRP: $67.04)] pipeline system in Alberta and B.C., and that's a pretty stagnant system that doesn't tend to expand," said Mr. Belenkie. More broadly, Canada as a whole has a "very difficult regulatory environment and a policy environment that is not supportive of the growth of energy," further hindering the ability of producers (and pipeline operators) to boost capacity.
Mr. Belenkie went on to draw comparisons between the Canadian Montney and the U.S. Marcellus. They are of comparable size, quality and timeline for modern development. Yet the Marcellus is now producing about 40 billion cubic feet of gas a day, while the Montney produces just one-fifth of that. Mr. Belenkie credited this to the Americans being more "nimble" and "aggressive" in developing supplies and infrastructure. The latter includes LNG (liquefied natural gas) export capacity, which in the U.S. currently exceeds 13 billion cubic feet a day, whereas Canada still has no LNG exports at all. "There's a lot more we can do," concluded Mr. Belenkie. This is all the more important as Europe contends with a painful gas crisis. Mr. Belenkie mentioned that he has Ukrainian heritage and is saddened by the "bad situation" in Europe, although unfortunately this reflects years of "very difficult energy policy and climate policy" and will be "tough to fix quickly."
Further afield, Corey Ruttan and John Wright's Brazil-focused Alvopetro Energy Ltd. (ALV) ended the week on a happy note, bounding up 70 cents to $6.85, if only a thin 22,000 shares. The company has hit 34.4 metres of potential net pay in its 183-B1 exploration well in the Reconcavo basin. This is its second success of the year, following the discovery of 25 metres of potential net pay in the 182-C1 well in April. Alvopetro now plans to test both wells and (it hopes) put together a field development program.
Investors took encouragement from the prospect of higher gas production. Realized gas prices in Brazil nearly doubled from early 2021 to early 2022, providing a revenue boon for Alvopetro, whose production rose at a much more sedate rate (to 2,500 barrels a day in the first quarter from 2,200 a year earlier). Virtually all of that production is gas from the Cabure field. As it ties in production from exploration-stage assets, Alvopetro has a "near-term goal" of reaching 3,000 barrels a day and a "longer-term vision" of reaching about 6,000. While it has generally avoided setting actual timelines, it put on a show of confidence last fall by launching a dividend. The quarterly payout of eight U.S. cents represents a yield of 6.0 per cent.
Ultimately, investors are hoping that Alvopetro will be the third successful Ruttan-Wright promotion in South America. The two of them previously sold Pacalta Resources in Ecuador for $1-billion in 1999, followed by selling Petrominerales in Colombia for $1.6-billion in 2013 -- although the latter was down sharply from its peak value, making "successful" a matter of timing. Petrominerales undoubtedly fared better than another Ruttan-Wright promotion, this time in Canada, where their Alberta-focused Lightstream Resources descended into creditor protection and delisted in 2016. South America seems to provide firmer promotional footing for these two than Western Canada. At $6.85, shares of their Brazil-focused Alvopetro have more than tripled over the last two years.
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