Energy Summary for Sept. 15, 2021
2021-09-15 20:09 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added $2.15 to $72.61 on the New York Merc, while Brent for November added $1.86 to $75.46 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.90 to WTI, down from a discount of $11.89. Natural gas for October shot up 20 cents to $5.46. The TSX energy index added 5.64 points to close at 134.05.
Oil prices reached six-week highs on bullish U.S. inventory data. The American Petroleum Institute (API) reported this morning that U.S. crude inventories fell by 5.4 million barrels last week, significantly more than the 3.5-million-barrel decrease that analysts were expecting. (After the close, the Energy Information Administration (EIA) confirmed an even larger decrease of 6.4 million barrels. Its numbers are generally more accurate, because companies are required to report to the EIA, whereas participation in the API's surveys is voluntary.) The tightening in supply comes as the U.S. Gulf Coast continues to mop up after the back-to-back hurricanes Ida and Nicholas. Offshore producers are restoring output, but the slow pace of recovery means that the lost production has now exceeded that suffered in the aftermath of Hurricane Katrina in 2005.
Here in Canada, Brian Schmidt's Alberta- and Saskatchewan-focused Tamarack Valley Energy Ltd. (TVE) added 13 cents to $2.85 on 15.4 million shares. Yesterday it added just one cent, despite touting a five-year plan to generate over $1-billion in free cash flow and potentially distribute some of that cash to shareholders. They merely yawned. Perhaps the "potentially" was the roadblock preventing Tamarack from following Crescent Point Energy Corp. (CPG: $5.33), whose stock has soared to $5.33 from $4.30 since Monday's introduction of a firm three-cent quarterly dividend. Both stocks benefited today from the jump in oil prices.
Returning to Tamarack's five-year plan, it seeks to strike a balance between numerous "strategic principles" -- or in other words, it is a wish list, covering everything from debt reduction and internal production boosts to shareholder returns and splashy acquisitions. Acquisitions have already been a big theme for Tamarack over the last nine months. It has been scooping assets in two up-and-coming plays in Alberta (the Clearwater and Charlie Lake), in the process sending its share count to 407 million from 222 million and its net debt to $506-million from $199-million. It announced yesterday that it has just forked over another $36-million to buy more assets (in the Clearwater). Management shrugged off the outlay by pointing to the five-year plan and its "path to eliminating debt by 2024."
Investors soon learned that this is just one of several paths in view. Other musings from management included the achievement of "target debt" in early 2022, enabling a "potential return of capital" -- perhaps dividends, perhaps share buybacks, perhaps both. Management further sees "flexibility" to pursue "growth both organically and through M&A." All in all, the merry but muddy messaging failed to move shareholders. The stock got a greater boost today from rising oil prices.
Elsewhere in Alberta, Stephen Loukas's Cardium-focused Obsidian Energy Ltd. (OBE) added 47 cents to $3.97 on 1.17 million shares. It too benefited from the oil rally, as well as a cheerful update on its continuing Cardium drill program. "We're extremely pleased with the results [to date]," said Mr. Loukas, the company's interim president and chief executive officer. He predicted that Obsidian's full-year production will be "near the high end" of its full-year guidance (24,000 to 24,400 barrels of oil equivalent a day).
Obsidian also announced that it has extended Mr. Loukas's contract as interim president and CEO until Dec. 31, 2021. That will be more than two years since he first started in those roles on Dec. 5, 2019 -- a long time for an "interim" executive. His appointment came at a time when Obsidian was in financial muck and was considering selling itself. That it chose Mr. Loukas presumably had something to do with his status as a co-founder and portfolio manager of FrontFour Capital, a U.S. hedge fund that has been investing in Obsidian since 2013. FrontFour owned, and still owns, about 5 per cent of Obsidian's shares, having spent about $40-million to amass that position. The investment was worth a painful $2.5-million by the time Mr. Loukas arrived at Obsidian. Things got worse before they got better -- at one point in 2020, the investment was worth a mere $778,000 -- but as of today, the value has rallied to $15.4-million. There is still a long way to go, but if Obsidian can find a permanent CEO candidate by year-end, Mr. Loukas seems ready to step down.
Further afield, the Lundin family's Africa Oil Corp. (AOI) added seven cents to $1.65 on 409,300 shares, after reviving a somewhat dormant promotion in Kenya. The company has a joint venture at the 10BB and 13T blocks with Tullow Oil and France's Total. The joint venturers have now presented a draft field development plan to the Kenyan government, with the goal of submitting a finalized plan by year-end. They are also marketing the assets to other potential joint venturers.
The Kenyan assets used to be the crown jewel of Africa Oil's portfolio. They are where the joint venturers made Kenya's very first oil discovery, in 2012 (sending Africa Oil's stock shooting past $11 from $2 in a matter of months). No less than the International Monetary Fund predicted that Kenya would be a major global oil producer by 2020. Alas, Kenya is barely any closer to that status now than it was then. Part of the holdup is the need for a pipeline connecting the blocks to a Kenyan port. The joint venturers and the Kenyan government tentatively agreed to build the pipeline in 2016, firmed up their agreement in 2018, ran into permitting delays in 2019 and then smacked into a global downturn in 2020. Over the same period, the planned capacity of the pipeline -- and therefore the theoretical production from the blocks -- was reduced to about 70,000 barrels a day from 120,000. Tired of the Kenyan runaround, Africa Oil bought some already-producing assets in Nigeria in 2020 and began hyping them instead. The Kenyan promotion was tucked offstage.
Now Africa Oil is turning the spotlight back on. "We have made significant progress in redesigning and optimizing [the] project," declared president and CEO Keith Hill. Interestingly, the planned production rate is going back up to 120,000 barrels a day, reflecting a larger proposed pipeline. None of the joint venturers estimated a completion date for the pipeline (they will be lucky to get it by 2024). More details should arrive if they can rope in another co-owner. Mr. Hill expressed optimism that the "economically robust" asset should secure a "strategic partner ... ahead of a final investment decision (FID)." He did not estimate when that could happen either.
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