For those who missed them!
Energy Summary for Aug. 23, 2021
2021-08-23 20:21 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery shot up $3.32 to $65.64 on the New York Merc, while Brent for October added $3.57 to $68.75 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.90 to WTI, unchanged. Natural gas for September added 10 cents to $3.95. The TSX energy index added 4.09 points to close at 117.42.
Oil prices took their biggest one-day jump since March, breaking a seven-day losing streak that had been their worst since 2019, as traders abruptly decided that the sell-off was overdone. "We find this price weakness excessive," pronounced Commerzbank this morning. It opined that the recent drop had "more to do with the psychology of market participants than with any deterioration of fundamental data." Goldman Sachs echoed the sentiment, forecasting "tightening commodity fundamentals ... as we move toward autumn, pushing many markets like oil and base metals to new highs for this cycle." Prices also got a boost from a sharp dip in the U.S. dollar. (A higher U.S. dollar makes oil more expensive in other currencies, potentially decreasing demand, which is why the greenback and oil prices generally have an inverse relationship.)
Canadian oil stocks rose with oil prices. Alberta oil sands producer Athabasca Oil Corp. (ATH), up five cents to 72 cents on 5.07 million shares, is counting on higher oil prices to help it refinance $450-million (U.S.) in senior notes maturing in February, 2022 -- a mere six months away. The company told investors last month that it would pursue a "wholistic [sic] debt refinancing." This will comprise "cash on hand, a re-established reserves-based credit facility and a lower quantum of new notes."
Athabasca trumpeted some progress last week after claiming to have "increase[d] corporate liquidity by approximately $100-million." It mainly accomplished this by unwinding old transportation commitments. Specifically, it is transferring firm service on the Keystone and Trans Mountain pipelines to other companies, pocketing some fresh cash while freeing up some old but restricted cash on its balance sheet (which had been securing letters of credit). Although this removes its guaranteed service, Athabasca breezily said it is not worried about moving its oil. It ticked off a list of expected improvements in export capacity for all Western Canadian producers, from Enbridge's Line 3 to crude-by-rail expansion. This should ensure "improved access to the global heavy oil market" and may even turn Canadian heavy oil into "[one of] the most valuable global crude benchmarks," declared Athabasca. Investors gave it a little pat on the back. They would doubtless like to see faster progress, with the clock counting down to the big note maturity in just six months.
In Alberta and Saskatchewan, Paul Colborne's Surge Energy Inc. (SGY) added 11 cents to $4.23 on 311,500 shares, kicking off its first week of trading since it closed a large acquisition and share rollback last week. The acquisition involved Astra Oil, a private Saskatchewan producer that Surge bought for $160-million. Most of the price tag was in the form of 229 million shares valued at about 64 cents. Between that and a $23-million bought deal done in May at 59 cents, Surge's share count had rocketed up to 608 million from 339 million in just three months. It rolled back 1 for 8.5 on Friday and now has 71 million shares outstanding.
Surge's president and chief executive officer, Mr. Colborne, kept the focus on the merger. This has helped bring important benefits -- or in bloated promoter-speak, "key operational indicia and financial attributes required for a successful public oil company." Mr. Colborne paid particular attention to the company's forecast of "significant free cash flow generation in 2022 and beyond." The extra cash flow will initially go toward reducing Surge's net debt, which was $292-million as of June 30 (not counting the $13.5-million in debt assumed from Astra). Rather impressively, Mr. Colborne managed to restrain himself at this point from dangling an increasingly common carrot for oil companies these days, namely the promise of share buybacks and dividends once the debt is under control. Surge used to pay a monthly dividend from 2013 to 2020. It has stayed fairly quiet about a revival, although on its website it maintains that the dividend is merely in "suspension ... until market conditions improve."
Further afield, Dr. Suresh Narine's CGX Energy Inc. (OYL) added 13 cents to $2.27 on 285,000 shares, while Gabriel de Alba's Frontera Energy Corp. (FEC) added 28 cents to $6.70 on 144,400 shares. The two of them have spudded their Kawa-1 exploration well on the Corentyne block off the coast of Guyana.
The well has been a long time coming. CGX has been in Guyana since 1998 and has yet to have any luck finding hydrocarbons, which is less surprising when one remembers that it has not actually drilled a well since 2012. As for Frontera, it has been a shareholder of CGX since 2011, but did not become its joint venturer until 2018. Various delays (including last year's economic downturn) hindered their drilling efforts for years. They eventually settled on a spud date for their first well together, Kawa-1, "between Aug. 1 and Aug. 15," as they told shareholders last month. That today's announcement put them only a week behind schedule should really be viewed as a marvellous accomplishment.
Now the focus will turn to the well's odds of success. Offshore Guyana has proved lucrative for the main player in the region, ExxonMobil, which has been producing oil from its Stabroek block since 2019 and is hoping to hit 800,000 barrels a day by 2025 (which would make Guyana the single largest source of production for Exxon anywhere in the world). Yet many attempts to find oil outside Stabroek have been unsuccessful. Gil Holzman and Colin Kinley's EOG (Atlantic) Oil & Gas Ltd. (EOG: $0415) had some initial success at its Orinduik block, trumpeting two discoveries with Tullow Oil in 2019, but the stock quickly crashed after subsequent assessments revealed the oil to be of low quality. Meanwhile, Exxon has drilled a string of disappointments at the Kaieteur and Canje blocks, while Tullow and Spain's Repsol have come up empty at the Kanuku block. Nothing has come close to matching the stunning success of Stabroek.
Frontera and CGX are hoping to change that. "We believe [Kawa-1] is one of the most exciting exploration wells in the world," declared Mr. de Alba, chairman of Frontera and co-chairman of CGX. He added that the joint venturers have already exercised an option with a drilling contractor to spud their second well (which will be at the nearby Demerera block). Already, excitement about Kawa-1 has sent CGX's stock up to $2.27 from just 90 cents in less than three months. Investors have a few more months to wait to see if the excitement pays off. The Kawa-1 well should hit total depth around early to mid-December.
© 2021 Canjex Publishing Ltd. All rights reserved.