Energy Summary for Jan. 10, 2023
2023-01-10 20:48 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added 49 cents to $75.12 on the New York Merc, while Brent for March added 45 cents to $80.10 (all figures in this para U.S.). Western Canadian Select traded at a discount of $26.30 to WTI, unchanged. Natural gas for February lost 27 cents to $3.64. The TSX energy index lost 1.09 points to close at 233.18.
Oil prices headed higher on bullish demand forecasts. In the January version of its closely watched Short-Term Energy Outlook, the U.S. Energy Information Administration forecast that global consumption of liquid fuels (such as gasoline, diesel and jet fuel) will rise to a record 102.2 million barrels a day in 2024, compared with 99.4 million in 2022. Meanwhile, long-time oil bull Goldman Sachs said rising demand will soon push oil prices back into the triple digits. It predicted that Brent could reach $105 (U.S.) by the fourth quarter.
Canadian oil sands giant Suncor Energy Inc. (SU) lost 53 events to $41.66 on 10.3 million shares. It had no news today, but got a less than favourable mention this morning from Wells Fargo analyst Roger Read, who downgraded the stock to "equal weight" from "overweight" and cut his price target to a barely above-market $43 from $51. While Mr. Read has a "positive outlook" on the oil and gas sector as a whole, he scolded Suncor for its "continuing poor operational performances combined with average capital investment performance at best."
One possible glimmer of hope, mused Mr. Mead, is the "potential for activist intervention." Suncor previously caught the eye of activist fund manager Elliott Investment Management last spring. The two of them reached a truce in the summer, when Suncor appointed three Elliott nominees to its board of directors, two of whom are on the search committee for Suncor's next chief executive officer. Mr. Mead is open to the possibility that Elliott's involvement could "drive faster and more meaningful change" than he currently expects from Suncor. He fears, however, that Suncor's issues "run deeper than a new CEO or modest restructuring of the company's operations."
On the subject of restructuring operations, Suncor was separately in the news today after European news outlets reported that Norway's Equinor is considering buying Suncor's assets in the U.K. North Sea. The assets include a 29.9-per-cent interest in the CNOOC-operated Buzzard field, with net production of 22,000 barrels a day, as well as a 40-per-cent interest in the proposed Rosebank development, a joint venture with Equinor and Ithaca Energy. Norwegian news outlet DN (for Dagens Naeringsliv) speculated that Equinor could pay as much as $1.5-billion (U.S.) for these assets. While Suncor has not commented on the rumours, it told investors last May that it is "exploring the sale of its entire U.K. portfolio," though it is in no rush to clinch a deal.
Back in Canada, Pat Carlson's Alberta Montney-focused Kiwetinohk Energy Corp. (KEC) added three cents to $14.29 on 2,700 shares, an even thinner volume than normal. Investors were indifferent to the trumpets hauled out by CEO Mr. Carlson as he and other members of management rang today's opening bell for the TSX. They put out a press release to mark the occasion, sharing their excitement at "celebrat[ing] the company's new listing."
"New" is a stretch. Kiwetinohk (a Cree word that means north and is pronounced "key-wheat-in-no") made its TSX debut almost exactly a year ago, on Jan. 14, 2022. From a liquidity perspective, however, it has spent the year barely noticed by investors. This has evidently frustrated Mr. Carlson, whose previous promotion was the attention-grabbing Seven Generations Energy (now part of ARC Resources Ltd. (ARX: $15.83)). A few weeks ago, grumbling about the "lack of trading liquidity," Mr. Carlson announced that Kiwetinohk was launching its first share buyback program. He also unveiled a three-year plan to boost production to as much as 42,000 barrels a day in 2025, compared with about 17,000 in 2022. The stock remains a thin trader despite his efforts.
Further afield, Gary Guidry's Colombia-focused Gran Tierra Energy Inc. (GTE) edged down two cents to $1.16 on 1.29 million shares, despite touting its "strong finish to 2022." It patted itself on the back for achieving full-year average production of 30,800 barrels a day. This was enough to squeak in at the low end of its guidance of 30,500 to 32,500 barrels a day, a feat that left president and CEO Mr. Guidry feeling quite "excited."
His enthusiasm is understandable. Gran Tierra previously failed to meet its original production targets in each of 2019, 2020 and 2021, after numerous operational setbacks forced it to dial back its ambitions. It finally, jubilantly bucked the trend in 2022 by achieving the guidance it picked at the outset. (As long-term investors will be aware, however, the 2022 guidance of around 31,500 barrels a day was still a long way down from the 40,000 barrels a day that Gran Tierra was producing in early 2019.)
Alas, if Gran Tierra dodged production potholes in 2022, it could not avoid political ones. The $1.16 stock has more than halved since last summer's election of Colombia's leftist new president, Gustavo Petro. One of his first actions was to implement new taxes and royalty restrictions on the hydrocarbon sector. The effect of these reforms was particularly noticeable in the 2023 guidance that Gran Tierra released last month. Because of the higher financial burden, the company pegged its likely free cash flow in 2023 at just $65-million (U.S.), or nearly half of the 2022 forecast of about $110-million (U.S.), despite assuming higher production and a higher average Brent price than in 2022.
Mr. Guidry tried to bolster investors' spirits today by keeping the focus on Gran Tierra's production. For the month of December, he noted, production averaged 32,600 barrels a day -- already within the full-year 2023 guidance of 32,000 to 34,000 barrels a day. He added that he is "very excited" to "build off the momentum" from 2022. Despite his efforts, investors remained aloof.
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