Stockwatch Energy today
Energy Summary for Sept. 20, 2022
2022-09-20 19:57 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery lost $1.28 to $84.45 on the New York Merc, while Brent for November lost $1.38 to $90.62 (all figures in this para U.S.). Western Canadian Select traded at a discount of $21.20 to WTI, unchanged. Natural gas for October lost three cents to $7.72. The TSX energy index lost a fraction of a point to close at 235.95.
Oil prices wobbled and fell, as investors braced for further interest rate hikes in the continued battle against inflation. The U.S Federal Reserve is seen as likely to raise rates by another 75 basis points tomorrow. Meanwhile, the U.S. government is preparing to release another 10 million barrels from the Strategic Petroleum Reserve (SPR) for sale in November, which would bring the total barrels sold to 165 million since the government announced the sales last March. The original plan was to sell 180 million barrels by the end of October (the largest release in the SPR's history), but evidently the government is extending the timeline.
Here in Canada, Don Gray's Alberta Cardium-focused Petrus Resources Ltd. (PRQ) added eight cents to $2.10 on 248,600 shares, after doubling its full-year budget. Its original budget of $50-million to $55-million came out more than nine months ago. Now, citing "market conditions [that] have improved materially" since the initial guidance, Petrus is hiking its budget to a range of $105-million to $115-million. Its year-end production target is also going up to about 10,750 barrels a day from about 9,250.
Investors seemed pleased, if not surprised. They got used to seeing bountiful budget boosts in July and August, when companies were releasing their second quarter financials and revising their spending at the same time. Petrus is merely late to the parade. Preceding it are companies including Canadian Natural Resources Ltd. (CNQ: $71.20), Spartan Delta Corp. (SDE: $11.97), Surge Energy Inc. (SGY: $9.12), Gear Energy Inc. (GXE: $1.22) and many more.
Despite these boosts, the oil patch is not spending as freely as it used to, at least not on increasing production. The tendency lately has been to shovel more money at shareholders through dividends and buybacks. A recent report from Calgary's ARC Energy Research Institute did a comparison of spending in the oil patch from 2012 to 2022. Ten years ago, for every dollar of after-tax cash flow, the oil patch reinvested $1.22 in production. This year, the institute sees this figure falling all the way down to just 29 cents.
Outside Canada, one junior is hoping at last to have found a promotable international asset. Abby Badwi's TAG Oil Ltd. (TAO), unchanged at 51 cents on 1.08 million shares -- in other words, not seeing much enthusiasm yet -- cheered this morning that it has reached its "first important [asset] agreement in Egypt." It has won a petroleum service contract to develop an unconventional reservoir in the Badr oil field of Egypt's Western Desert.
Investors mostly yawned. Although the Badr field is large (107 square kilometres) and has a long history of production (going back to 1982), all of its output comes from conventional reservoirs. TAG is hoping to use fracking and modern technology to tap the unconventional Abu Roash F reservoir, which is undeveloped, but -- in TAG's view -- has "significant volumes of oil in place" and "a high probability of successful commercial development." TAG has hired an engineering firm to prepare a proper resource report. The timeline for the report is unclear, as are the company's hopes for starting a pilot project and ultimately commercial production, but TAG nonetheless feels confident enough to start billing itself on its website as an "Egyptian operator primed for growth."
Mr. Badwi may be adding extra promotional oomph to try to distract TAG's shareholders from their long wait. Two years have passed since he joined TAG as chairman in September, 2020, on a vow to take it into an "exciting new chapter of pursuing consolidation opportunities ... [in the] Middle East and North Africa." This is familiar turf to Mr. Badwi, whose past promotions include Rally Energy (an Egyptian operator sold in 2007) and Kuwait Energy (sold in 2019). It still took considerable time to find a promotion for TAG. Today Mr. Badwi dubbed himself "pleased" to get involved with such a "significant project" as Badr. Even so, perhaps aware the deal was unlikely to trigger fireworks, he made sure to add that TAG is "strategically well positioned" to look into other "opportunities that are currently being investigated in Egypt and other areas of the Middle East."
Another international operator, Gary Guidry's Colombia-focused Gran Tierra Energy Inc. (GTE), lost nine cents to $1.82 on 1.95 million shares. It recently got a not-so-nice mention in the U.K.'s Financial Times that was subsequently picked up by Canada's Financial Post and other media outlets. "Debt monsters in the downturn," was the dramatic headline in the U.K. article. Its authors listed 207 companies with debt that is trading more than 1,000 basis points above government bonds. The wide-ranging list includes Chinese property managers, a French supermarket chain, a Belgian toilet maker and several Canadian companies in various sectors, including Gran Tierra.
The reporters hastened to reassure readers that a "debt monster" is not necessarily something to fear. Their list did not account for the actual amount of debt carried, merely the bond spreads, which measure nervousness among bond investors -- "professional worriers," they quipped -- rather than a company's true ability to service its debt. "Plenty of companies on the list have defied previous prophecies of doom," they emphasized. (As it happens, Gran Tierra would be a good fit for that club too. In 2020, it appeared on Fitch Ratings' list of "bonds of top concern," which was more or less a default prediction for 2021. A sharp rise in oil prices turned its luck around.)
Bond spreads aside, Gran Tierra would surely not be pleased with the label of "debt monster." It boasted about its "rapid debt reduction" just last month, shortly after paying off and terminating a credit facility (though it subsequently arranged a new one). Its other debt comprises $300-million (U.S.) in notes due in 2025 and another $300-million (U.S.) in notes due in 2027. Buying back the notes, refinancing them or even just repaying them could all be feasible options, claimed management during a conference call last month. It mostly tried to put the focus back on its operations. Among other things, it recently got its quarterly production in Colombia back above 30,000 barrels a day for the first time in years, and it is working on its very first exploration program in Ecuador.
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