Energy Summary for Sept. 8, 2022
2022-09-08 20:52 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added $1.60 to $83.54 on the New York Merc, while Brent for November added $1.15 to $89.15 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.36 to WTI, up from a discount of $20.38. Natural gas for October added eight cents to $7.92. The TSX energy index added 2.01 points to close at 228.16.
Canadian pipeline operator Enbridge Inc. (ENB: $53.83) has suffered a setback in a U.S. court. Today in Wisconsin, a district judge ruled that Enbridge's cross-border Line 5 pipeline is trespassing on land belonging to the Bad River tribal band. The judge did not grant the band's request for an injunction to shut the pipeline down, but he did rule that the band is entitled to compensation from Enbridge, in an amount left unspecified.
The dispute revolves around 50-year easements that Enbridge received to traverse the band's land starting in 1953. The parties signed a new agreement in 1992, which in Enbridge's opinion kept the easements in good standing for another 50 years. The band did not see it that way and said in 2013 that it was revoking the easements. When Enbridge continued to use the land to operate the pipeline, the band accused it of trespassing and hauled it to court in 2019.
Today's ruling, three years later, agrees that the band was within its rights to revoke the easements. "The court will grant the band's motion with respect to its trespass and unjust enrichment claims ... and the band's entitlement to a monetary remedy," wrote Judge William Conley. He added that Enbridge must reroute the pipeline around the band's territory within five years. (This should pose little problem, as a rerouting has already been in the works for the last two years. A full 100 per cent of the private landowners along the proposed 66-kilometre detour have already signed agreements.)
The band had also sought an immediate shutdown of Line 5. This the judge refused to grant, citing "significant public and foreign policy implications." News junkies will be well aware of these, thanks to a parallel legal battle raging in Michigan, where Governor Gretchen Whitmer has been trying to shut down Line 5 since 2020 -- apparently heedless of the fact that it supplies more than half of the heating needs of her own state, in addition to being an important supply source for several other states and provinces. Enbridge has refused to give in to Ms. Whitmer's demands. Its lawyers are arguing that pipelines are a federal matter -- and an international matter, given a 1977 treaty providing for the unimpeded flow of Canadian-U.S. pipelines. The Wisconsin judge specifically mentioned this treaty in today's decision to allow the pipeline to keep operating.
All in all, the ruling is both a defeat and a victory for Enbridge. While it will be pleased with the removal of one shutdown threat, it will also have to fork over a "monetary remedy" to the band, in an amount that the ruling did not explore. Enbridge is thus keeping up a friendly smile. In a statement acknowledging the ruling, it said it remains committed to resolving matters "amicably" with the band, and made sure to emphasize how many native Americans it plans to hire to work on the rerouting project. (They will be "at least 10 per cent of the project work force.")
Further afield, Craig Steinke and David Elliott's Reconnaissance Energy Africa Ltd. (RECO) added 30 cents to $4.83 on 1.06 million shares. The company spent today trumpeting the formal launch of a joint venture process for its Kavango basin assets. Given the sheer size of the Kavango -- spanning 8.5 million acres across both Namibia and Botswana, all licensed to Reconnaissance -- the company has made no secret of its goal to attract some deep pockets from outside, one of these days. Now the day has arrived and Reconnaissance is ready to primp and preen.
The launch comes as investors await the initial results of Reconnaissance's 2022 drill program, which began on the Namibian side of the basin in June. The first of four planned wells hit total depth last week. Between that and a simultaneous seismic program, the company is no doubt hoping to see plenty of suitors come sniffing, to the point that it has hired not one but two different consultants (Alvarez & Marsal of New York and Hannam & Partners of London). Its desired structure for a joint venture -- such as a farm-in, a direct equity investment or another alternative -- remains unspecified.
An ever-reliable cheerleader is waving pom-poms from the sidelines. In a research note this morning, Haywood analyst Christopher Jones hyped Reconnaissance's joint venture process, which has apparently seen "good unsolicited interest" already. "Accumulate shares at the current price levels," he recommended -- or, in other words, buy. He reiterated his price target of $14 (nearly triple today's close of $4.83). Investors must make what they will of the long-standing ties between Reconnaissance and Mr. Jones's employer, Haywood, which has managed numerous financings for Reconnaissance and whose founding partner and director, the above Mr. Elliott, was one of Reconnaissance's earliest investors.
Here in Canada, Rob Zakresky's Coelacanth Energy Inc. (COE) lost one cent to 71 cents on 149,400 shares. The Montney junior with a mouthful of a name -- the first word is pronounced see-la-kanth, after an elusive deep-sea fish once thought to be extinct -- is looking to get in shape for a hoped-for drill program starting this fall. Today it announced that it has hired Bret Kimpton as vice-president of operations.
The name may ring a bell for some energy investors, particularly those with an interest in Montney players. Mr. Kimpton was previously the vice-president of production at Brian Lavergne's Storm Resources, whose production rose from nothing in 2010 to more than 35,000 barrels a day in 2021, at which point it accepted a $6.28-a-share takeover offer from Canadian Natural Resources Ltd. (CNQ: $69.58). This made it the fourth Storm-themed promotion that Mr. Lavergne and his people have sold since 2002. They would need to sell a few more to catch up to Mr. Zakresky and his people, for whom Coelacanth is their seventh promotion since 1993. It is a spinout from No. 6, Leucrotta Exploration, which they sold to Vermilion Energy Inc. (VET: $31.35) just three months ago.
Incidentally, Vermilion is keeping its eye on No. 7. It agreed to subscribe for 53.3 million shares of Coelacanth at 27 cents, or $14.4-million in total, as part of the Leucrotta takeover in June. Since then, it has been a steady buyer in the open market, picking up a further 5.9 million shares (including 208,000 since last week). Vermilion now holds 59.2 million of Coelacanth's 425 million shares, for which it has paid about $18.3-million. The position today is worth $42.million.