Energy Summary for Jan. 21, 2022
2022-01-21 20:12 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery lost $1.76 to $85.15 on the New York Merc, while Brent for March lost 49 cents to $87.89 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.70 to WTI, unchanged. Natural gas for February added 20 cents to $4.00. The TSX energy index lost 6.54 points to close at 183.36.
Oil prices fell today, but still notched their fifth consecutive week of gains. A rising chorus on Wall Street sees them heading even higher. This morning, Morgan Stanley hiked its Brent oil price prediction to $100 (U.S.) for the last two quarters of the year, up from its prior forecast of $90 (U.S.) in the third quarter and $87.50 (U.S.) in the fourth quarter. The bank joins several others in forecasting triple-digit oil this year, including Goldman Sachs, Bank of America and JPMorgan. The latter, in fact, released a separate note today, reiterating its prediction that Brent will get as high as $120 (U.S.) as quickly as midyear.
Within the energy sector, Randy Neely's Egypt- and Alberta-focused TransGlobe Energy Corp. (TGL) lost 20 cents to $2.76 on 104,000 shares, on top of 16 cents it lost yesterday. Investors were not keen on yesterday's press release confirming TransGlobe's new financial commitments in Egypt. The new commitments follow an extended and "modernized" contract covering three core Egyptian blocks. TransGlobe announced in late 2020 that it was in the process of merging these blocks and securing better financial terms. Ratifying this agreement took more than a year, but the Egyptians finally did so last month and the signing ceremony took place earlier this week.
TransGlobe took the ceremony as its cue to tell shareholders all about how much money it is going to fork out over the coming years. As previously laid out on its website last month -- though not in a press release until now -- the company must invest at least $50-million (U.S.) in the blocks over five years (or $10-million (U.S.) a year), and during this period it must also make "modernization" payments of $10-million (U.S.) annually (apparently to "compensate Egypt for change in fiscal terms on legacy forecast base production"). The company made a one-off modernization payment of $15-million (U.S.) at the signing ceremony. It also paid a $1-million (U.S.) signing bonus.
Yesterday's press release reiterated the above information, displeasing investors who were hoping for a better sense of the benefits, not just the costs. President and chief executive officer Mr. Neely merely offered up some cheerful wool about "improved fiscal terms" that will aid in "reset[ting] the TransGlobe business." Investors may also be leery of committing to sizable annual payments to a government that does not necessarily take the same view of timeliness. (As of Sept. 30, the government owed TransGlobe $24.5-million (U.S.) in accounts receivable -- not an outsized amount, but this balance has been as high as $220-million (U.S.) in the past.)
Lastly, investors were likely hoping for news on a potential dividend, something Mr. Neely has been dangling for about a year. All he said yesterday was that he hopes to "revisit our dividend policy in the near term."
Elsewhere in Africa, Craig Steinke's Namibian wildcatter, Reconnaissance Energy Africa Ltd. (RECO), lost 35 cents to $6.10 on 509,600 shares. It too is ending the week on a sour note. Yesterday it lost 38 cents after providing a brief update on its operations and a longer update on its board.
Operationally, Reconnaissance touted "excellent results" from a recent seismic survey over its assets in the Kavango basin, where it has found "a diverse group of high-quality prospects for the coming three- to six-well drilling program." This failed to distract investors from the fact that the program is still in the "coming" stage, when Reconnaissance previously told them that it should start in late 2022. Now it says the first half of 2022.
Reconnaissance then announced a board shuffle. Joining the board is Mr. Steinke, who founded the company and promoted it frequently in the media, yet seemed to have no official job there. (Some media outlets referred to him as the president, but the company did not list him as such on its website.) Now Mr. Steinke will become executive chairman. As a director, he will have to resume disclosing his shareholdings, which dropped below the 10-per-cent threshold in 2020 (but are likely sizable). As chairman, he replaces Jay Park, a lawyer who was previously Reconnaissance's CEO from 2018 to 2020 (now the CEO is oil man Scot Evans). Mr. Park is stepping down as chairman and from the board, but will remain a legal adviser. Similarly, the geologist Dr. Jim Granath is leaving the board but staying on as a geoscience adviser. A different geologist will replace him on the board, namely Dr. Joseph Davis, who helped discover the Kavango basin in 2013.
Another international producer, Gary Guidry's Colombia-focused Gran Tierra Energy Inc. (GTE), lost seven cents to $1.07 on 3.51 million shares. Two days ago it added four cents to $1.16, but has since given back those gains and then some. The earlier enthusiasm reflected president and CEO Mr. Guidry's boast that Gran Tierra achieved its 2021 production guidance of 26,500 barrels of oil a day.
This was, to be clear, its amended guidance. The original version was much higher at 28,000 to 30,000 barrels a day. Gran Tierra had to reduce it multiple times to account for shut-ins caused by local blockades (not aimed at the company but at the Colombian government). Undeterred, Gran Tierra said last month that it would aim to crack 30,000 in 2022 instead, with a full-year target of 30,500 to 32,500. Mr. Guidry boasted this week that the company is already at 30,000. "Gran Tierra is in a strong position ... to optimize value," he declared. He is surely hoping to make it through at least one year without having to reduce the production guidance. This happened not just in 2021, but numerous times in 2020 and 2019 as well.
Ending on a happier note, Dr. Suresh Narine's Guyanese explorer, CGX Energy Inc. (OYL), added 15 cents to $2.63 on a heavier-than-usual 1.22 million shares. It had no news to explain the excitement. Investors are eagerly awaiting an update on the company's Guyanese exploration well, Kawa-1, a joint venture on the Corentyne block with Frontera Energy Corp. (FEC: $9.17). The two of them said in mid-December that they were 90 per cent finished drilling. As this meant that the well would not be finished by year-end as previously scheduled -- and would also cost more as a result of the delay -- CGX's stock spent early to mid-December falling to 90 cents from $1.25. It has since rallied all the way to $2.63.
Area excitement is undoubtedly playing a role in the stock's rise. Earlier this month, ExxonMobil announced not one but two more discoveries at its Stabroek block, which is right next to CGX and Frontera's Demerara block. Exxon continues to drill busily at Stabroek. In the last week and a half, it has started drilling two more wells there, Barreleye-1 and Patwa-1 -- the latter of which was spudded just today.
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