Stockwatch Energy for yesterday
Energy Summary for July 20, 2022
2022-07-20 20:53 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery lost $1.96 to $102.26 on the New York Merc, while Brent for September lost 43 cents to $106.92 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.50 to WTI, down from a discount of $20.00. Natural gas for August added 74 cents to $8.01. The TSX energy index added 3.04 points to close at 221.76.
Oil prices had a wobbly day, as bearish U.S. government data showed unexpectedly low gasoline demand during what is normally the peak summer driving season. The bulls regained some ground on supply concerns, as TC Energy Corp. (TRP: $67.94) said its Keystone oil pipeline from Alberta to the U.S. Midwest is operating at reduced rates for the third day in a row, following Monday's damage to a third party facility in South Dakota. Meanwhile, the chief executive officer of the largest U.S. independent oil producer told an energy conference to get used to whipsawing oil prices. "There is a supply crunch coming," ConocoPhillips CEO Ryan Lance told the Houston Producers Forum. "... Be prepared for a lot of volatility."
Within the sector, Grant Fagerheim's Alberta- and Saskatchewan-focused Whitecap Resources Inc. (WCP) added 14 cents to $9.31 on 5.9 million shares, as it continued to make the promotional rounds for a massive acquisition announced last month. This time it got a hand from RBC analysts Luke Davis and Michael Harvey. They provided an obligingly boosterish write-up of their discussions this week with Mr. Fagerheim, Whitecap's president and chief executive officer, and Thanh Kang, its chief financial officer.
The main topic was Whitecap's agreement to buy XTO Energy from Imperial Oil Ltd. (IMO: $58.36) and ExxonMobil for $1.9-billion, as announced late last month. By Mr. Fagerheim's estimate, the acquired assets will add $7.2-billion (U.S.) in total value. The analysts nodded and made cheerful noises about "robust economics." They are so robust, said Mr. Fagerheim, that Whitecap will rapidly repay the debt it is taking on for the acquisition and be able to increase its dividend at the same time. The company will have $2.1-billion in debt after the deal and currently pays a monthly dividend of 3.67 cents (for a yield of 4.7 per cent). According to the analysts, Mr. Fagerheim sees Whitecap with just $1.3-billion in debt and a monthly dividend of at least six cents by mid-2023.
After such a marvellous discussion, the analysts unsurprisingly reiterated their "outperform" rating on Whitecap's stock, as well as the price target of $16 (well above today's close of $9.31). Investors may wish to note that the analysts' employer, RBC, is involved in the above acquisition (as a financial adviser to Imperial and Exxon). RBC also "makes a market" in Whitecap's securities and receives compensation from Whitecap for various services, both banking and non-banking.
Further afield, Frank Giustra and Serafino Iacono's Colombia-focused NG Energy International Corp. (GASX) shot up 33 cents to $1.00 on 316,900 shares. It had no news to explain the jump, but investors are hoping for an update soon on its Magico-1 exploration well. The company hoisted expectations nice and high in late June when it announced that the well found "several prospective gas-bearing zones." CEO Mr. Iacono dubbed himself "very excited" and added that the company would conduct tests "during the coming weeks." Three weeks later, investors are itching for results.
Magico-1 is NG Energy's first ever exploration well, and the first of a four-well program that NG Energy plans to conduct at its SN-9 gas block. The company regularly reminds investors that this "crown jewel" of a block is right next to the producing Nelson gas field owned by Canacol Energy Ltd. (CNE: $2.52). The prospect of drilling SN-9 helped NG Energy get as high as $2.33 in January. It has since more than halved, but Mr. Iacono appears to have lost none of his enthusiasm. The game of promotion is not new to him. He and several other NG Energy executives previously worked at Pacific Rubiales, which spent years as a darling of the Latin American market, up until it collapsed into bankruptcy in 2016 (subsequently re-emerging under new management as Frontera Energy Corp. (FEC: $12.35)).
Back in North America, David Neuhauser and Wolf Regener's Kolibri Global Energy Inc. (KEI) edged down four cents to $1.85 on 79,600 shares, not quite managing to stir up similar levels of excitement about its planned drill program in Oklahoma. The company is aiming to begin the second part of a five-well drill program at its Tishomingo oil field. It drilled the first two wells this past winter -- its first drilling since 2018 -- and their "exceptional" results left CEO Mr. Regener feeling "thrilled." He was just as cheerful today, dubbing himself "excited that we will be continuing our 2022 drilling program shortly." The rig should arrive in August.
Investors will have high hopes for the program as well. To raise money ahead of the program, Kolibri conducted an $8.6-million rights offering in December, issuing shares at the equivalent of 70 cents (adjusting for a 1-for-10 rollback in May). At today's close of $1.85, those shares have more than doubled in value.
Separately, Kolibri has added Evan Templeton to its board of directors. It lauded his 25 years of financial experience, particularly in investment advisory services; he is the founder and principal of WestOak Advisors and a managing director of Odinbrook Global Advisors. He has also worked for Jefferies and RBC Capital Markets.
More broadly, Mr. Templeton represents the first new director that Kolibri has added since 2016. Its board size abruptly fell to four members from seven members after three of them (Ford Nicholson, General Wesley Clark and Victor Redekop) decided not to stand for re-election in 2020. After two years, the company has finally found someone to fill a seat.
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