| West Texas Intermediate crude for February delivery added 10 cents to $73.77 on the New York Merc, while Brent for March lost 12 cents to $78.57 (all figures in this para U.S.). Western Canadian Select traded at a discount of $27.40 to WTI, unchanged. Natural gas for February lost one cent to $3.71. The TSX energy index added 5.74 points to close at 232.78. Oil prices ended the first week of 2023 with a fizzle, notching a weekly decline. The disappointing start to the year reflects persistent global recession concerns. These continued to weigh on traders' minds today, only slightly offset by a boosterish U.S. jobs report and optimism about higher Chinese fuel demand heading into the Lunar New Year holidays. Vermilion Energy Inc. (VET) lost four cents to $20.29 on 4.77 million shares, as it spent the day trumpeting its 2023 guidance, a 25-per-cent dividend boost and the resumption of share buybacks. It nonetheless continued to fight a hard battle to lure back shareholders. They have sent the stock down to just $20 from $33 in the past two months, warily eyeing its assets in Europe and particularly Ireland, where the Irish government is trying to push through a hefty windfall profit tax. Vermilion struck up a confident pose as it unveiled its guidance. It expects to spend $570-million in 2023, including $230-million on its international assets, representing a 7-per-cent boost from what it spent on its international assets last year. (Its North American spending will remain roughly the same at $340-million.) In particular, Vermilion is devoting "increased capital allocation to continental European gas drilling," soldiering onward despite the anticipated pain of windfall taxes. Management estimated that these will eat up about $300-million in 2023. It plastered on a smile, dismissed the pain as "temporary" (affecting just 2022 and 2023) and emphasized Vermilion should still enjoy about $800-million in free cash flow for the year. The money will go in part toward share buybacks and to increase the eight-cent quarterly dividend to 10 cents, for a yield of 2 per cent. Investors remained ruffled. The size of the windfall tax will vary depending on commodity prices, building more than the usual amount of guesswork into the guidance. Unsurprisingly, Vermilion wants a financial cushion, but unfortunately, it will make one at shareholders' expense. After telling shareholders last August that it wanted to dedicate 50 to 75 per cent of its free cash flow in 2023 to buybacks and dividends, management has now walked this back to "up to 25 per cent." The decision to boost European spending in spite of the tax raid may also have left a sour taste in investors' mouths. Management perched in the middle of the road, delivering a (mild) rebuke over the tax situation -- particularly in Ireland, where Vermilion is "firmly opposed" to the government's desired windfall tax of no less than 75 per cent -- but adding that it still sees a role to play in "enhanc[ing] Europe's energy security." It urged Europe to pursue more "stable, predictable and equitable" policies to encourage investment. On that note, management said the country that will receive the largest proportion of the European drilling budget is not Ireland but rather Germany, where apparently "the investment climate has improved over the last year." (This does not mean that Germany has resisted the temptation to skim off energy companies' profits, but at least it managed to restrain itself to a proposed windfall tax of just 33 per cent.) The focus on Germany may only have contributed to today's unease. The country generally does not get much promotion from energy companies, with good reason. Although the German government has been making noises lately about encouraging its domestic energy industry and reducing its reliance on imports, investors have heard that sort of talk before -- particularly any who had a brush with a now-defunct Michael Greenwood promotion, PRD Energy Inc. Mr. Greenwood, best known as the president and chief operating officer of Canaccord Genuity until his retirement in 2006, took control of PRD in 2010 and took it into Germany that same year. The idea was that Germany would fan the flames of a domestic energy industry in order to cut back on imports (sound familiar?). Cheerleaders' chants about PRD exploring "the next Bakken" helped it attract some high-profile supporters, including Grant Fagerheim, president and chief executive officer of Whitecap Resources Inc. (WCP: $10.07). Ultimately, however, things did not pan out. Green groups bellowed, the government pandered, and PRD managed to drill only one well (in 2013), which was a behind-schedule and over-budget disappointment. The company limped along for a few more years before starting a liquidation process in 2016. Having traded as high as $1.56 in 2013, PRD dissolved in 2020 with a distribution to its remaining investors of about two-fifths of a penny per share. Moving on, another international promotion, Corey Ruttan and John Wright's Brazil-focused Alvopetro Energy Inc. (ALV), lost six cents to $7.23 on 46,400 shares. It hauled out the trumpets today to announce "record" sales in December. The new record is 2,785 barrels a day, while for context, the old one was 2,720 barrels a day in October (with a dip to 2,667 barrels a day in November). Investors mostly yawned. At this size, squeezing out a few more barrels and claiming a record should be all but mandatory. Alvopetro's management can be forgiven the show of enthusiasm, as it had much less to cheer about in the rest of the update. Its new 182-C2 well is looking like a bust. The company drilled the well last fall and announced in October that it hit 10 metres of possible net pay in one formation, with "hydrocarbon potential" in another. In today's update, however, it sighed that its testing operations in both formations returned non-commercial oil and gas. It is now "evaluating alternatives" for the well, including possible stimulations. One last international junior, Abby Badwi's TAG Oil Ltd. (TAO), added three cents to 65 cents on 83,200 shares. CEO Toby Pierce has been trying to stir up hype about the company's 2023 program in Egypt. TAG entered Egypt just a few months ago, signing a service agreement to explore and develop an unconventional reservoir at the Badr oil field. Now "our experienced team has hit the ground running," wrote Mr. Pierce in a letter to shareholders yesterday. He said TAG is about to start a vertical well recompletion in mid-January and will drill its first horizontal well in May or June (with potentially a second to follow around year-end). "Without a doubt," he declared, "the upcoming year is one that I am enthusiastic about." Investors seem hopeful as well. To raise money for its Egyptian efforts, TAG closed a $25-million equity offering at 40 cents a share in November; at today's close of 65 cents, subscribers are already sitting on a paper gain of nearly two-thirds. They still have a bit of a wait before the results of the program start to trickle in. The first batch, from the recompletion, should arrive some time in March. |