Energy Summary for Nov. 1, 2021
2021-11-01 20:36 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added 47 cents to $84.05 on the New York Merc, while Brent for January added 99 cents to $84.71 (all figures in this para U.S.). Western Canadian Select traded at a discount of $15.10 to WTI, up from a discount of $15.25. Natural gas for December lost 24 cents to $5.19. The TSX energy index added 3.10 points to close at 166.01.
November got off to a wobbly start for oil prices. OPEC+ is meeting this Thursday and is expected to boost production by 400,000 barrels a day, in line with its agreement in July (and in defiance of oil-guzzling countries, including the United States, that want it to boost production more aggressively). Meanwhile, numerous heads of state jetted to Scotland for the COP 26 UN Climate Change Conference, taking place in Glasgow from Oct. 31 to Nov. 12. The governments of Denmark and Costa Rica are pressing other countries to join the so-called Beyond Oil and Gas Coalition and phase out fossil fuel production. Canadian Prime Minister Justin Trudeau, while not going quite that far, reiterated a controversial promise to impose emissions caps on the country's oil and gas sector.
Slightly more specifically, Mr. Trudeau spent today talking up Canada's "enhanced and ambitious climate action to cut pollution." He declared that Canada is the first major oil-producing country moving toward emissions caps and reducing pollution from the oil and gas sector to net zero by 2050. To help with this, the government plans to set five-year targets starting in 2025 -- with "plans" being the key word, as the government has not actually pinned these targets down, leaving companies in the dark as to whether their current actions can keep them on track. (These include even the ambitious actions of companies that are explicitly committed to net zero emissions by 2050, such as major oil sands players Canadian Natural Resources Ltd. (CNQ: $53.47) and Suncor Energy Corp. (SU: $33.05).) Mr. Trudeau said today that his government is figuring out "how best to move forward on this approach."
The reaction within Alberta was less than impressed. Premier Jason Kenney told reporters today that Mr. Trudeau has yet to properly engage with the province on the topic of caps and emissions reductions. Rather than "throw out big numbers at international conferences," the federal government should be helping Alberta-based companies that are working on carbon capture and storage technology, said Mr. Kenney. Meanwhile, Adam Legge, president of the Business Council of Alberta, told The Canadian Press that the government must consider factors such as cost, technology, and the speed and scale of alternative energy developments before it sets policies. In full agreement was Grant Fagerheim, president and chief executive officer of Whitecap Resources Inc. (WCP: $7.54), who warned, "Setting out virtue-signalling commitments with no real firm targets is dangerous and it's reckless." He urged politicians to meet with industry executives to help determine what is realistic.
Today was not all doom and gloom (or wafflings and warnings). Brian Schmidt's Tamarack Valley Energy Ltd. (TVE) added seven cents to $3.67 on 5.07 million shares, as it announced a plan to buy back up to 20.3 million of its 407 million shares. "[We believe] that at times, the prevailing share price does not reflect the underlying value of the common shares," opined president and CEO Mr. Schmidt. This is quite the claim considering that Tamarack's share price is at its highest level since 2018. The stock has gone up by nearly 10 times since reaching a low of 39 cents in early 2020. Just last week, Tamarack said it was ready to pursue "tactical" share buybacks (an adjective that it liked so much it used it twice) and had already asked the TSX for approval. The TSX came through today and the buybacks can take place over the next 12 months.
Further afield, Dr. Suresh Narine's Guyana-focused CGX Energy Inc. (OYL) lost four cents to $1.25 on 482,700 shares, after completing a $73.6-million rights offering. The company arranged this offering in late September. Shareholders of record on Oct. 1 received 0.157 of a right for each CGX share held, and each whole right entitled the holder to subscribe for one share at $1.63. The shares were trading at $1.90 at the time. Indeed, during August, the stock got as high as $2.48, buoyed by enthusiasm about the company's in-progress exploration program in Guyana (its first Guyanese drilling in a decade). Yet once the well was spudded, the hype simmered down and the profit-taking went up. CGX has not traded above the rights offering price of $1.63 since early October.
Fortunately, a block shareholder had already made a standby commitment under the rights offering. That would be Colombian oil producer Frontera Energy Corp. (FEC: $9.18), which has been investing in CGX since 2011 and became its joint venturer in Guyana in 2018. Until today, Frontera owned 212 million of CGX's 287 million shares, or 73.8 per cent. Following the rights offering -- which ended up being 99.8 per cent subscribed for by Frontera, as nearly every other shareholder apparently balked at the high exercise price -- Frontera owns 257 million of CGX's 334 million shares, or 76.9 per cent. It has spent about $224-million since 2011 to amass this position. This investment is currently worth $321-million. Presumably Frontera hopes the value will head even higher once the two joint venturers finish drilling their first Guyanese exploration well, expected in December.
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