Energy Summary for Aug. 10, 2021
2021-08-10 20:31 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added $1.81 to $68.29 on the New York Merc, while Brent for October added $1.59 to $70.63 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.83 to WTI, up from a discount of $13.87. Natural gas for September lost three cents to $4.09. The TSX energy index added 3.44 points to close at 123.62.
Canada's largest gas producer, Mike Rose's Tourmaline Oil Corp. (TOU), added $1.13 to $32.85 on 3.43 million shares, after arranging a $200-million note offering. The notes bear interest at 2.529 per cent and mature in eight years. Tourmaline will use the proceeds to repay existing debt and for the ever-vague "general corporate purposes."
This is Tourmaline's second note offering of the year, and also happens to be its second note offering of all time. The 13-year-old company issued its very first notes -- $250-million worth of them -- in January. Then, as now, it used the money partly for refinancing and partly for catch-all general purposes. The difference between then and now is that in January, Tourmaline was still in the thick of a two-year, $2-billion shopping spree. This ended last month with the closing of the takeover of Black Swan Energy. Seeing as the takeover included a commitment from Tourmaline to assume up to $350-million of Black Swan's debt -- and seeing as Black Swan undoubtedly had higher borrowing costs than Tourmaline -- perhaps this is the debt that Tourmaline is refinancing. Mr. Rose did not say, but he did make sure to mention that the new notes have received an investment-grade rating of BBB (high), with a "stable" trend, from DBRS.
Speaking of ratings agencies, the second one in a week has just given a nod of approval to oil sands producer Cenovus Energy Inc. (CVE), up 34 cents to $10.30 on eight million shares. Cenovus previously received an upgrade last Monday from Fitch Ratings, which hiked its rating to BBB- from BB+, putting the company back in investment-grade territory. Today, Moody's Investors Service took a look and changed its outlook on Cenovus to "stable" from "negative."
Moody's already had an investment-grade rating on Cenovus, Baa3, which it bestowed in January in the wake of Cenovus's multibillion-dollar merger with Husky Energy. Yet Moody's emphasized that its outlook was negative. This reflected "uncertainty around the successful integration of the combined assets and the pace of deleveraging through 2022," said Moody's analyst Paresh Chari. He changed his tune heartily today, praising Cenovus for making "significant progress towards integrating Husky," for having "excellent liquidity," and for having "leverage metrics [that should] remain strong through 2022."
Further afield, Craig Steinke's Reconnaissance Energy Africa Ltd. (RECO) added 78 cents to $8.43 on 2.22 million shares, after giving itself gold stars for green behaviour. "ReconAfrica Making Strides in First 60 Days of ESG platform launch," it blared. The company had announced various environmental, social and governance (ESG) ideas in June, and today provided the first of what it promised to be many updates. It focused on water, wildlife, reforestation and community engagement.
Investors just seemed relieved to have something uplifting to latch onto. Today's 78-cent gain is only a partial correction from the stock's rapid loss of over $3.50 during the prior six trading days. Investors grew antsy in late July, when Reconnaissance missed its own deadline to release core analyses from its first two test wells in Namibia. The slide accelerated after Aug. 5, when Reconnaissance finally got around to releasing some well data -- but only early-stage mud logs of limited usefulness. The stock has also been under pressure since June from a prominent U.S. short-seller, Viceroy Research.
Reconnaissance still has plenty of friends in high places. A major local newspaper, The Namibian, was on Twitter today posting pictures of Reconnaissance's founder, Mr. Steinke, visiting the country's President, Hage Geingob. "[Mr.] Geingob thanked [Mr.] Steinke, his company and his country for choosing to invest in Namibia," reported the paper. "... Meanwhile, the company's founder informed the President that oil has been found, but the commerciality of the oil is yet to be determined." The latter would not be news to the Namibian government, which after all is in a joint venture with Reconnaissance (via state oil company NAMCOR). Still, the visit represented a show of confidence in Reconnaissance -- and apparently in Canada too. The President reportedly declared (according to The Namibian) that "he has no doubt that the company would not harm the environment, because it is Canadian." Tell it to the oil sands activists, Mr. Geingob.
Another international explorer, Philip O'Quigley's Falcon Oil & Gas Ltd. (FO), perched unchanged at 9.5 cents on 326,400 shares. It added half a cent yesterday after starting a production test at its Amungee shale well. The well is in the Beetaloo shale basin of Australia's Northern Territory.
The test might have attracted more attention if not for the fact that the well was already tested half a decade ago. Falcon and its joint venturer, Origin Energy, drilled the Amungee well in 2015 and fracked and tested it in 2016, coming up with an average rate of 1.10 million standard cubic feet a day (about 180 barrels of oil equivalent a day). Unfortunately, they were unable to carry out further work on the well, or indeed any of their shale assets, because the Northern Territory government introduced a fracking ban in 2016. The ban lasted two years. By the time the joint venturers were able to resume work in 2019, they had transferred the hype over to a different well, the Kyalla exploration well. Misfortune struck again when the Kyalla well tested at just 400,000 to 600,000 cubic feet a day this past January. As most recently discussed in the Energy Summary for July 21, the joint venturers are unsure what caused the poor result -- perhaps a "potential downhole flow restriction" -- and are considering their next move.
In the meantime, they have revived their Amungee promotion. Falcon noted that the 2016 test had used 11 frack stages. (Stage is the industry term for each interval within the wellbore that receives the fracking treatment. Ten to 15 stages is generally enough to get good coverage of the reservoir, but some companies are even more ambitious, claiming to be able to complete 30 to 60 stages. The actual amount will depend on the well's lateral length.) Apparently, Falcon and Origin have been wondering whether all of the frack stages contributed properly to the well's 2016 test result. They will now run another, more careful production test. Perhaps they will get better results, which would allow them to update the well's 2017 resource report and -- with any luck -- finally bring some attention to Falcon's low-flying stock.
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