Energy Summary for March 25, 2022
2022-03-25 19:53 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery added $1.56 to $113.90 on the New York Merc, while Brent for May added $1.62 to $120.70 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.00 to WTI, unchanged. Natural gas for April added 17 cents to $5.57. The TSX energy index added 6.22 points to close at 229.79.
Oil prices notched their first weekly gain in three weeks, after Yemeni Houthis claimed responsibility for attacks on oil facilities in Saudi Arabia. State-owned Saudi Aramco said its distribution station in Jeddah was hit, causing two storage tanks to catch fire. It said the fires are now under control and there were no casualties.
Although there was no mention of disruptions to exports, traders were rattled. "The market, which was already shunning Russian oil supplies [due to the invasion of Ukraine], has another thing to worry about with Houthi oil attacks potentially impacting Saudi Arabia's production," Andrew Lipow of the Texas-based Lipow Oil Associates told Reuters. He added that the Houthi attacks are becoming more frequent. (This is the second in five days, and the latest in a long line of escalating attacks over seven years.) The Saudi government reiterated today that it condemns the acts of "sabotage" and will not bear responsibility for any global supply disruptions that they cause.
Within the sector, Gabriel de Alba's South American oil producer, Frontera Energy Corp. (FEC), was in a more cheerful mood, adding 62 cents to $14.60 on 214,700 shares. Today it trumpeted another oil discovery at its Perico exploration block in Ecuador. The Tui-1 exploration well hit 125 feet of net pay across seven reservoirs and is currently testing at 1,200 barrels a day from one of them.
This is the second well that Frontera and the block's co-owner, the Nasdaq-listed GeoPark Ltd. (U.GPRK: $14.80), have drilled together at Perico. They won the 17,700-acre block through a government-run auction in early 2019. Originally they hoped to start drilling it in 2019, but pushed this out to 2020, and then the pandemic pushed it out further to the very end of 2021. Patient investors were pleased when the first well, Jandaya-1, hit 78 feet of net pay in January. Now the Tui-1 well, about seven kilometres away, has made the block two for two on oil discoveries.
Orlando Cabreles, Frontera's chief executive officer, dubbed himself "excited" by the results. He said the joint venturers will be conducting appraisal activities "in the near future." Meanwhile, other prospects on the block are "being matured for future drilling." Investors were not put off by the vagueness. There are additional exploration wells on Frontera's docket this year, including another Ecuadorean one with GeoPark (this time at the so-far-undrilled Espejo block) and a much-hyped Guyanese one with CGX Energy Corp. (OYL: $1.78).
Here in Canada, Tony Marino's new promotion, Tenaz Energy Corp. (TNZ), lost five cents to $2.40 on 42,400 shares. It has released its year-end financials. The big event of the year was the recapitalization and management overhaul that it completed in October, putting Mr. Marino in charge, along with several of his associates. Mr. Marino and his people previously led Vermilion Energy Inc. (VET: $29.20) and before that Baytex Energy Corp. (BTE: $5.88). At Tenaz -- a name they picked themselves; the company was previously called Altura Energy -- they have stated repeatedly that they plan to go on an international shopping spree and eventually launch a dividend.
Today's financials brought little news on that front. Given the strong rally in commodity prices, Tenaz is having to "place an even greater emphasis on creative structuring to meet the needs of potential sellers," said Mr. Marino. (In other words, sellers are driving hard bargains.) In the meantime, Tenaz is focusing on its inherited assets in Alberta, where it expects to boost production to a range of 1,200 to 1,300 barrels a day in 2022, up from 1,100 in 2021. The full-year net profit for 2021 was reported as $8.3-million. While revenue rose substantially to $17.8-million from $8.6-million a year earlier, the main contributor to the lofty net income was a roughly $10-million impairment reversal.
Speaking of impairment, this was also a theme in the year-end financials filed today by Michael Binnion's Questerre Energy Corp. (QEC), down 1.5 cents to 26.5 cents on 419,100 shares. The company did not issue a press release about the financials. Perhaps it was not keen to discuss the $104-million impairment charge it took on the full carrying value of its assets in Quebec.
The charge did not come out of nowhere. After playing hot and cold with would-be producers in the province for years, the Quebec government finally vowed last October to ban oil and gas exploration and development, and said it would revoke existing licences for compensation that barely meets the threshold of nominal. It introduced a bill to this effect, Bill 21, in February. This is what necessitated the impairment. The legislation is not yet final, and Questerre emphasized in the SEDAR filings that it is doing its best to get the government to change its mind. It has been active in Quebec since 2002 and played a role in the 2008 discovery of a shale formation that could power the province for a century.
Questerre is not the only one that wants the bill dropped. Especially in light of the current European energy crisis, the province should heed calls to step up, produce gas and send it overseas, according to another local explorer. "We have an obligation to intervene to stabilize world peace," declared Mario Levesque, president of the private Utica Resources, in an interview this week with La Presse. Mr. Levesque opined that gas exports to Germany "could be done very quickly, within 16 to 18 months." He urged the Quebec government to postpone Bill 21 and not "leave Europe to its fate." A recent public opinion poll (commissioned by Utica) found that 65 per cent of Quebeckers are "very in agreement" or "somewhat in agreement" with the idea of developing the province's gas resources.
Getting back to Questerre's financials, they were not all doom and gloom. The $104-million Quebec impairment was partially offset by a $91.7-million impairment reversal on Questerre's assets in Alberta and Saskatchewan, thanks to rising oil prices. These also kept Questerre's revenue stable even as its production fell to 1,500 barrels a day in 2021 from 2,000 in 2020. (The company spudded three wells in 2021 but did not bring them on production. It plans to do so this year.) Thanks to the impairment reversal, the bottom line was not as painful as it could have been. Questerre ended up narrowing its overall net loss to $4-million in 2021 from $117-million in 2020.
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