Stockwatch Energy today
Energy Summary for Oct. 3, 2022
2022-10-03 19:59 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery added $4.14 to $83.63 on the New York Merc, while Brent for December added $3.72 to $88.86 (all figures in this para U.S.). Western Canadian Select traded at a discount of $23.70 to WTI, down from a discount of $22.00. Natural gas for November lost 30 cents to $6.47. The TSX energy index added 12.45 points to close at 227.74.
Oil prices kicked off the quarter with a jump, amid rumours that OPEC+ is considering a sizable production cut at its meeting this Wednesday. Reuters and others reported over the weekend that the group is mulling a cut of one million barrels a day or perhaps even more. This would be the largest cut since the start of the pandemic in early 2020.
Oil bulls liked the rumours. In a research note entitled "OPEC takes on the Fed," the analysts at Goldman Sachs suggested that a cut could help reverse the "collapse in investor participation ... [and] claw back investors who have turned to U.S.-dollar cash allocation following the aggressive Fed [interest rate] hikes." While slashing output may seem counterintuitive given historically tight oil supplies, the tightness has not stopped oil prices from sliding 40 per cent since June, pointed out the analysts. They blamed recession fears. A production cut from OPEC would "reinforce our bullish price view while help[ing] limit the downside ... should economic growth disappoint."
Within the sector, one of today's big energy headlines came from pipeline giant Enbridge Inc. (ENB), up $1.27 to $52.49 on 7.01 million shares. It announced this morning that president and chief executive officer Al Monaco is retiring on Jan. 1. He has been with Enbridge for 27 years, including 10 years in the top job.
They have been a busy 10 years. Under Mr. Monaco's tenure, Enbridge expanded into the largest energy infrastructure company in North America, notably through its $28-billion (U.S.) takeover of Spectra Energy in 2017. Yet the decade has not brought entirely smooth sailing, as exemplified by the long, slow death of the proposed Northern Gateway pipeline (killed by Ottawa in 2016) and the current legal battle over Line 5 (under attack by the governor of Michigan since 2020).
Mr. Monaco's successor as president and CEO will be Greg Ebel, Enbridge's current chairman. Mr. Ebel joined Enbridge in 2017 as part of the takeover of Spectra, where he had worked since 2007, including as president, CEO and chairman since 2009. Prior to that, he worked for Duke Energy and Westcoast Energy. He is 57 years old, to Mr. Monaco's 62. Mr. Monaco will stay on as an adviser until March.
Further afield, Randy Neely's Egypt-focused TransGlobe Energy Corp. (TGL) added 21 cents to $3.90 on 900,500 shares. Sturdy oil prices supported both its share price and its chin, which it held high despite needing to delay a much-hyped merger. The company has seemingly decided that it needs more time to build up support for its planned takeover by West African oil producer Vaalco Energy Inc. (U.EGY: $4.745). It said this morning that it now expects to close the deal on Oct. 13, rather than the original forecast of today, Oct. 3.
That the deal will not close today is no surprise to TransGlobe's shareholders, who have yet even to vote on it. They were previously set to cast their votes last Thursday, Sept. 30, but on Wednesday, TransGlobe abruptly adjourned the meeting to Friday, Oct. 7. The postponement came in the wake of a heated back-and-forth between TransGlobe and dissident shareholder Horizon Partners, which has vocally criticized the all-share deal for weeks, saying it "severely undervalues" TransGlobe and offers nothing but "inferior and speculative" Vaalco shares. (Vaalco's stock has fallen to $4.75 (U.S.) from $6.23 (U.S.) since the announcement of the deal in July.) TransGlobe said last week that it wanted to give shareholders "more time to evaluate the transaction and cast their votes."
Vaalco, for its part, had its own meeting as scheduled last Thursday, where its shareholders -- at least, the 56 per cent of them that bothered to turn up -- approved the deal. Yet it too is facing discontent. According to a recent EDGAR filing, more than a dozen "purported" shareholders have filed lawsuits or sent formal demand letters alleging that Vaalco "misstated or omitted material information" in connection with the deal. They apparently want Vaalco to cancel the deal or to pay damages if it goes through. Vaalco called the complaints "without merit" and vowed to "vigorously" defend itself.
Another international producer, Charle Gamba's Colombia-focused Canacol Energy Ltd. (CNE), added 10 cents to $1.97 on 270,100 shares. This barely put a dent in the 40-cent drop that the stock has suffered over the past two weeks. Canacol has not put out any news lately that would explain the slump. Today, however, it acknowledged a sizable drop in its recent contractual gas sales, which fell to the equivalent of 29,100 barrels a day during August (down from 34,600 barrels a day in July). The company blamed bad weather and gas grid maintenance.
Management rushed to reassure investors that sales returned to a more normal 33,500 barrels a day in September. It also toasted the success of two new wells, both of which "encountered multiple gas-filled sandstones." The press release used the same phrasing both times but at no point troubled to inform investors of the flow rates. Investors' reaction was thus lukewarm. Some are no doubt casting an increasingly worried eye on Canacol's lofty dividend yield; its 5.2-cent quarterly payout now represents a yield of 10.6 per cent.
Fellow Colombian producer Frontera Energy Corp. (FEC) added 45 cents to $10.46 on 79,200 shares. Its news today came not from Colombia but rather from Guyana, where it has an exploration-stage joint venture with CGX Energy Inc. (OYL), up three cents to 97 cents on 23,100 shares. The two of them are extending the deadline to close a previously announced amendment to their joint venture. In exchange for considerable financial relief for the perpetually cash-strapped CGX, Frontera will roughly double its interest in the Corentyne block to 68 per cent, as announced in July. The companies were hoping to close the deal by Sept. 30 but now say Nov. 30.
By Nov. 30, Frontera and CGX also hope to be well into the process of drilling their Wei-1 exploration well at Corentyne, having told investors to expect a spud date some time in October. This will be their second exploration well together, after last year's Kawa-1 well. Excitement about Kawa-1 sent CGX's stock racing up to a high of $4.53 in early 2022. It has since retreated all the way to 97 cents, presumably much to the chagrin of the above Frontera, which has been a major backer of CGX for a decade. Frontera has spent about $224-million amassing 257 million of CGX's 287 million shares. The position is currently worth $249-million -- still above water, but a long way down from a peak value earlier this year of $1.16-billion.
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