Stockwatch Energy today
Energy Summary for Nov. 15, 2022
2022-11-15 20:29 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added $1.05 to $86.92 on the New York Merc, while Brent for January added 72 cents to $93.86 (all figures in this para U.S.). Western Canadian Select traded at a discount of $29.07 to WTI, unchanged. Natural gas for December added 10 cents to $6.03. The TSX energy index added 4.55 points to close at 270.51.
Oil prices headed higher, shaking off a mixed assessment from the International Energy Agency (IEA). In its latest monthly oil market report, the IEA lowered its forecast for global oil demand in 2023, pointing to the weak Chinese economy, the strong U.S. dollar, the European energy crisis and other factors as "weighing heavily on consumption." On the supply side, however, the IEA forecast a near-term drop in production resulting from OPEC+ cuts and a European ban on Russian crude. It also noted that oil inventories in developed countries are at their lowest levels in 18 years. All in all, oil markets are only "finely balanced" heading into the winter, and "a myriad of uncertainties and logistical challenges remain."
Here in Canada, Neil Roszell's Headwater Exploration Inc. (HWX) reached an intraday low of $6.38 before recovering to close at $6.81, down 13 cents, on 4.82 million shares. The early sigh of disappointment reflected an exploration update from the Alberta Clearwater play. There, Headwater's first two wells at a new exploration prospect called Shadow have both come up dry. Although the plan was to drill a third well in the area, Headwater has changed its mind and will move the rig to a new prospect.
The duds are a blow to Headwater's management, which only two weeks ago was daydreaming on the company's website that Shadow could be a "potential Peavine look-alike" (though it has since whisked away that phrasing and replaced it with a notice that drilling is "paused"). Peavine has quickly made a name for itself in the Clearwater for turning up some of the best results in the entire play. Notably, Baytex Energy Corp. (BTE: $7.34) drilled a Peavine well that peaked at 1,200 barrels a day. Baytex is currently the dominant Peavine producer, while most of Headwater's activity (and most of the general industry activity in the Clearwater) has been taking place in the more developed Marten Hills area. Headwater was keen to carve out a splashy new subregion at Shadow. The two dry wells have put an end to that reverie.
Chins held high, management offered what investors saw as a tepid replacement for snazzy drill results: the release of Headwater's very first annual sustainability report. This is the company's inaugural report, because 2021 was its inaugural full year of operations. It was formed in 2020 when Mr. Roszell and his people recapitalized and took charge of a different company (Corridor Resources) and changed its name to Headwater. Their prior promotions were also water-themed, namely Raging River (sold to the above Baytex in 2018), Wild Stream (sold to Crescent Point Energy Corp. (CPG: $11.40) in 2012) and Wild River (sold to Crescent Point in 2009).
Further afield, the Lundin Group's Africa Oil Corp. (AOI) lost nine cents to $3.10 on 2.26 million shares, after releasing its third quarter financials. All of Africa Oil's production comes from its 50-per-cent ownership of a Nigerian oil producer called Prime Oil. In the third quarter, Africa Oil's share of Prime's production worked out to 22,100 barrels a day, down from 27,500 barrels a day in the same period last year. Cash from operating activities plunged year over year to $62.1-million (U.S.) from $122.2-million (U.S.), largely because of higher royalties and a big tax hit. Management breezily brushed off the decreases, noting that Prime is keeping its full-year production guidance intact while continuing to pay out generous dividends (having paid a cool $250-million (U.S.) in dividends to Africa Oil so far this year).
Management also hyped "potentially high-impact catalysts" at its non-Nigerian assets. It is eagerly awaiting drill results from the much-hyped Gazania-1 exploration well, targeting 300 million barrels off the coast of South Africa. Africa Oil has an indirect interest in this well through its investments in Eco (Atlantic) Oil & Gas Inc. (EOG: $0.65), Africa Energy Inc. (AFE: $0.34) and the private Impact Oil. The well was spudded six weeks ago and should have results by the end of the month. Separately, Africa Oil is doggedly searching for farmees for its formerly much-hyped Kenyan assets (where it struck oil 10 years ago but has faced persistent delays in development). It does not seem to have had any nibbles, but remains optimistic that a farm-out will be a "critical step towards the FID [final investment decision] ... being achieved over the course of the next year."
Another international producer, Serafino Iacono and Frank Giustra's Colombia-focused NG Energy International Corp. (GASX), added three cents to 83 cents on 251,900 shares. It spent the day trumpeting "positive test results" from its Brujo-1x exploration well at the SN-9 gas block. This made for an eye-catching headline, but in the body, management disclosed that the results -- while most definitely "positive" -- are also "preliminary" and "incomplete," and as such are not ready for release. They still need verification and submission to the Colombian regulator. Low-on-the-totem-pole shareholders will just have to wait.
There are, of course, worse updates to give investors (as the above Headwater can attest), and NG Energy has good reason to try to stir up excitement. Management is currently in the process of trying to sell not one but two financings. It previously announced a $30-million offering of convertible debentures last month, involving a "lead group of strategic investors" that will include insiders. As announced yesterday, it hopes to tap the same group (and other hoped-for subscribers) for a $20-million equity financing, bringing the collective proceeds to $50-million. It hopes to close both financings by Nov. 30.
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