Energy Summary for Aug. 8, 2022
2022-08-08 21:03 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added $1.75 to $90.76 on the New York Merc, while Brent for October added $1.73 to $96.65 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.67 to WTI, down from a discount of $19.63. Natural gas for September lost 47 cents to $7.59. The TSX energy index added 4.02 points to close at 217.70.
Oil prices had a choppy day, as traders weighed a slow demand recovery in China, the resumption of Iranian nuclear talks and an ambivalent assessment by one of Wall Street's staunchest oil bulls. Data over the weekend showed that Chinese crude imports rallied in July from a four-year low, though they remain weak on a year-to-date basis. Meanwhile, the European Union has tabled a draft text to salvage the 2015 Iran nuclear deal, potentially leading to a sharp increase in Iranian crude exports -- though traders have heard this repeatedly all year, with diminishing interest. Lastly, Goldman Sachs cut its forecast for third quarter Brent prices to $110 (U.S.) from $140 (U.S.), though it said it remains bullish more broadly.
Canadian oil sands player Cenovus Energy Inc. (CVE) added 73 cents to $21.99 on 13.9 million shares. Its news today came from south of the border, where Cenovus is buying out its joint venturer, BP, at the Toledo refinery in Ohio. The asset is still widely known as the BP/Husky Toledo refinery. Cenovus acquired its current interest of 50-per-cent when it merged with Husky last year, and now it will acquire the remaining 50 per cent from BP for $300-million (U.S.) cash.
The deal has been spinning about the rumour mill for weeks. Last month, Cenovus sent its executive vice-president of the downstream division, Keith Chiasson, to present at an RBC investment conference, where he brought up the topic of the Toledo refinery. He speculated that Cenovus could acquire full control and then connect the refinery by pipeline to its existing U.S. downstream network -- particularly its Lima refinery, also in Ohio. This would provide better control over the movement of feedstock and refined products. Mr. Chiasson made an appearance in today's press release to toast the "strategic addition to our downstream business." He did not mention the Lima refinery, but a new presentation on Cenovus's website makes reference to "potential turnaround efficiencies by sequencing with Lima," likely corporate-gabble for a future pipeline.
Today's deal also represents the second time in as many months that Cenovus has bought out BP as a joint venturer. In June, it agreed to acquire BP's 50-per-cent interest -- with Cenovus already holding the other 50 per cent -- in the Sunrise oil sands project in Alberta. The 50,000-barrel-a-day Sunrise was another piece of Cenovus's inheritance from Husky. In exchange for BP's half, Cenovus must pay $600-million cash, fork over up to an additional $600-million in future payments, and give BP its 35-per-cent interest in the undeveloped Bay du Nord project off the coast of Newfoundland and Labrador. The companies are hoping to close both the Sunrise deal and today's Toledo refinery deal by the end of the year.
Further afield, Paul Baay's Trinidad-focused Touchstone Exploration Inc. (TXP) bounded up 18 cents to $1.36 on 862,000 shares. The Trinidadian environmental regulator has accepted Touchstone's EIA (environmental impact assessment) for the Cascurada development on the company's Ortoire gas block. This is a necessary step to gaining an environmental permit and ultimately starting production. "We are excited that the [regulator] has accepted our [environmental] documentation," cheered Mr. Baay, president and chief executive officer. He added that he expects to see the environmental permit processed "in the near future," perhaps even sooner than the regulator's deadline of Sept. 15.
Mr. Baay left out any predictions of when Cascadura could start production -- undoubtedly a deliberate omission, perhaps reflecting the harsh lessons learned at a different development on the block, Coho. Coho is currently about 2-1/2 years behind Mr. Baay's original dream of beginning production in the first quarter of 2020. Well into the third quarter of 2022, Coho remains non-producing, although (as discussed last Wednesday) it is heading into the commissioning phase and could finally come on-line this fall. Its expected output is 10 million cubic feet of gas a day (the equivalent of about 1,700 barrels a day), coming from one well.
Although further behind in development than Coho, Cascadura is significantly larger. Its facilities have a design capacity of 200 million cubic feet a day, from six wells. Construction and development drilling are not finished yet; that is still at least four months away, depending in part on the timing of the environmental permit. According to Touchstone's cheerleaders, if the permit arrives later this month and construction moves quickly after that, the start of production of Cascadura could be a delightful Christmas present.
One cheerleader championing this theory is Canaccord Genuity analyst Charlie Sharp, who put out a boosterish research note this morning, speculating that Touchstone will achieve its gassy dreams by year-end. This in turn should "propel Touchstone [in 2023] to a high-output, gas-dominated producer with still plenty of exploration to go for," he declared. He hiked his price target to $3.15 from $3 and reiterated his "speculative buy" rating. Investors may wish to note the fine-print disclosures from the firm that cuts Mr. Sharp his paycheque, Canaccord. The firm acts as a broker and a "market maker" for Touchstone and receives compensation from it for investment banking services.
While Touchstone edges closer to turning on the gas, another international company is celebrating that very milestone. Serafino Iacono and Frank Giustra's NG Energy International Corp. (GASX) lost two cents to $1.12 on 203,500 shares, after trumpeting the start of gas production from its Maria Conchita block in Colombia. Like Touchstone, NG Energy has trailed far behind its original production schedule. Now it has its first well connected to the grid. "After many delays caused by negotiations with communities and interruptions generated from the COVID-19 pandemic, [we] have finally hooked up [our gas]," cheered CEO Mr. Iacono. He added that NG Energy already has a temporary sales contract and plans to enter a firmer one, at better pricing, in December.
Today's neutral reaction aside, the stock has spent the last three weeks nearly doubling to $1.12 from 63 cents. It still has a long way to climb back to January's high of $2.33, when investors hoped that gas production would be imminent.
The promotional duo of Mr. Iacono and Mr. Guistra no doubt aim to take the stock higher still. Both of them were previously involved in a different Colombian promotion, the oil producer and market darling Pacific Rubiales, which went from $2 in 2008 to as high as $35 in 2010. It had an unhappy ending when it crashed into bankruptcy in 2016. How well investors think of the promoters tends to line up with where they fell in that timeline. In any case, Pacific Rubiales is now under new management, with new branding. It underwent a lengthy restructuring and re-emerged in 2017 as Frontera Energy Corp. (FEC: $11.41).
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