Energy Summary for Dec. 29, 2021
2021-12-29 20:16 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added 58 cents to $76.56 on the New York Merc, while Brent for February added 29 cents to $79.23 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.00 to WTI, up from a discount of $14.70. Natural gas for January lost four cents to $4.02. The TSX energy index added 3.17 points to close at 164.49.
Oil prices held steady at one-month highs, with Brent briefly topping $80 (U.S.) in intraday trading. Prices have regained most of the ground they lost after the new COVID Omicron variant spooked markets in late November. Adding to the bullish mood, U.S. government data showed today that U.S. crude inventories fell by 3.6 million barrels last week, a larger drop than the 3.1 million barrels forecast by analysts.
Even further south, Mexico is apparently planning to phase out all crude exports by 2023, in a bid to start refining all of its oil domestically. The head of the state-owned quasi-monopoly Petroleos Mexicanos (Pemex) made the surprise announcement at a press conference yesterday. Chief executive officer Octavio Romero said Pemex will slash its crude exports in 2022 to 435,000 barrels a day (from the current level of just over one million) and taper off all sales to foreign buyers the following year.
Such a move would mark an exit from one of the most prominent recent players in the international oil market. At its peak in 2004, Pemex exported about 1.9 million barrels a day, even participating in OPEC meetings as an observer. It had particular influence over the main U.S. refining region, the Gulf Coast, where refiners reconfigured their facilities to handle the predominantly heavy crude.
Alas for Pemex, within a decade, its production was declining and its U.S. refining customers were increasingly looking northward, to the Canadian oil sands. (Domestic U.S. production is generally too light for refineries that are built to process heavy crude or a mix of crudes.) The Canadian-Mexican rivalry picked up after Mexico decided to end Pemex's monopoly, allowing the first foreign oil companies into Mexico in late 2015. That did not work out as hoped, and Pemex continues to produce virtually all of the country's oil.
(Incidentally, some of the earliest companies to rush into Mexico were Canadian. The first foreigner to acquire Mexican oil assets was Renaissance Oil, a Craig Steinke and Ian Telfer promotion that faced difficulties developing its most promising project and was eventually sold to a separate Steinke promotion -- Namibian wildcatter Reconnaissance Energy Africa Ltd. (RECO: $6.07) -- for 35 cents a share earlier this year. Another early entrant, International Financial Resources Corp. (IFR), reached a high of 42 cents in 2017, but has been halted at 2.5 cents for the last seven months and has yet to produce a drop of Mexican oil. Meanwhile, Colombian oil giant Pacific Rubiales used to boast in 2015 about a potential joint venture with Pemex, but nothing came of it, and Pacific Rubiales ended up going bankrupt in 2016. It has since emerged as Frontera Energy Corp. (FEC: $9.96) and has shown no interest in Mexico.)
If Pemex were to withdraw completely from the export market, this could boost U.S. demand for Canadian oil. Yet skeptics say Pemex is unlikely to accomplish its goal of refining all of its crude domestically. The company has a poor operational record, with refineries that are running at a fraction of their capacity following years of underinvestment. The decision to give up export revenues is also financially risky in light of Pemex's massive debt of around $113-billion (U.S.). A former senior official at the Mexican ministry of energy, Rosanety Barrios, told Bloomberg that Pemex's plan "seems impossible." In other words, Canadian oil sands operators, do not get too excited yet.
Over in the Caribbean, Paul Baay's Trinidad-focused Touchstone Exploration Inc. (TXP) edged down one cent to $1.64 on 238,800 shares, after trumpeting the release of its very first ESG (environmental, social and governance) report. The report talks of all the ways in which Trinidad wants to "do things better." It clocks in at 72 pages -- nearly as long as Touchstone's 2020 annual information form, which came in at 88 pages. Perhaps this is why it took so long to knock off. Publishing its first ESG report was one of Touchstone's goals for 2021; it has now achieved the goal at last, with barely three days to spare.
Another international producer, Jeff Chisholm's Pan Orient Energy Energy Corp. (POE), lost 13 cents to $1.16 on 16,400 shares, giving back most of the 14 cents it added on Christmas Eve. It had no news to explain the jump, but on Dec. 23, it filed the information circular for a planned special meeting of shareholders in January. Within the circular, it firmed up its plan to pay shareholders a special distribution of 40 cents a share.
Pan Orient first began talking about a 40-cent special distribution in October. It said at the time that it was envisioning a "new direction" for the company -- one that will apparently involve starting from scratch. The company is no longer interested in operating its roughly 1,500-barrel-a-day assets in Thailand or its non-producing Sawn Lake bitumen project in Alberta. "Discussions [to buy] both assets are currently under way with interested parties," declared president and CEO Mr. Chisholm, adding that he expected to finalize sales by mid-2022. The company will then "pursue international oil and gas opportunities with a substantially scaled-down cost structure."
The 40-cent distribution is not dependent on selling the assets, and Mr. Chisholm expects to pay it -- or at least announce the details of payment -- by February. The money will come from Pan Orient's working capital balance of $27.8-million as of Sept. 30. Based on 40.8 million shares outstanding, the distribution will eat up $19.9-million.
Although the distribution is for 40 cents, the stock has added only about 20 cents since the announcement in October. Investors seem leery of Mr. Chisholm's plan to add Pan Orient to the list of juniors seeking international oil and gas assets. There are already several companies on this list, such as TAG Oil Ltd. (TAO: $0.325), Valeura Energy Inc. (VLE: $0.325), Tenaz Energy Corp. (TNZ: $3.15) and more, some of which have been searching for over a year with no luck. There is also the question mark over whether Pan Orient will successfully find buyers for its existing assets. The company is nonetheless plowing ahead with the special distribution, for which it will seek shareholder approval on Jan. 18.
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