Energy Summary for Sept. 29, 2021
2021-09-29 20:20 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery lost 16 cents to $74.83 on the New York Merc, while Brent for November lost 45 cents to $78.64 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.80 to WTI, down from a discount of $11.75. Natural gas for November added 36 cents to $5.48.
The TSX energy index added 1.46 points to close at 144.15. Oil prices held steady as OPEC+ signalled no intention of changing its near-term production policy. The group is meeting again next week, and as usual, its joint technical committee (JTC) held an advance meeting -- today -- to discuss market developments. The JTC does not set policy but can recommend it. Some analysts have speculated that it would recommend accelerating the group's monthly production increases, in a bid to stabilize oil prices that are currently around three-year highs. Instead, a posting on the official OPEC Twitter account indicated that the existing agreement "continue to help balance the need for incremental increases to address demand, while guarding against the potential for supply overhangs."
The mood in the Canadian oil patch was a toss-up, depending on whether one focused on pension funds or pipelines. Quebec's Caisse pension fund has announced that it will divest itself of all upstream oil assets by the end of next year. The move is not exactly a surprise; the Caisse has been pooh-poohing fossil fuels since 2017. It finished scrubbing out coal by 2019 and turned its glare on oil. Now it is just about done with that too. Caisse clarified that gas producers are safe -- for now -- and pipelines are fine too, even oil pipelines. The overall effect was to please exactly no one. Green groups grumbled that the Caisse should sell every fossil-fuel-touching investment, while proponents of the oil sector said these sorts of divestments "do nothing to impact global demand for oil and gas, but only serve to drive investment away from responsible energy-developing nations like Canada."
The above quotation came from Tim McMillan, president and chief executive officer of the Canadian Association of Petroleum Producers (CAPP). He was in a much better mood once Enbridge Inc. (ENB: $50.79) announced that it will bring its long-delayed Line 3 project into service on Oct. 1. This 760,000-barrel-a-day pipeline runs from Alberta to Wisconsin and has been in the works since 2013. It is the first large-scale expansion of Canada's crude export capacity in about a decade, surviving legal battles, regulatory roadblocks, environmentalist outbursts and the other challenges that have sent so many other projects to their graves. CAPP's Mr. McMillan released a statement to celebrate the achievement. "This vital piece of infrastructure will improve access to oil markets in North America," cheered Mr. McMillan, "while strengthening Canada's position as a responsible, affordable and reliable energy provider."
Within the oil patch, Doug Bartole's Alberta Cardium producer, InPlay Oil Corp. (IPO), added six cents to $1.47 on 1.27 million shares. It has agreed to buy a fellow Cardium junior, Hugh Ross and Bruce Waterman's Prairie Storm Resources Corp. (PSEC), for $50-million in cash and shares. Unusually for a takeover target, Prairie Storm stayed unchanged today at 40 cents on zero volume. The news was likely already leaking out yesterday, when the stock suddenly jumped up from 28 cents on its highest-ever volume -- 51,000 shares. The stock has always been a thin trader. More than 51 million of its 147 million shares are controlled by just five shareholders.
The above-noted Mr. Ross, Prairie Storm's president and CEO, and Mr. Waterman, an independent director, hold 12.7 million shares each. Starting with Mr. Waterman, his resume includes stints as executive vice-president and chief financial officer of Agrium (now Nutrien), vice-president and CFO of Talisman Energy (bought by Spain's Repsol in 2015), and various roles at Amoco and Dome Petroleum. He is currently a director of Irving Oil and Ovintiv Inc. (OVV: $42.66). Mr. Ross, meanwhile, is the former CEO of Gentry Resources and Novus Energy. He sold Gentry to Crew Energy Inc. (CR: $3.06) for $4.19 a share in 2008 and then sold Novus to China's Yanchang Petroleum for $1.18 a share in 2013. Both Gentry and Novus were public, but after Mr. Ross co-founded Prairie Storm in 2014, he kept it private for years before finally listing it at 28 cents in December, 2020. Based on today's close of 40 cents, its time as a public company has been brief but reasonably rewarding for shareholders, if they could get past its razor thin liquidity.
InPlay is just excited to get its hands on some more Cardium assets. It feels that it did well with its last Cardium purchase, specifically a batch of Pembina Cardium assets that it bought for $1.9-million last December. Since then, president and CEO Mr. Bartole has repeatedly and emphatically boasted that the assets are "significantly outperforming forecasted production volumes and booked reserves." He credited the assets with allowing InPlay to hike its 2021 production guidance to as much as 5,750 barrels a day (from a prior range of 5,100 to 5,400) in August. It set its 2022 target as high as 6,550 barrels a day, with the Pembina assets again receiving much of the credit.
The contribution from Prairie Storm will push the 2022 target as high as 9,400 barrels a day. Prairie Storm is not in the Pembina area, but rather the nearby Willesden Green area, which InPlay complimented as the home of "some of the most prolific Cardium oil wells in Alberta." (It does not seem that any of those prolific wells have been drilled by Prairie Storm lately, considering that its production has fallen to 1,800 barrels a day from 2,200 since it went public, but InPlay no doubt sees itself as capable of rectifying that.)
InPlay's shareholders seem intrigued, but wary. One risk with acquiring a thin trader is that its shareholders may take advantage of the suitor's liquidity to close out positions, creating selling pressure. A recent example of this came from fellow Alberta player Journey Energy Ltd. (JOY: $1.47) when it acquired the private Briko Energy last month. Briko had plenty of shareholders left over from the days of a public predecessor, and once they became shareholders of Journey, they apparently rushed the exits. Journey's stock tumbled from over $1.60 in July to just $1.10 in late August. Happily, rising oil prices have since returned Journey's stock to today's close of $1.47.
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