Stockwatch Energy today
Energy Summary for Sept. 14, 2022
2022-09-14 20:59 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added $1.17 to $88.48 on the New York Merc, while Brent for November added 93 cents to $94.10 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.38 to WTI, unchanged. Natural gas for October added 83 cents to $9.11. The TSX energy index added 7.13 points to close at 244.35.
Oil prices headed higher as traders combed through competing headlines. The International Energy Agency (IEA) released its closely watched monthly report this morning, cutting its forecast for global oil demand in 2022 -- while adding that COVID-afflicted China could see demand fall for the first time in more than three decades -- but predicting a sharp rebound in 2023. Meanwhile, prices got a boost from the threat of a large-scale U.S. railway strike that could start as early as Friday. U.S. refiners are urging Congress to intervene and prevent what could be major disruptions to oil and gas deliveries. (The U.S. fuel and petrochemical industry sees roughly two million carloads of feedstock and refined products moved by rail annually.)
Here in Canada, it was a quiet day in the energy news cycle, but not on the energy conference circuit. Executives of several companies descended on Toronto to participate in the 26th annual Peters & Co. Energy Conference, taking place from Sept. 13 to 15. One of the first to present yesterday afternoon was Alex Verge, president and chief executive officer of Alberta oil producer Journey Energy Inc. (JOY), up 14 cents to $5.50 on 473,800 shares.
He was certainly in an upbeat mood. "The last two years have been incredible for Journey, and really incredible for our shareholders," he declared. Indeed, since the summer of 2020, the stock has shot up to $5.50 from just 10 cents -- although this ignores the experience of longer-term shareholders, especially any who participated in Journey's initial public offering at $12 in 2014.
Mr. Verge understandably kept his eyes forward. He spent much of the presentation talking up the "highly accretive and transformational" asset acquisition that Journey is working on from Enerplus Corp. (ERF: $21.09). The deal, announced in July, will immediately boost Journey's production to around 14,400 barrels a day (compared with 9,600 barrels a day in the second quarter). It will cost $140-million, but Mr. Verge is not worried about sustaining any long-term damage to the balance sheet. He predicted that Journey's net debt (which was $29-million as of June 30) will peak at $90-million once the acquisition closes, but then slide below $10-million within a year.
His assumptions are based on the deal closing relatively soon. Although Journey originally forecast closing in October, Mr. Verge warned the conference attendees that it could slide into November instead. The main thing is seemingly to get it done by year-end. That should allow Journey to stick to its 2023 guidance, at which Mr. Verge provided an informal "first look" during the conference. He sketched out a plan to produce 14,500 to 15,000 barrels a day and generate cash flow of $156-million to $164-million, more than enough to cover a proposed budget of $75-million.
Also wooing investors at the conference was Mike Nicholson, CEO of the Lundin promotion International Petroleum Corp. (IPCO), up 25 cents to $11.66 on 74,800 shares. His presentation revolved around three "strategic pillars." Those would be shareholder returns, mergers and acquisitions, and production increases from current assets.
Mr. Nicholson has typically been more forthcoming about the first item than the other two. He previously unveiled his "capital allocation plan" in February, detailing how much money International Petroleum wants to shovel at shareholders and under what conditions. The shovelling so far is in the form of share buyback programs; International Petroleum does not pay a dividend. It has steadily reduced its share count to 138 million from 155 million since February.
As for the next so-called pillar, Mr. Nicholson has rarely speculated about acquisitions, but at the conference he breathed new life into rumours that International Petroleum is eyeing deals. He reminded the conference attendees that the company has closed four major acquisitions in four years, with the last one being in April, 2021. "We'd like to at least hope we can conclude another transaction by the end of this year, to make five deals in five years," he said. Turning to the third and final pillar, Mr. Nicholson singled out the company's Blackrod pilot project in Alberta as one that is (finally) starting to get more attention. He reckoned that the project could come on production by 2026, at a phase 1 rate of 20,000 to 30,000 barrels a day, which would be a "substantial" boost next to the current company-wide output of 47,000 barrels a day.
Long-time investors may hear a distant bell jingling at the mention of Blackrod. Many years ago, Blackrod was an exploration-stage asset owned by a company called Pearl Exploration. Pearl bought a company called BlackCore Resources in 2009, at which point BlackCore's management took over Pearl and changed its name to BlackPearl. (They had a liking for this colour; this was the same group that sold BlackRock Ventures to Shell for $2.4-billion in 2006.) BlackPearl started a small pilot at Blackrod in 2011. In 2012, it declared itself "ready to move into the first phase of commercial development," which it hoped would begin in 2016. Considering that the first phase would cost $800-million, well beyond BlackPearl's means, the company allowed Blackrod to stay in the pilot phase while it looked for a joint venturer. This was still the case when International Petroleum bought BlackPearl in 2018. Now, 11 years after the start of the pilot, it is still chugging along.
Perhaps International Petroleum will be the one that will finally see Blackrod graduate from pilot to producer. The good news, according to Mr. Nicholson's presentation, is that the cost of reaching phase 1 production has fallen to $540-million (U.S.), which in Canadian dollars is nearly $100-million less than forecast by BlackPearl. Mr. Nicholson described International Petroleum as "easily [having] the financial capability to execute on phase 1 of Blackrod over the next five years."
In the meantime, BlackPearl's former executives have moved on to other promotions, not necessarily colour-themed. Its former CEO, John Festival, is now chairman of fellow Alberta oil producer i3 Energy Corp. (ITE: $0.38). John Craig, former chairman of BlackPearl, is now chairman of Africa Oil Corp. (AOI: $2.69), which -- like International Petroleum -- is part of the Lundin Group.