Energy Summary for Dec. 15, 2021
2021-12-15 20:22 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added 14 cents to $70.87 on the New York Merc, while Brent for February added 18 cents to $73.88 (all figures in this para U.S.). Western Canadian Select traded at a discount of $17.40 to WTI, up from a discount of $17.44. Natural gas for January added five cents to $3.80. The TSX energy index lost a fraction to close at 155.37.
After early losses on COVID concerns, oil prices rebounded and closed higher on bullish data from the U.S. Energy Information Administration. The EIA reported today that U.S. oil inventories dropped by 4.6 million barrels last week. For context, the American Petroleum Institute (API) was forecasting a drop of just 815,000 barrels. (The weekly numbers from the EIA and the API are generally more aligned, but sometimes the gap yawns open, largely because reporting to the API is voluntary whereas reporting to the EIA is mandatory.)
The EIA also reported that fuel products supplied by refineries -- a proxy for consumer demand -- reached 23.2 million barrels a day last week. This is a new weekly record and is well above pre-COVID levels of around 20 million barrels a day. "Its planes, trains and automobiles season," cheered John Kilduff, a partner at New York's Again Capital LLC, to Reuters. "People are trying to claim their lives back." The American Automobile Association is predicting a 34-per-cent jump in auto and air travel this holiday season compared with last year.
Here in Canada, Brian Schmidt's Tamarack Valley Energy Ltd. (TVE) added 10 cents to $3.50 on 10.6 million shares, after trumpeting a "strategic Clearwater consolidation" in Alberta. The company plans to buy Dan Hermary's Crestwynd Exploration for $184.7-million in cash and shares. Crestwynd is a private company producing about 4,500 barrels a day in the Clearwater oil play.
Crestwynd was formed in late 2017. Prior to that, Mr. Hermary spent a decade working his way up Colin Davies's Corinthian line of promotions, starting as a geologist at Corinthian Energy (sold in 2010), then becoming vice-president of exploration at Corinthian Exploration (sold in 2014), and ending up as senior vice-president and chief operating officer of Corinthian Oil (sold in 2017). Mr. Davies is now on his promotion, the appropriately named Cor4. Yet Mr. Hermary struck out on his own and became president and chief executive officer of Crestwynd. It took him some time to decide where to take Crestwynd, but it finally drilled its first well in 2019.
This was right as the Clearwater was making its big splash. Although a few scattered holes had been poked in the play since the 1980s, it was not until around 2014 that operators began to have real success. Two private start-ups, Spur Petroleum and Deltastream Energy, almost single-handedly took production from virtually nothing in 2015 to around 15,000 barrels a day by mid-2019. By early 2020, production had more than doubled to 31,000 barrels a day. By late 2020, the play had caught the attention of the public companies. As one after another raced in -- including Tamarack, Headwater Exploration Inc. (HWX: $4.88), Baytex Energy Corp. (BTE: $3.66), Rubellite Energy Inc. (RBY: $2.24) and more -- the Clearwater cemented itself as one of Canada's most-hyped oil plays.
Crestwynd will be Tamarack's fourth purchase in the Clearwater in 12 months (and its largest). "The acquisition further establishes Tamarack as a leading operator in the highly economic Clearwater oil play," cheered president and CEO Mr. Schmidt. He said Tamarack expects its total Clearwater production to reach 12,000 barrels a day in 2022 (up from 5,000 six months ago and nothing a year ago). Mr. Schmidt did not say how the acquisition will affect Tamarack's other plans for 2022. Notably, in October, Mr. Schmidt promised to introduce a "sustainable base monthly dividend commencing in January, 2022," of an unspecified amount. He said today that Tamarack will release proper guidance for 2022 in the new year.
Further afield, Craig Steinke's wildcatting Reconnaissance Energy Africa Ltd. (RECO) added 21 cents to $6.11 on 421,700 shares. It has partially regained the 39 cents it lost over the previous two trading days. On Monday, it was the subject of another unfavourable article in the National Geographic, which has been taking aim at the company since October of last year. This article accused Reconnaissance of illegally bulldozing land for an oil well in a wildlife reserve and bribing local authorities to stay quiet. A spokesman for the company denied the allegations.
Reconnaissance has not commented publicly on the article. It generally ignores them, with one exception last May, when it was heated enough to issue a press release denying the magazine's latest so-called "hit piece." It also lobbed some accusations of its own at the National Geographic, accusing it of "facilitat[ing] short-sellers attempting to attack Reconnaissance share price." Securities regulators are showing "growing concern with abuse-short-selling and a renewed interest in curtailing this kind of destructive behaviour," warned Reconnaissance. The warning did not dissuade known short-seller Viceroy Research, which has been flaunting its short position in Reconnaissance since June, and took great delight this week in promoting the new National Geographic article.
If investors are worried about short-sellers pressuring Reconnaissance's stock, they may have enjoyed a story broken late last week by Bloomberg. It cited confidential sources in reporting that the U.S. Justice Department has launched an investigation into short-selling by hedge funds and research firms. Viceroy was not on the list of firms that are supposedly under scrutiny. There is one firm, Anson Funds, that is rumoured to be swept up in the probe and is also rumoured to be a short-seller of Reconnaissance, though there is little evidence to support either claim. Certainly there have been no official charges or accusations from the DOJ against any of the above companies.
In the meantime, Reconnaissance is carrying on in Namibia. It started its first-ever exploration program in the Kavango basin in January, drilling two stratigraphic test wells and claiming that they showed good indications of potential hydrocarbons. Fluffy as this was, it was all the stock needed to race up to over $13 in June from barely $2 at the start of the year (exactly the kind of activity that lures short-sellers). Reconnaissance has yet to turn the hype into commercial production or revenue. It is looking for a deep-pocketed joint venturer, which its cheerleaders claim will be found in 2022. The stock, in the meantime, has halved to today's level of $6.11.
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