Stockwatch Energy today
Energy Summary for Jan. 4, 2023
2023-01-04 20:21 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery plunged $4.09 to $72.84 on the New York Merc, while Brent for March lost $4.26 to $77.84, both benchmarks taking another tumble on global recession fears (all figures in this para U.S.). Western Canadian Select traded at a discount of $27.40 to WTI, unchanged. Natural gas for February added 18 cents to $4.17. The TSX energy index lost 3.81 points to close at 225.06.
Canada's largest oil sands producers are launching an evaluation of a proposed large-scale carbon storage hub. The Pathways Alliance, an 18-month-old collaboration among Canadian Natural Resources Ltd. (CNQ: $70.47), Cenovus Energy Inc. (CVE: $24.43), ConocoPhillips Canada, Imperial Oil Ltd. (IMO: $62.11), MEG Energy Corp. (MEG: $17.29) and Suncor Energy Inc. (SU: $40.18) -- which together account for 95 per cent of oil sands production -- announced this morning that they have signed a "carbon sequestration evaluation agreement" with the Alberta government. Fieldwork to test the proposed site for carbon storage suitability will begin this winter.
Group president Kendall Dilling cheered the agreement as "another significant milestone on the road to finalizing plans for our proposed CCS [carbon capture and storage] project in northeastern Alberta and achieving our goal of reaching net zero emissions by 2050." He noted that the CCS project is just the first step. As currently envisioned, the project will serve as the storage hub for a transportation line that will initially gather carbon from 14 oil sands facilities, later rising to 20. The aim is to reduce emissions by 22 million tonnes by 2030, as part of a broader plan (requiring two more phases) to reach net zero by 2050.
Mr. Dilling chose not to include a reminder of how much all of this will cost. The group first unveiled its three-phase plan in October, 2021, and took a stab at cost estimates in October, 2022. Assuming that it is sticking to those estimates, the first phase alone -- the CCS hub and the associated 400-kilometre transportation network -- will require $24.1-billion in investments by 2030. The group is very much hoping not to shoulder this cost alone and to get various levels of government involved, but the actual level of government support remains unclear.
Separately, one of the above companies was in the headlines today for a different reason, and not one nearly as PR-friendly. A U.S. federal agency has finally released its investigative report on an explosion that occurred nearly five years ago at a Wisconsin refinery that is now owned by Cenovus Energy Inc. (CVE), down 52 cents to $24.43 on 6.85 million shares. The refinery, Superior, has been shut down since the fiery explosion took place in April, 2018, injuring 36 workers and forcing 2,500 residents to evacuate. The estimated financial damage to the refinery was $550-million (U.S.). Now, as first reported by Wisconsin Public Radio, the U.S. Chemical Safety Board (CSB) has determined that the explosion was caused by a lack of safeguards during a maintenance-related shutdown.
According to the CSB, the refinery's operator -- which at the time was Husky Energy, a company acquired by Cenovus in 2021 -- failed to implement various mechanical safeguards within the refinery, which could have helped prevent the blast. The operator also failed to maintain appropriate training and safety information for workers, said the CSB. The investigators issued 16 safety recommendations to try to prevent similar incidents. In a statement, Cenovus said it is incorporating all of the recommendations as it continues to rebuild the facility. (It has previously said it hopes to restart the facility "by the end of the first quarter of 2023.")
Back in Alberta, the gassy Peyto Exploration & Development Corp. (PEY) lost 26 cents to $12.22 on 2.18 million shares. It spent today heralding the arrival of new CEO Jean-Paul Lachance. Under a succession plan previously announced in October, Mr. Lachance -- who has worked for Peyto since 2011 and became its president in 2021 -- took over from former CEO Darren Gee effective Jan. 1. Mr. Gee remains on the board of directors.
Mr. Lachance took his newly official promotion as an opportunity to publish his very first letter to shareholders on Peyto's website, seemingly continuing Mr. Gee's habit of monthly updates. He did his best to make his first letter an upbeat one, praising Peyto for remaining "as focused as ever on profitable growth." Yet there was a tinge of gloom: Peyto missed its year-end production target of 110,000 barrels a day, with actual production coming in at 108,000. Mr. Lachance blamed the recent cold snap. On the bright side, he said, this provided a "much-needed break for the hard-working Peyto crews from the busy past year."
The spending records included in the update underscored how busy the year was. From January through November -- December's figure will not arrive until next month's update -- Peyto spent $503-million, exceeding both its original guidance ($350-million to $400-million) and the updated guidance provided in November ("approximately $450-million"). Mr. Lachance's comments suggest that December's spending will come in on the lighter side. Even so, going over budget and still failing to achieve a key production target is hardly an ideal way to end a year. Mr. Lachance will have to hope for a smoother 2023. Peyto has not unveiled official guidance for 2023, but a preliminary version in November laid out a budget of $425-million to $475-million and a year-end production target of 120,000 barrels a day.
One last Alberta producer, Stephen Loukas's Cardium-focused Obsidian Energy Ltd. (OBE), lost 27 cents to $7.82 on 861,200 shares. It has once again extended the employment contract of its interim president and CEO, Mr. Loukas. He now has the job until Dec. 31, 2023 -- the "interim" tag still firmly affixed, years after he first took charge in 2019. Showing no hurry to find a permanent CEO, Obsidian dubbed itself "extremely pleased to have [Mr. Loukas] continue to guide [its] future direction."
Many recent shareholders will have reason to share this high opinion of Mr. Loukas, under whose tenure the stock has climbed past $7 (even getting as high as $15 last year) from just 65 cents when he took charge in 2019. Yet his real involvement goes back further than that and has a thornier history. Mr. Loukas is a partner and portfolio manager of FrontFour Capital, a U.S. hedge fund that began investing in Obsidian a decade ago. FrontFour spent about $40-million amassing a 5-per-cent interest from 2013 to 2019. At the worst of the downturn in 2020, this position was worth barely $800,000; during last year's rally, it was worth as much as $74.2-million. These days it sits at a middling $37.0-million. Mr. Loukas now has another year at the helm to try to steer it higher once again.
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