Energy Summary for Feb. 2, 2021
2021-02-02 20:01 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery reached an intraday high of $55.25 -- its first time above $55 since January, 2020 -- before closing at $54.76, up $1.21, on the New York Merc (all figures in this para U.S.). Brent for April added $1.11 to $57.46. Western Canadian Select traded at a discount of $12.84 to WTI, up from a discount of $13.55. Natural gas for March was unchanged at $2.85. The TSX energy index added a fraction to close at 93.88.
Fourth quarter reporting season is off to a painful start. To the south, U.S. oil giant ExxonMobil posted the first annual loss in its 49-year history as a public company. Investors were expecting this -- Exxon already posted three straight quarters of losses in 2020 -- so the only real question was how big the writedown would be. Exxon said in December that it was facing a writedown of $17-billion (U.S.) to $20-billion (U.S.) in the fourth quarter. Today's financials pegged it at $19.2-billion (U.S.). On a full-year basis, impairments of $20.0-billion (U.S.) led to a net loss of $23.2-billion (U.S.).
Exxon is the parent company of Canadian oil sands giant Imperial Oil Ltd. (IMO), which today lost $1.00 to $24.21 on 2.8 million shares, as it too released its year-end 2020 financials. It took a $1.17-billion impairment charge that contributed to a fourth quarter loss of $1.14-billion. Imperial tried to direct investor attention away from the loss by cheering that it enjoyed the "highest quarterly upstream production in 30 years, driven by record production at Kearl." Total upstream production for the fourth quarter came to 460,000 gross barrels of oil equivalent a day (surpassing analysts' predictions of 448,000), which included 284,000 barrels a day from the Kearl oil sands asset. Kearl's previous quarterly record was 244,000 barrels a day. "Kearl's performance in 2020 was nothing short of outstanding," cheered Imperial's president and chief executive officer, Brad Corson, during a conference call this morning. He also patted the company on the back for keeping its dividend despite the "extreme challenges" of 2020. The quarterly dividend remains 22 cents, for a yield of 3.6 per cent.
Alas, Mr. Corson could not keep up the good mood indefinitely. Oil demand continues to be "challenged by the ongoing pandemic," he acknowledged. Although demand began to rally from the second quarter to the third quarter, "the pace of improvement slowed in the fourth quarter as Canada started to deal with a second wave of COVID-19," and renewed lockdowns and travel restrictions are adding to the "high degree of uncertainty." Then there are the political developments, such as the recent permit cancellation of the Keystone XL pipeline, which Mr. Corson called "very, very disappointing for the industry ... [and] for the country." He is also monitoring the governor of Michigan's as-yet-unsuccessful efforts to shut down the Line 5 pipeline. Line 5 is "a critical piece of infrastructure for us," said Mr. Corson (and indeed for many people, as a shutdown would cause supply shortages across Michigan, Ohio, Ontario, Quebec and elsewhere). On that front, Mr. Corson was a little more optimistic, assigning the shutdown a "very low probability."
Further afield, Lundin family promotion Africa Oil Corp. (AOI) edged up two cents to $1.19 on 187,500 shares. It has been fairly quiet on the news front lately, but last week, one of its main joint venturers provided an update. Tullow Oil is the operator of the Lokichar basin assets in Kenya, held in a joint venture with Africa Oil and France's Total. Tullow said last week that the joint venturers have been "reworking the development project to ensure that it is robust at low oil prices, and expect to submit a revised plan to the government of Kenya later this year." They signed an original heads-of-terms agreement back in the summer of 2019. The goal back then was to reach a final investment stage (FID) in 2020 and start production three years later, but all of that is now up in the air. For context, next month will mark the nine-year anniversary of when Africa Oil and Tullow first discovered oil at the assets (Total was not involved at that point), representing the very first oil discovery in Kenya. The nation is having to wait a long, long time for the petro-dollars to start flowing.
Getting back to Tullow, its announcement last week also included a progress update on a refinancing. Tullow has long been struggling with heavy debt -- currently about $3.3-billion (U.S.) -- and announced a plan to try to deal with this at its capital markets day last November. The plan boils down to hoping that creditors are on board with a 10-year plan to boost production at Tullow's core assets in Ghana. In a research note this morning, Canaccord Genuity analyst Charlie Sharp opined that the plan "makes sense -- squeezing the company's prime assets more effectively -- but the task is large and degree of success uncertain." He downgraded the stock to "sell" from "hold" and reduced his price target to below-market levels. The Kenyan assets were not mentioned at all in the research note, solidifying the impression that Tullow, despite being the operator of these assets, is not devoting as much attention to them as, say, investors in Africa Oil might like. Fortunately, Africa Oil no longer considers these assets to be its most important assets either. These days it mostly promotes its producing assets in Nigeria.
Another international oil producer, Manolo Zuniga's Peru-focused Petrotal Corp. (TAL), added one cent to 24.5 cents on 1.14 million shares, after successfully placing a $100-million (U.S.) bond issue. It expects to close the offering in two weeks. Petrotal signalled its interest in this bond offering last month, announcing on Jan. 12 that it had hired Pareto Securities to put feelers out to potential investors, but the success of these things is never guaranteed. (Just ask Obsidian Energy Ltd. (OBE: $1.12), which publicly announced an investor outreach program for a desired $100-million (U.S.) bond offering in 2019, only to have nothing come of it.) Petrotal says it will use the money in part to repay an outstanding liability owed to state oil company Petroperu (which, coincidentally enough, has just embarked on a road show for its own planned bond issue, which in its case will be a much heftier $1-billion (U.S.)). Petrotal currently owes Petroperu about $16.6-million (U.S.). Given that its bond offering is for $100-million (U.S.), Petrotal will have plenty of money left over for other purposes, including -- according to its president and CEO, Mr. Zuniga -- the resumption of drilling at its core Bretana oil field by the end of March, as well as potential "synergistic and accretive acquisitions."
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