Energy Summary for Aug. 17, 2022
2022-08-17 20:15 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added $1.58 to $88.11 on the New York Merc, while Brent for October added $1.31 to $93.65 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.10 to WTI, down from a discount of $19.66. Natural gas for September lost nine cents to $9.24. The TSX energy index added 3.40 points to close at 230.24.
Oil prices edged up on bullish U.S. storage data. According to the Energy Information Administration, U.S. crude inventories fell by 7.1 million barrels last week, drained by higher-than-expected demand. Analysts were forecasting a drop of just 275,000 barrels.
Meanwhile, OPEC's new secretary-general made some of his first public comments since taking the position earlier this month. Haitham Al Ghais of Kuwait (successor to Mohammad Barkindo of Nigeria, who died in July) told CNBC today that higher oil and gas prices, and soaring inflation, are not the fault of OPEC. He pinned the blame on years of "chronic underinvestment" in oil and gas. "This is the harsh reality that people have to wake up to and policymakers have to wake up to," said Mr. Al Ghais. "... The solution is very clear. OPEC has a solution: invest, invest, invest."
Within the sector, one company eager to invest in its very first gas production is Paul Baay's Touchstone Exploration Inc. (TXP), up 15 cents to $1.63 on 912,600 shares. Investors welcomed today's announcement of an environmental permit at Touchstone's Cascadura development at its Ortoire block in Trinidad. "This is a major step forward," cheered Mr. Baay, president and chief executive officer. He said the construction of the infrastructure necessary to start production from the company's two existing Cascadura wells will begin "immediately."
While Touchstone already produces about 1,400 barrels of oil a day in Trinidad, the Ortoire block will represent its first gas production, a mix that the company says will bring many benefits (including better tax treatment). It has counted on these benefits to hold investors' interest even as the production schedule falls further and further behind. Originally, Touchstone wanted to bring its first prospect at Ortoire -- not Cascadura, but rather the much smaller Coho -- on production in early 2020. That has yet to happen 2-1/2 years later. Mr. Baay is hoping that the 10-million-cubic-foot-a-day Coho finally swims upstream this fall, followed by the 200-million-cubic-foot-a-day Cascadura toward year-end. (Those figures are equivalent to about 1,700 and 33,000 barrels a day. Worth noting is that Cascadura will need several more wells before it can reach full capacity.)
"It has been a thorough process," said Mr. Baay -- perhaps with just a hint of understatement -- "but [this is a] positive outcome." He smiled for the cameras as the PR crew splashed his photo on Touchstone's Twitter account. For investors, he promised a steady stream of "updates on the project milestones as we move forward."
Another international operator, Craig Steinke and David Elliott's Reconnaissance Africa Energy Ltd. (RECO), stayed unchanged at $3.99 on 197,200 shares. It has received a three-year extension to its environmental permit in Namibia. The permit covers the 6.3-million-acre Namibian section of the Kavango basin, which covers 8.5 million acres across Namibia and Botswana, all licensed for exploration by Reconnaissance. So far it has focused on Namibia. The permit extension, according to the boasts of CEO Scot Evans, demonstrates how successfully the company is "working collaboratively with our interested and impacted stakeholders ... as we pursue commercial development."
Commercial anything remains a long way off. Reconnaissance did not begin drilling until last year and has finished just two wells so far, both test wells whose analysis did not include flow rates. (Instead the company promoted the wells' early-stage "indicators/shows" of oil and gas. This was enough to send the stock racing to last year's high of nearly $14, though the excitement soon fizzled and the stock has now retreated below $4.) Reconnaissance is now working on a follow-up test program, with the first well expected to reach total depth within a month. Today's environmental permit extension means that this and other authorized drilling can go ahead for three more years. (Eco-activists will grumble, no doubt, but they recently lost an attempt to overthrow the permit -- a court ruled in Reconnaissance's favour on Aug. 2 -- and will now face an even harder battle should they try to appeal.)
In South America, Serafino Iacono and Frank Giustra's NG Energy International Corp. (GASX) added two cents to 96 cents on 116,400 shares. It has filed its second quarter financials. They should mark the final quarter with no production or revenue, given that NG Energy triumphantly announced last week that it has started gas sales from its Maria Conchita block in Colombia. "We are ready to deliver gas to our customers and generate steady cash flow for the company for many years to come," trumpeted CEO Mr. Iacono last week.
The financials confirmed that the Maria Conchita tie-in turned NG Energy into a "revenue-producing entity." A Bogota-based distributor is buying the majority of the gas under an interruptible contract. These agreements are not as favourable as take-or-pay contracts, but Colombian law does not allow producers to enter take-or-pay contracts except once a year, always in December. Management claimed that it is content with its contract for now and expects to enter a better one once allowable in four months.
As if to keep spirits high, NG Energy doled out another big batch of options last week, enabling directors, officers, employees and consultants to buy up to 2.64 million shares over the next 10 years at $1.14 a share. These are on top of the 9.88 million options it had outstanding as of June 30, with a weighted average exercise price of 85 cents. The stock closed today at 96 cents.
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