Energy Summary for Oct. 13, 2021
2021-10-13 20:06 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery lost 80 cents to $80.44 on the New York Merc, while Brent for December lost 24 cents to $83.18 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.79 to WTI, down from a discount of $12.42. Natural gas for November added eight cents to $5.59. The TSX energy index lost a fraction to close at 154.34.
Oil prices settled mildly lower (but still near multiyear highs), after OPEC trimmed its short-term oil forecast. In its latest monthly report, released this morning, OPEC said it expects oil demand in 2021 to increase by 5.82 million barrels a day. This is a decrease from its prior forecast of 5.96 million barrels a day. The group maintained its forecast that demand will rise by 4.2 million barrels a day in 2022. The report happened to come on the same day that President Vladimir Putin of Russia, the main member on the "plus" side of OPEC+, told an industry conference that $100 (U.S.) oil prices are "quite possible." He did not give an estimate on timing and merely claimed that every member of OPEC+ is "doing our utmost to stabilize the market."
Here in Canada, one of the sector's biggest movers was Sue Riddell Rose's Alberta-focused Perpetual Energy Inc. (PMT), up 25 cents to 72 cents on 1.78 million shares. It had no particular news to explain the jump. The Investment Industry Regulatory Organization of Canada (IIROC) took notice, asking its typically narrow question about the existence of "material undisclosed information." Perpetual provided the typically narrow response insisting that it is wholly unaware of any such thing.
That sums up today's press release. The above-mentioned Ms. Riddell Rose, however, got a lovely mention this morning in the Financial Post, complete with a smiling photo op under the fawning headline, "Gemstone in the oil patch." The gemstone is not actually Perpetual, though the article noted that Ms. Riddell Rose is Perpetual's president and chief executive officer. The real subject of the article was the spinout company that Perpetual created last month. This is called Rubellite Energy Inc. (RBY), up one cent to $2.65 on 253,100 shares. Ms. Riddell Rose is the president and CEO of this company too (and may have chosen its name as a nod to her husband, Mike Rose, who leads Tourmaline Oil Corp. (TOU: $43.11). The rubellite is a member of the tourmaline family).
Ms. Riddell Rose told her interviewer that Perpetual created Rubellite to hold its assets in the "very exciting" Clearwater oil play of Alberta. Rubellite paid $60-million for the assets and then closed a further $83.5-million in equity financings to help develop them. The financings were done at $2 a share, meaning investors are already sitting on sizable gains, based on Rubellite's closing price today of $2.65. The Financial Post credited Rubellite with "breath[ing] life back into [the] junior oil and gas space ... after a years-long capital freeze-out."
Ms. Riddell Rose accepted the compliments and made sure to give Perpetual a plug as well. Perpetual used the Rubellite asset sale to help "right-size" its balance sheet, slashing its debt to $59-million from $110-million, she said. She added that Perpetual, as a producer of both gas and heavy oil, is benefiting from the "explosive" rally in AECO and WCS prices. "[These are] at levels we haven't seen for many years," she marvelled. Investors seemed to share in her excitement. Today Perpetual's stock hit an intraday high of 93 cents, its highest level in nearly four years.
Further afield, Gary Guidry's Colombian oil producer, Gran Tierra Energy Inc. (GTE), lost one cent to $1.12 on 1.63 million shares. This morning, it released an operational update for the third quarter. It claimed to produce a quarterly average of 29,000 barrels a day.
This figure falls short of its targeted range of 30,000 to 32,000 barrels a day for the second half of the year, but Gran Tierra has the whole fourth quarter to fix that. In any case, 29,000 is far better than the 23,000 barrels a day that the company averaged in the second quarter, when it was plagued by protesters. To be clear, the protesters were not deliberately targeting Gran Tierra -- they were angry at the Colombian government over economic policies -- but the road blockades that they set up disrupted the operations of Gran Tierra and several oil producers in the country. The government finally managed to mollify the protesters and clear the blockades in mid-July. The third quarter was thus only partially affected, and Gran Tierra emphasized today that its current production is safely over the 30,000-barrel-a-day mark.
Just as production has been rising, so have oil prices, providing plenty of extra cash flow. Gran Tierra boasted that it has been able to reduce its bank borrowings to just $140-million (U.S.) as of last week, a $50-million (U.S.) drop from $190-million (U.S.) at the start of the year. (It opted not to remind investors that this is still just a fraction of its total debt of $758-million (U.S.) as of June 30.) "With production restored, a successful 2021 drilling program, strong world oil prices and a strengthened balance sheet, we are very excited about the fourth quarter of 2021 and all of 2022," declared president and CEO Mr. Guidry. Investors nodded in agreement. Despite today's slight drop to $1.12, the stock has roughly doubled from 57 cents since mid-August.
Back in Canada, Doug Bailey and Frank Muller's Razor Energy Corp. (RZE) lost four cents to 83 cents on 62,900 shares. It has arranged a $2.2-million private placement of 84-cent shares. This works out to about 2.6 million shares, a low figure for most companies, but dilutive in the context of Razor's trim share count of 21 million. The company tends to prefer taking on debt when it needs money. As it happens, one of its main creditors will be the main participant in the financing. Alberta Investment Management Corp. (AIMCo) is subscribing for $1.8-million of the $2.2-million private placement.
AIMCo has been backing Razor since 2017, when it agreed to provide a $30-million four-year term loan to the company. As consideration, it received about 10 per cent of Razor's shares. Over the years, AIMCo has proved itself to be a most agreeable lender, repeatedly letting Razor defer interest payments -- even after the loan went into default in late 2020 -- and even (in early 2021) increasing the loan to $50-million and extending the due date to 2024. Today's private placement may suggest that AIMCO still has plenty of faith in Razor's business. Of course, it also signals that AIMCo wants greater influence over the business, as its equity ownership will nearly double to 19.8 per cent. Even cozy friendships have their price.
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