Energy Summary for Sept. 2, 2021
2021-09-02 20:30 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added $1.40 to $69.99 on the New York Merc, while Brent for November added $1.44 to $73.03 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.00 to WTI, down from a discount of $11.99. Natural gas for October added three cents to $4.64. The TSX energy index added 4.05 points to close at 126.72.
More space is opening up for Western Canadian oil exports. Enbridge Inc. (ENB: $49.96) has sent out a notice that it will offer the initial 620,000 barrels a day of capacity on its 760,000-barrel-a-day upgraded Line 3 starting in October. The pipeline, which runs from Alberta to the U.S. Midwest, was originally built in the 1960s. Enbridge started upgrading the line and doubling its capacity in 2017. Despite years of delays (particularly in Minnesota, where 900 so-called "water protectors" have been arrested since last December), the oil is almost ready to start flowing.
Canadian and Texan oil producer Baytex Energy Corp. (BTE) added 17 cents to $2.31 to 13.2 million shares, pleasing investors with an update from a new core play, the Alberta Clearwater. Baytex started drilling the Clearwater in early 2021 and has just finished well No. 5. "The Clearwater has emerged as one of the most profitable plays in Canada," cheered president and chief executive officer Ed LaFehr. He added that the production so far is "beyond our initial expectations."
Promoters often conveniently omit their expectations before claiming to have surpassed them, but Mr. LaFehr is an exception. During an industry conference in June, he indicated that he expected 300 to 350 barrels a day from Baytex's Clearwater wells, but would be quite happy with 200 to 250. The results shown today ranged from 175 to 875 barrels a day, with more at the high end than the low end -- an impressive showing over all.
Indeed, so impressed is Mr. LaFehr with the Clearwater that he has decided to officially add the play to Baytex's five-year plan. This was unveiled in April and will ostensibly see Baytex "generating over $1-billion of cumulative free cash flow" while "optimizing our production [at] 80,000 to 85,000 [barrels a day]." Investors were unimpressed at the time. One billion dollars is still lower than Baytex's debt of $1.6-billion, and 80,000 to 85,000 barrels a day is virtually flat with its current production. Yet those numbers did not include any contribution from the Clearwater, as Mr. LaFehr repeatedly reminded investors. He is now ready to change that. Investors will have to wait, however, until the new five-year plan is unveiled in December.
Elsewhere in Alberta, Andy Mah's Montney gas producer, Advantage Energy Ltd. (AAV), shot up 85 cents to $6.18 on 4.71 million shares. This is the stock's first time above $6 since 2017. (Those who bought at its low of 98 cents in 2020 will be thrilled.) Investors seemed to have a delayed but positive reaction to Advantage's guidance update from Tuesday evening. The company boosted its 2021 budget by $20-million to a range of $140-million to $150-million. This $20-million increase, by its calculations, will add $25-million in extra cash flow in 2022.
Advantage plans to carry out the extra activity in the fourth quarter. This should let it take advantage of an expected winter boost in gas prices, which have already been on a remarkable rise lately. (The AECO gas benchmark in Alberta has averaged about $3.20 year to date, up from $2 in 2020 and $1.60 in 2019.) Advantage is not the only one benefiting from higher gas prices. Fellow Montney player Birchcliff Energy Ltd. (BIR) -- whose stock, at $5.99, is also approaching its first time above $6 since 2017 -- has increased its cash flow guidance twice in the last three months. It was initially forecasting $360-million in cash flow this year. In May, it hiked this figure to $400-million, and last month it hiked it again to $500-million, all thanks to gas prices, with no accompanying increase to its budget ($230-million).
Today, however, all eyes were on Advantage. At least three analysts raised their price targets on Advantage's stock this morning. This may explain why the stock, after adding only eight cents yesterday, suddenly shot up 85 cents today.
Analyst adulation may also have given a boost to Colombian oil producer Parex Resources Inc. (PXT), which climbed handily above $20 today for the first time in a month, adding $1.61 to $21.15 on 1.24 million shares. It had no news today and has not released any in over four weeks. Yet it got a lovely mention this morning from RBC analyst Luke Davies, who upgraded the stock to "outperform" from "sector perform," following a "constructive update with the new CEO."
That would be Imad Mohsen. Mr. Mohsen, a former Shell executive, joined Parex as president and CEO last February, although his first three months were spent in a transition period with his predecessor (the now retired Dave Taylor). In more recent months, Mr. Mohsen has started to make his mark. He returned Parex's slightly wandering eye to its core assets in Colombia and introduced a 12.5-cent quarterly dividend (for a yield of 2.4 per cent). RBC's Mr. Davies, who has a price target of $28 on Parex's $21.15 stock, reported that Mr. Mohsen is quite happy with the changes he has made. In analyst-speak, "management indicated an invigorated enthusiasm with the company's position in Colombia and the depth of the opportunity set."
Another Colombian oil producer, Gran Tierra Energy Inc. (GTE), edged up one cent to 69 cents on 2.24 million shares, after touting a high-profile new board addition. The newcomer is Alison Redford, the former premier of Alberta. She was in that role from 2011 to 2014. Before that, she had served as justice minister and attorney-general since 2008. Her departure as premier in 2014 was not at the hands of an election loss -- the next election was not until 2015 -- but rather a caucus revolt and a string of controversies. (The controversies did not end with her resignation, from the return of the "tobacco-gate" scandal in 2016 to the explosive reports in 2017 that Ms. Redford had secretly tried to build a $2-million luxury penthouse for herself and her daughter, at taxpayer expense, in 2012.)
The experience did not sour Ms. Redford on public policy, only politics. She has since served as a policy advisor to the governments of Guyana, Afghanistan, Pakistan and South Sudan, for the World Bank and for Global Affairs Canada. Now she is adding a company directorship to her resume. Gran Tierra, announcing her appointment today, praised her "wealth of government, regulatory and international experience." She is not the first former premier to land herself a board seat at an energy company. Among others, former B.C. premier Mike Harcourt is a director of waste-to-energy firm Sharc International Systems Inc. (SHRC: $0.38), while former Saskatchewan premier Brad Wall is on the board of oil producer Whitecap Resources Inc. (WCP: $5.54).
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