Energy Summary for May 19, 2021
2021-05-19 20:17 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery lost $2.13 to $63.36 on the New York Merc, while Brent for July lost $2.05 to $66.66 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.79 to WTI, unchanged. Natural gas for June lost five cents to $2.96. The TSX energy index lost 3.86 points to close at 125.00.
Unsurprisingly, the International Energy Agency (IEA) is getting a less than enthusiastic reception to its report yesterday on its proposed "roadmap for the global energy system." As discussed in yesterday's Energy Summary, the IEA determined that the net-zero-by-2050 goal is unachievable unless governments and industries take drastic action -- including zero investment in new oil and gas projects, effective immediately.
The response from the sector has been tepid at best. Reuters rounded up a collection of statements from government officials and corporate executives in Japan, Australia and the Philippines, none of whom seemed remotely inclined to put a halt to new oil and gas investment. For example, one Japanese government official ##dimissed the report as "not necessarily in line with the Japanese government's policy." He said Japan can become carbon-neutral by 2050 while still investing in domestic energy security. (Japan is currently the fifth-largest emitter in the world, after China, the United States, India and Russia.)
Here in Canada (the 11th largest), the Canadian Association of Petroleum Producers (CAPP) issued a statement claiming to be "confident the IEA can develop a different path." It pointed to the possibility of new technologies that will enable investment and reduce emissions. In the meantime, the simple fact according to CAPP is, "People need reliable and affordable energy to live."
Another factor for some companies is branding. Andy Mah's Alberta Montney-focused Advantage Oil & Gas Ltd. (AAV), down 11 cents to $3.54 on 1.09 million shares, announced last night that it is stripping "oil and gas" out of its name and reinventing itself as "Advantage Energy Ltd." The new name "better reflects that we supply clean, affordable, reliable and sustainable Canadian energy to power the needs of Canada and the world," rhapsodized management. Advantage has long promoted its assets as greener than most. Then, earlier this year, it helped a carbon capture and storage company called Entropy Inc., a feat it brought up once again in last night's press release. It deemed itself "well positioned for the new energy market."
Advantage is far from the first company to scrub any sticky fossil fuels out of its name. Obsidian Energy Inc. (OBE: $1.96) used to be Penn West Petroleum until it rebranded in 2017. That same year, the private Canadian International Oil became Hammerhead Resources, and the public Painted Pony Petroleum became Painted Pony Energy (until it was acquired in 2020 by Canadian Natural Resources Ltd. (CNQ: $40.22), which had the good foresight to choose "Resources" at the outset in 1975). International companies do this too. Just ask BP, which used to use its full moniker of The British Petroleum Company, or Norway's Equinor, which used to be Statoil, or Engie, which used to be Gaz de France. (The non-English-speakers have to be extra careful lest they end up with a howler. Danish Oil and Gas briefly renamed itself Dong, before switching quickly to Orsted.)
Back in the Montney, on the B.C. side of the play, a different company continued its shopping spree. Mike Rose's Tourmaline Oil Corp. (TOU) -- whose "Oil"-y name defies both the anti-oil fixation and the fact that its main product is gas -- added 14 cents to $29.39 on 2.55 million shares, after announcing several acquisitions. The largest involved buying half of the assets of the private Saguaro Resources. Saguaro holds about 114,000 acres in the B.C. Montney. It was producing about 16,800 barrels of oil equivalent a day earlier this year, but has apparently enjoyed a boost since then, as Tourmaline said its new 50-per-cent interest added 9,000 barrels a day. In part thanks to this deal, Tourmaline has tweaked some of its long-term production plans. It now reckons that it can produce 492,000 barrels a day in 2025. This compares with the previous 2025 target of 482,000 barrels a day, and with Tourmaline's actual production of 411,600 barrels a day in the first quarter of 2021.
The Saguaro deal cost Tourmaline $205-million. Separately, Tourmaline mentioned smaller asset acquisitions in the Doe area (with the seller almost certainly being Leucrotta Exploration Inc. (LXE: $0.61), based on Leucrotta's announcement in March) and in the Gundy area (seller unclear). It also announced a mid-stream infrastructure purchase. Taken all together, Tourmaline spent $314.5-million. It is offsetting this cost by selling $245-million of royalty and infrastructure interests to its spinout company, Topaz Energy Corp. (TPZ: $14.44).
Tourmaline was not the only one doing business with Topaz today. Oil sands producer Cenovus Energy Inc. (CVE), down 32 cents to $9.59 on 18.4 million shares, announced that it has sold a royalty to Topaz for $102-million. The royalty does not cover any of Cenovus's oil sands assets. Instead, it covers Clearwater assets that Cenovus sold in December to Neil Roszell's Headwater Exploration Inc. (HWX), down seven cents to $4.51 on 415,500 shares. Headwater bought the Clearwater assets from Cenovus for $100-million, comprising $35-million cash and 50 million shares. Cenovus retained a gross overriding royalty (GORR) as part of the sale. The GORR ended up being worth more to Cenovus than the assets themselves, as Topaz is now buying it for an impressive $102-million. This high value reflects Headwater's diligent drilling. Last week, Headwater boasted that its inaugural 12-well drill program at Clearwater caused the assets' production to "more than double" since December. (The assets' production in December was just 2,800 barrels a day. Headwater boosted that to 4,600.)
Headwater already made a commitment to Cenovus to spend $100-million on the Clearwater assets by the end of 2022 (although it plans to finish this spending in 2021 instead). This commitment is still intact now that Topaz holds the royalty. From Headwater's perspective, little has changed. Topaz, for its part, is pleased to be expanding in this increasingly eye-catching play. Cenovus is pleased to have some more money for debt reduction. The $102-million price tag is small next to Cenovus's net debt of $13.3-billion, but will still help the company achieve its goal of getting this down to $10-billion by year-end. In the meantime, Cenovus emphasized that it still has some exposure to the Clearwater, as it still holds the above-noted 50 million shares of Headwater. These were worth $65-million when Headwater issued them in December. With the Clearwater craze having sent Headwater rushing higher, those 50 million shares are now worth $225.5-million.
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