Energy Summary for Jan. 12, 2021
2021-01-12 20:27 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added 96 cents to $53.21 on the New York Merc, while Brent for March added 92 cents to $56.58 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.98 to WTI, up from a discount of $15.02. Natural gas for February was unchanged at $2.75. The TSX energy index added 1.99 points to close at 101.48.
Although today's 11-month high in oil prices kept many energy investors in a good mood -- with most energy stocks ending the day higher, from little Cardinal Resources Inc. (CJ) (up nine cents to 98 cents) to oil sands giant Canadian Natural Resources Ltd. (CNQ) (up 31 cents to $34.11) -- one oil pipeline continued to face political frustrations. Enbridge Inc. (ENB: $42.96) has published a response to Michigan Governor Gretchen Whitmer's demand that the company shut down Line 5, a dual-pipeline system that crosses the Straits of Mackinac on its way from Alberta to Ontario. In a word, Enbridge's response to the shutdown order is: No.
By way of background, Ms. Whitmer made her demand on Nov. 13, declaring that she would revoke Line 5's water-crossing easement in 180 days. "Enbridge has routinely refused to take action to protect our Great Lakes," she claimed. The line has in fact operated safely in the lakes for 68 years and Enbridge is working on a tunnel replacement project beneath the Straits to further mitigate spill risks. Importantly, the line supplies more than half of the heating needs of Ms. Whitmer's own state, raising significant supply risks -- not just for Michigan, but also for the surrounding regions of Wisconsin, Indiana, Ohio, Pennsylvania, Ontario and Quebec -- if the line is shut down. Ms. Whitmer is nonetheless one of the line's most vocal critics.
Fortunately, as far as Enbridge is concerned, she is toothless when it comes to a shutdown. "Enbridge Rejects State's Notice on Easement," it blared in a statement this morning, adding that Ms. Whitmer's attempt to yank the easement is "unlawful and ignores science and evidence." It is unlawful because pipeline safety is a federal matter, not a state matter, and Line 5 remains in full compliance with federal law. The state's purported concerns about the line are, according to Enbridge, based on "ill-informed, inaccurate, out-of-date and unsupportable opinion," as government officials have allegedly "consistently ignored and dismissed" Enbridge's efforts to set up meetings with them. "Enbridge has no intention of shutting down the pipelines based on the state's unspecified allegations and its violation of federal law," said the company firmly. As of this writing, Ms. Whitmer has not published a response.
Here in Canada, Brian Schmidt's Alberta- and Saskatchewan-focused Tamarack Valley Energy Ltd. (TVE) edged up five cents to $1.43 on two million shares, after firming up its 2021 guidance. It is aiming to produce 23,000 barrels of oil equivalent a day on a budget of $105-million to $110-million. By comparison, when it released preliminary guidance in mid-December, it had the same production target -- 23,000 barrels a day -- but a slightly lower budget of $102-million. It was also forecasting $38-million in free cash flow, whereas the new guidance says $30-million to $35-million. There are understandable reasons for the change. When Tamarack released the old guidance, it had just begun the process of acquiring $74-million worth of assets in the Clearwater play of Alberta, a new core play for the company (which until now focused on the Viking and the Cardium). The acquisitions closed in late December and Tamarack evidently decided that the guidance needed a little tweak. For example, where Tamarack previously thought it would need to spend $55-million this year to boost its Clearwater production to around 5,000 barrels a day from 2,000, it now thinks it can do this with as little as $53-million.
Tamarack had not previously specified where the non-Clearwater half of the budget would go. Now it has disclosed that the biggest chunk, around $37-million, will go to the Viking, particularly the Veteran waterflood project. The Cardium is barely capturing any attention this year, with only $5-million earmarked for west-central Alberta (and this area includes some non-Cardium assets that Tamarack bought last year). Tamarack clearly sees better potential for the Clearwater play and the Veteran Viking project. A new presentation on its website is largely devoted to these two sets of assets, with Tamarack declaring that its "significant inventory and capital allocation optionality supports long-term returns." Investors seemed only mildly enthused.
Further afield, Manolo Zuniga's Peru-focused Petrotal Corp. (TAL) added 2.5 cents to 30 cents on 2.41 million shares, after announcing that it is pondering a $100-million (U.S.) three-year bond issue. The potential financing comes as Petrotal enters a much-hoped-for era of peace and productivity at its core Bretana oil field. For most of 2020, the field sputtered in and out of operations as Petrotal grappled with COVID-19 restrictions, local protests, pipeline problems and awful weather. Its hope entering 2020 was that it would produce a full-year average of 13,500 barrels a day. The outcome, as Petrotal finished calculating and announced last week, was average production of just 5,675 barrels a day. Yet Petrotal also noted last week that the situation has stabilized and its production so far in 2021 is averaging nearly 10,000 barrels a day. The new year is off to a hopeful start.
With the production issues behind it (it hopes), Petrotal is turning its attention to its balance sheet. It held $9.6-million (U.S.) cash as of Dec. 31, but its accounts payable and accrued liabilities exceeded $44-million (U.S.). The restart of drilling at Bretana will also require some fresh capital. As of last week, Petrotal was mulling a "significant credit facility" to help with this (it did not say how significant), but now it is expanding its focus beyond bankers to include bondholders. It announced this morning that it has hired Pareto Securities to arrange a series of investor meetings later this week to propose a $100-million (U.S.) bond issue. The proceeds would be used to settle various liabilities, restart drilling at Bretana and even "finance potential synergistic acquisitions," said Petrotal, in full marketing mode.
The fact that Petrotal is announcing these meetings and specifying a dollar amount suggests a healthy level of confidence. That can backfire, however, if the meetings do not have the desired outcome. One memorable example came from Alberta Cardium producer Obsidian Energy Ltd. (OBE: $1.25), which in May, 2019, made a very similar announcement to Petrotal's, specifically the hiring of Pareto to arrange investor meetings about a $100-million (U.S.) bond issue. Nothing came of the meetings and Obsidian ended up starting a "strategic review" (code for going up for sale) just four months later in September, 2019. Sixteen months have now passed since Obsidian hung out the for-sale sign, and while it has taken other steps to deal with its finances, it has had no suitors so far.
© 2021 Canjex Publishing Ltd. All rights reserved.