Energy Summary for Feb. 1, 2021
2021-02-01 19:52 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added $1.35 cents to $53.55 on the New York Merc, while Brent for April added 47 cents to $56.35 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.55 to WTI, unchanged. Natural gas for March shot up 29 cents to $2.85. The TSX energy index added 3.53 points to close at 93.73.
Tightening oil supplies could push Brent oil prices as high as $65 (U.S.) a barrel by July, according to Goldman Sachs. The bank made the prediction in a research note yesterday. It noted that the deficit between supply and demand reached 2.3 million barrels a day in the fourth quarter of 2020, and will likely be around 900,000 barrels a day in the first half of 2021 -- a higher level than the previous forecast of 500,000 barrels a day. The bullish prediction had a heartening effect on oil stocks. Here in Canada, today's gainers included Crescent Point Energy Corp. (CPG), up 36 cents to $3.88, Cenovus Energy Inc. (CVE), up 45 cents to $8.00, and Ovintiv Inc. (OVV), up $1.09 to $21.20.
Gas stocks had an even better day. A snowstorm is blanketing the U.S. Northeast, with forecasters predicting even frostier weather to come. Up until now, this winter has generally been milder than expected, limiting the demand for heating fuel. Last week's gas inventories reported by the U.S. Energy Information Administration were above their five-year average. Now demand and prices are heading higher, and thus so are gas companies, with today's notable gainers being Peyto Exploration & Development Corp. (PEY), up 47 cents to $4.00, Paramount Resources Ltd. (POU), up 82 cents to $7.24, and Tourmaline Oil Corp. (TOU), up $1.59 to $19.81.
One B.C. Montney gas producer, Crew Energy Inc. (CR), added nine cents to 77 cents on 2.03 million shares. Unlike any of the above companies, Crew had news today: It pegged its fourth quarter output at 21,500 barrels of oil equivalent a day. This was higher than its fourth quarter forecast of 20,000 to 21,000 barrels a day, and brought its full-year production to 21,900 barrels a day, which was within its forecast of 21,000 to 22,000. Crew boasted that its current production is all the way up to 26,500 barrels a day, thanks to the tie-in of new wells.
Crew crowed that it is off to a "strong start to [its] two-year plan." It was referring to the 2021 and 2022 guidance that it released in December. The guidance was surprisingly ambitious. Analysts were expecting Crew to set a 2021 budget of $46-million, which would have been covered by cash flow, with some free cash flow left over for debt repayment. Instead, Crew set the 2021 budget at $120-million to $145-million. It acknowledged that it would outspend its cash flow by up to $45-million -- meaning it would need cash on hand plus debt to cover the gap (or other possibilities such as asset sales) -- but insisted the added production would be worth it. Investors might not have agreed, given that Crew's net debt was already over $350-million as of Sept. 30, so Crew promised to make up for it in 2022. Its 2022 numbers showed production of up to 33,000 barrels a day (over 50 per cent higher than the fourth quarter of 2020) and estimated free cash flow of up to $65-million.
One analyst, Scotia Capital's Jason Bean, said in December that the guidance was "surprising given the volatile economic environment." (A different Montney gas producer, Birchcliff Energy Ltd. (BIR: $2.32), had found itself deeply unpopular with investors this time last year, when it said it would spend beyond its means in 2020 in order to achieve higher production. It later reduced the 2020 guidance -- COVID-19 got the blame, of course -- and the 2021 guidance it released a couple of weeks ago was markedly more conservative.) Interestingly, Crew's investors found the guidance pleasantly surprising. Including the gain from today's update, the stock has risen to 77 cents from 46 cents in the last two months. Insiders have been enjoying the rise. Since September, five directors and officers have spent a total of $356,095 buying 796,500 shares, including 194,500 shares bought in the last three weeks.
Further afield, the Thailand-focused Pan Orient Energy Corp. (POE) lost two cents to 83 cents on 54,700 shares. The drop came despite what it touted as an "excellent" year-end 2020 reserve report. New discoveries at the L53/48 oil block in Thailand sent the block's 1P (proved) reserves up to 2.83 million barrels as of Dec. 31, 2020, compared with just 1.23 million barrels a year earlier. (Those numbers are on a 100-per-cent basis. Pan Orient controls a 50.01-per-cent interest in the block.) Unfortunately, the net present values of the reserves were down sharply as a result of weaker oil prices, but that did not stop president and chief executive officer Jeff Chisholm from cheering the "excellent result." He added that the block produced an average of 2,426 barrels a day in 2020, which is up from 2,120 barrels a day in 2019. Mr. Chisholm said he expects another "strong year of oil production performance" in 2021.
Investors might have appreciated more of an update on the plans for 2021. Management has other things on its mind. In November, when Pan Orient released its third quarter financials, it noted that it had $29.9-million in working capital and no debt, with Mr. Chilsholm declaring the company well placed to "seek out and evaluate compelling opportunities." The company then published a presentation on its website in December indicating that it would "make a decision on [its] way forward for the L53 asset in late Q1-Q2 2021."
The company seems to be mulling a sale of the block and the acquisition of new assets, either in Thailand or elsewhere. Unfortunately, its previous non-Thai adventure -- a much-hyped exploration block in Indonesia -- was an utter disaster. The stock plunged to just $1.01 from $2.41 after the third and final well came up dry in December, 2019. The company abandoned Indonesia a month later and was thus left with nothing but its Thai assets and its tail between its legs (plus a bitumen asset in Alberta, but that is roughly as promotable as the Indonesian debacle and Pan Orient wants to exit it too). Given this dented reputation, when Pan Orient said in November that it held $29.9-million in working capital, that figure was almost exactly equal to its market cap at the time of $30.2-million -- essentially assigning no value to the Thai assets or to any assets that Pan Orient might acquire. Happily, investors are looking more optimistic these days. From 58 cents in November, the stock has climbed steadily to today's close of 83 cents.
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