Energy Summary for Dec. 16, 2021
2021-12-16 20:26 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added $1.51 to $72.38 on the New York Merc, while Brent for February added $1.14 to $75.02 (all figures in this para U.S.). Western Canadian Select traded at a discount of $17.40 to WTI, unchanged. Natural gas for January lost three cents to $3.77. The TSX energy index added a fraction to close at 155.98.
Abig gainer today was Dr. Suresh Narine's international oil explorer, CGX Energy Inc. (OYL), up 52 cents to $1.40 on 3.98 million shares. It finally gave investors an update on the progress of its Kawa-1 exploration well in Guyana. They in turn finally gave it a day in the green, after 10 days in a row of sending the stock down. The share price dropped from $1.30 on Dec. 1 to a low yesterday of 89 cents.
Now CGX has regained that ground and then some -- even if its update could be mostly summed up as, We're still working on it. The "we" is CGX and its joint venturer, the Colombian oil producer Frontera Energy Corp. (FEC), up 43 cents to $7.48 on 340,800 shares. (Frontera is also CGX's majority shareholder.) The two of them arranged their Guyanese joint venture in 2018, but are only now drilling their first well. It is called Kawa-1 and is located on the offshore Corentyne block. Back in August, when the joint venturers spudded the well, they predicted that it would reach total depth in the first half of December. Antsy shareholders have been saying "any day now" for weeks.
Today, shareholders chose to focus on the bright side of a decidedly mixed update. The well is not quite at total depth after all, but CGX and Frontera reckoned that they have covered about 90 per cent of the distance. Unfortunately, the delay is causing cost overruns. The two of them are now projecting that the well will cost $115-million to $125-million, well above the previous budget (which they left unmentioned) of $80-million to $85-million.
CGX noted that it may "be required to seek additional financing." Investors generally do not like to hear such a thing barely a month after an equity financing that raised $73.6-million, in the process diluting CGX's share count to 334 million from 287 million. CGX said it is "assessing several strategic opportunities." In the past, its opportunities have frequently included Frontera, which backstopped last month's offering and loaned CGX $19-million (U.S.) a few months before that. Frontera is keeping mum on whether it plans to open its wallet again.
The good news is that if CGX needs to pitch another offering, it is doing so on encouraging -- if preliminary -- drill results. "Initial results suggest an active hydrocarbon system is present at the Kawa-1 location," cheered CGX today. It based this on LWD (logging while drilling) measurements and cuttings. Experienced energy investors will know that a driller can find an active hydrocarbon system and still end up with a duster of a well. This well has not even reached its main target yet. Of course, such obstacles are nothing to a capable promoter, ready to pop the champagne cork on even the thinnest of updates.
The promotional job at Kawa-1 is made easier by its eye-catching neighbours. To the north lies Exxon's Stabroek block, where the supermajor has made nearly two dozen discoveries since 2015. To the east is Apache's block 58 in Suriname, home to five discoveries, including the Maka Central-1 oil strike, which won Wood Mackenzie's "Discovery of the Year" award last year. That well is only about 10 miles from the Kawa area. Incidentally, when Apache released its first update on Maka Central in late 2019, its stock plunged by more than 10 per cent, because the company did not specify whether it found any signs of oil. Its circumspection led some analysts to predict 80-per-cent odds that the well was a bust. This was not the case, but it may explain CGX's quickness to toot its horn today, as well as investors' hopes that the Kawa-1 well will have a similarly happy ending.
Here in Canada, George Fink's Alberta Cardium-focused Bonterra Energy Corp. (BNE) lost six cents to $5.02 on 66,100 shares. Investors yawned off its 2022 guidance. The guidance mostly sticks to what co-founder and CEO Mr. Fink has been saying for months: steady production and debt repayment, with an eye on eventually reviving the dividend. "We don't feel like we need to grow. Our shareholders just want to go back to getting a cheque every month, or at least every quarter," he told The Globe and Mail back in March.
Bonterra's dividend was as high as 30 cents a month in the good old days of 2014. It dwindled over the years to as little as one cent a month, before Bonterra gave in and suspended it in early 2020. Production held relatively steady during this period at around 12,000 to 14,000 barrels a day. As the downturn turned particularly acute in 2020, however, Bonterra allowed its production to fall toward 10,000 barrels a day. Today's 2022 guidance showed a return to a more business-as-usual target of 13,300 to 13,700 barrels a day. The budget is $60-million. Mr. Fink did not set a timeline for reintroducing a dividend, as he remains focused on reducing Bonterra's roughly $300-million debt. He hinted that the company "may consider ... returning capital to shareholders if market conditions and corporate metrics continue to improve through 2022."
Back in South America, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), stayed unchanged at $3.16 on 174,100 shares. It too has released its 2022 guidance. Like Bonterra, Canacol hewed closely to past remarks about its plans, although unlike Bonterra, Canacol is paying shareholders a dividend to stick around. Its 5.2-cent monthly dividend represents a yield of 6.6 per cent. President and CEO Mr. Gamba said Canacol expects to keep this dividend intact through 2022, while spending $172-million (U.S.) to $209-million (U.S.) and producing 160 million to 200 million cubic feet of gas a day. (This is equal to about 28,000 to 35,000 barrels of oil equivalent a day.)
As usual, Mr. Gamba reiterated his commitment to building a new Colombian gas pipeline in order to boost Canacol's production by 100 million cubic feet a day. He has been talking about this pipeline since 2019. Canacol finally found an anchor customer in August, 2021, and it is now looking for a contractor, additional customers and financiers to help shoulder the expected $450-million (U.S.) cost. With any luck -- though this has hardly been a hallmark of the project so far -- the line will be in service in late 2024.
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