Stockwatch Energy for yesterday
Energy Summary for July 25, 2022
2022-07-25 20:25 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added $2.00 to $96.70 on the New York Merc, while Brent for September added $1.95 to $105.15 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.50 to WTI, down from a discount of $20.75. Natural gas for August added 43 cents to $8.73. The TSX energy index added 7.61 points to close at 221.70.
Craig Steinke's Namibian wildcatter, Reconnaissance Energy Africa Ltd. (RECO), set a new 52-week low, losing 27 cents to $4.15 on 699,500 shares. It made headlines on Friday and over the weekend after The Globe and Mail reported that the company is facing an RCMP investigation over allegations of foreign corruption and securities fraud. There are no formal charges of wrongdoing, and The Globe was careful to note that the investigation may conclude that no charges should be brought.
As the Globe tells the story, the investigation is "in the early stages" and centres on Reconnaissance's links to politically influential figures in Namibia, as well as the company's stock promotion activities. The company allegedly did not secure all of the necessary water and land-use permits in the early phases of its drilling in 2021, but appears to have faced no repercussions from Namibian regulators. The 2021 drill program comprised two test wells, both of which were much hyped in Reconnaissance's press releases after finding "good oil and gas shows" (a preliminary assessment that makes no guarantee of commercial viability). Excitement about the wells sent the stock soaring to a high of $13.84 in mid-2021 from about 75 cents in late 2020. (It has since retreated to about $4.)
This is hardly Reconnaissance's first brush with controversy. The National Geographic has been denouncing the company's activities since 2020, months before drilling started, while celebrities such as Prince Harry, actor Leonardo DiCaprio and talk show host Ellen DeGeneres joined the chorus of critics in 2021. The above-noted jump in the share price unsurprisingly caught the attention of some vocal short-sellers. Most recently, earlier this month, local conservation groups asked Namibia's High Court to suspend Reconnaissance's exploration activities, pending a review of the legitimacy of the company's environmental permit.
Reconnaissance, for its part, has steadfastly maintained that its permits are in order, that its promotional activities are perfectly above board, and that many of the criticisms aired by the National Geographic and others are unfounded. It told the Globe on Friday that it was unaware of any RCMP probe. As for the court challenge, Reconnaissance told investors last week that its exploration activities can continue at least until the court's initial hearing, which will take place Aug. 3. These activities include the drilling of its next well, the 8-2 well, which it spudded in late June. It has yet to provide any updates on its drilling progress. Based on its estimate of a 60-day drilling timeline, the well may be about halfway to its planned depth, but will not be finished by Aug. 3.
Another would-be international producer, Abby Badwi's TAG Oil Ltd. (TAO), added one cent to 30.5 cents on 267,800 shares. It has released its financials for the fiscal year ended March 31. Because TAG sold all of its old producing assets in late 2019, it had no revenue or production to speak of, and thus kept its focus as usual on the balance sheet. Its working capital as of March 31 hovered (also as usual) around $15-million.
Executive chairman Mr. Badwi, who joined TAG in 2020, will mark his two-year anniversary with the company in about five weeks. He has spent the two years talking up his plans to make TAG a producer again by having it acquire assets in the Middle East and/or North Africa. This is familiar turf to Mr. Badwi, whose past promotions include Rally Energy (in Egypt) and Kuwait Energy, which he sold respectively in 2007 and 2019. Yet he has had no luck finding a suitably promotable acquisition for TAG.
Sensing investors' impatience, TAG has repeatedly suggested lately that their wait is almost over. It said in April that it has made "significant progress" pursuing "several" potential acquisitions in Egypt. Today it repeated the "significant progress" line, but added intriguingly that it "expects to have an update on one more of these transactions by the end of calendar Q3" -- about two months away.
Among producers, one of the biggest gainer's today was the Lundin Group's International Petroleum Corp. (IPCO), up $1.35 to $14.70 on 374,600 shares. Its only announcement today was about its recent purchase of about one million of its own shares. This is the third such announcement this month -- share buybacks being a long-standing priority for International Petroleum's extra cash -- and is thus unlikely to have caused today's flutter of excitement. The company enjoyed some attention from on-line chatter over the weekend, perhaps explaining its 10-per-cent jump to start the week. In any case, International Petroleum now has 148 million shares outstanding, down from 155 million at the start of the year.
In other buyback news, Gabriel de Alba's Colombia-focused Frontera Energy Corp. (FEC) added 16 cents to $12.48 on 313,300 shares, after extending the deadline for its special share buyback program to Aug. 8. Frontera announced this program in mid-June and said it would price the shares somewhere from $11 to $13. Its shares were then trading at the low end of that range, but have since rallied to nearly $12.50.
Incidentally, when the above International Petroleum announced a special buyback program earlier this summer and then saw its shares rally, it responded by increasing the allowable price range to try to tempt more shareholders into participating. Frontera is sticking to its price range and merely extending the deadline.
While extensions are often a sign of a company struggling to attract participants, Frontera of course did not bill it as such, saying it merely wants to give shareholders "sufficient time" in light of its announcement last week. As discussed on Friday, the company has just amended its farm-in agreement in Guyana with CGX Energy Inc. (OYL: $1.09). The amendment will give Frontera a majority share of the Corentyne block and its soon-to-be-drilled Wei-1 exploration well.
When Frontera and CGX released the results of their previous Corentyne well (Kawa-1) in January, Frontera's stock jumped to $12.85 from $10.60 in a single day. Optimists hoping for a similar outcome at Wei-1 are evidently reluctant to tender their shares to Frontera's special buyback. They still have some time to wait. The joint venturers do not expect to spud the Wei-1 until October at the earliest.
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