Energy Summary for July 22, 2021
2021-07-22 20:14 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery added $1.61 to $71.91 on the New York Merc, while Brent for September added $1.56 to $73.79 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.00 to WTI, down from a discount of $13.55. Natural gas for August added four cents to $4.00, hitting the $4 mark for the first time since December, 2018. The TSX energy index lost a fraction to close at 125.63.
Oil bulls thundered along as Barclays joined the list of institutions speculating about that magic number, $100 (U.S.). "Oil prices could rise to $100 (U.S.) per barrel over the coming months if OPEC+ is too slow in bringing back supplies," mused the British bank in a note this morning. It joins Vitol, Glencore, Trafigura, Goldman Sachs and Bank of America in entertaining the idea that oil prices might enter triple digits for the first time since 2014.
The institutions are also in agreement, however, that oil prices would not stay in that range for long. Barclays noted today that OPEC+ is unlikely to view $100 (U.S.) as an "optimum outcome, given the potential for significant demand erosion and political considerations." The group could deepen production cuts in order to stabilize markets. In the end, Barclays predicted that WTI oil prices will average $67 (U.S.) this year, while Brent will average $69 (U.S.) (up from its prior forecasts of $66 (U.S.) and $62 (U.S.), respectively). The bank then forecast a slight drop in 2022 to $65 (U.S.) for WTI and $68 (U.S.) for Brent.
Within the sector, Alberta oil sands producer Cenovus Energy Inc. (CVE) edged down four cents to $10.13 on 8.31 million shares, despite trumpeting an "innovative" and "excellent" new deal. The deal is a 15-year agreement to buy solar-power-produced electricity for its oil sands operations. Switching to solar will reduce emissions, cheered Cenovus. Even better, it continued, the solar seller is associated with the Cold Lake First Nations (CLFN), long-time supporters and service providers for the company's oil sands activities. The CLFN and a company called Elemental Energy (a private Vancouver-based solar developer) will build the facility from which Cenovus will buy power.
Note the future tense. The facility is not built yet; it is currently forecast to come into service in 2023. This makes it one of many renewable power projects popping up across Alberta, frequently financed by companies searching for ways to meet lofty climate targets. Earlier this year, for example, Royal Bank bankrolled a 210-acre field of solar panels installed by BluEarth Renewables and Bullfrog Power, which should add about 80,000 megawatt hours of renewable energy into Alberta's power grid. (The Cenovus-CLFN-Elemental deal will be much smaller, at 150 megawatts.) A recent report by Deloitte found that globally, these corporate-backed agreements are rivalling government policy in terms of "driving growth of renewable energy." They have been a little slower to take off in Canada, but they are starting to gain more traction -- especially in Alberta, which has a uniquely deregulated electricity market that makes it easier for buyers and sellers to enter contracts directly. It would not be surprising to see more companies in the oil patch follow Cenovus's lead.
Elsewhere in Western Canada, Don Gray's Gear Energy Ltd. (GXE) lost three cents to 69 cents on 1.88 million shares, even as it cheered its upgrade to the OTCQX Best Market. Gear's U.S. shares were previously trading on the barely regulated OTC Pink. As the all-important first three letters remained the same, investors took little interest, but Gear's president and chief executive officer, Ingram Gillmore, dubbed himself "very pleased to provide this incremental ease of access ... for our existing and future U.S. shareholder base."
This followed a separate update for shareholders earlier this week. Mr. Gillmore usually publishes monthly president's reports to shareholders on Gear's website. The latest monthly report arrived Monday -- although curiously, it was not "From the Desk of Ingram Gillmore" this time, but rather from the desk of David Hwang, Gear's chief financial officer. Mr. Hwang still provided the standard information about production and spending. In the second quarter, revealed Mr. Hwang, Gear produced an average of 5,400 barrels of oil equivalent a day. This was similar to its first quarter output of 5,300 barrels a day, yet thanks to better commodity prices, cash flow from operations improved to $12.2-million from $8.3-million. Mr. Hwang drew attention to the reduction in Gear's net debt to $33.4-million as of June 30 from $42.9-million as of March 31. (He noticeably did not repeat any of the excitable speculation from a press release last month, when Mr. Gillmore said Gear's "substantially improving" balance sheet might let it "contemplate multiple strategic options" such as share buybacks or even dividends. Perhaps Mr. Hwang is not quite ready to contemplate those yet.)
Further afield, John Wright and Corey Ruttan's Brazilian gas producer, Alvopetro Energy Ltd. (ALV), lost 10 cents to $1.00 on 91,800 shares. It has come up with an unusual proposal to essentially flush out unenthusiastic shareholders. The first part of the proposal, as laid out by Alvopetro last night, would involve rolling back its shares at a ratio of 1 for 2,100. This would leave it with fewer than 50,000 shares outstanding, based on its current share count of 99 million. A significant number of shareholders would not even hold one share. Alvopetro is planning to buy back all of those fractional shares for cash at a price to be determined. Once that is done, it will loosen the stranglehold on the share count and do a 1-for-700 split. In practice, this means that shareholders who currently own at least 2,100 shares will undergo a 1-for-30 rollback, while shareholders who own fewer than 2,100 shares will be given cash to go away.
The restructuring is subject to shareholder approval. Alvopetro has filed a circular to schedule the vote and lay out its reasoning. In its view, too many investors have small or odd-lot positions linked to Alvopetro's creation (which was way back in 2013, when Mr. Wright and Mr. Ruttan sold their Petrominerales promotion to Pacific Rubiales -- now Frontera Energy Corp. (FEC: $7.55) -- and some of the Petrominerales assets were spun out to Alvopetro). Small-lot trading creates volatility, and a high number of small shareholders creates excess administrative costs, grumbled Alvopetro. It reckoned that small shareholders should be pleased to receive a "cost-effective liquidity option." The remaining shareholders should benefit from a cleaned-up capital structure that "may assist in attracting interest in the corporation." It even dangled the possibility of a dividend. The company will see how effective it is at persuasion when it holds the meeting, scheduled for just three weeks from now on Thursday, Aug. 12.
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