Energy Summary for Jan. 27, 2022
2022-01-27 20:34 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery lost 74 cents to $86.61 on the New York Merc, while Brent for March lost 62 cents to $89.34 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.65 to WTI, up from a discount of $12.90. Natural gas for March added 24 cents to $4.28. The TSX energy index added 2.56 points to close at 190.15.
Oil prices had another erratic day. In intraday trading both yesterday and today, Brent touched a seven-year high above $90 (U.S.), but ultimately could not hold its ground there, as markets weighed Russia-Ukraine tensions against a rising U.S. dollar. Geopolitical tensions typically boost oil prices by raising the threat of supply disruptions. Yet the U.S. dollar is currently perched near a five-week high in the wake of yesterday's Federal Reserve statement that it might hike interest rates "soon" (perhaps as soon as March) to fight inflation. The greenback and oil prices tend to have an inverse relationship, as a higher U.S. dollar makes oil more expensive (and thus less appealing) in other currencies.
There is still no shortage of oil bulls. Goldman Sachs and Morgan Stanley have both forecast that oil prices will hit $100 (U.S.) this year, while Bank of America has projected $120 (U.S.) and JP Morgan picked $125 (U.S.). Rapidan Energy Group's founder and president, Bob McNally, was on BNN yesterday to lay out a case for $150 (U.S.) (though his firm's base case is $75 (U.S.) to $80 (U.S.)). Over on CNBC, chief global oil strategist Martijn Rats of Morgan Stanley gave an interview today to reiterate his view of "a very clean story in oil." (Yesterday his firm published a list of four "attractive" stocks for $100 (U.S.) oil, one of which was Canada's Cenovus Energy Inc. (CVE $18.46).)
Within the sector, Randy Neely's TransGlobe Energy Corp. (TGL) lost 18 cents to $3.69 on 87,700 shares, after releasing its 2022 budget. Investors seemed taken aback by the cautious production guidance. TransGlobe set itself a full-year target of 12,400 to 13,400 barrels a day, comprising 10,000 to 10,800 barrels a day from Egypt and 2,400 to 2,600 barrels a day from Alberta. Those figures are not hugely different from the 2021 average of 12,900 barrels a day, comprising 10,600 from Egypt and 2,300 from Alberta. (For clarity, TransGlobe's limited activity last year meant that its production in December averaged just 12,100 barrels a day, so in that light, the 2022 guidance is markedly more ambitious.)
If the production target is largely flat, the budget is certainly not. Last year, TransGlobe's budget was $27.2-million (U.S.), with about two-thirds going to Egypt and the rest to Alberta. This year's budget is more than twice as high, at $57.7-million (U.S.). Patriots, at least, may be pleased to see that the assets in Alberta are putting on much a stronger showing, taking up more than two-fifths of this year's budget ($24.6-million (U.S.)). The boost comes in the wake of a "very successful" three-well program completed late last year. This year's program in Alberta includes seven wells.
"Our 2022 budget underlines the confidence we have in the potential of the TransGlobe portfolio," cheered president and chief executive officer Mr. Neely. Investors remained aloof. They were likely hoping that the 2022 guidance might contain some information about a 2022 dividend, which Mr. Neely has been hinting that he will launch for over a year. Today brought the same old woolly promise that he "expects to revisit [the] dividend policy in the near term."
Another company with assets both in Canada and abroad is Marshall Abbott's Arrow Exploration Corp. (AXL), up 1.5 cents to 17.5 cents on 131,800 shares. Today it gave investors an update on its assets in Alberta and Colombia. Combined, the assets are producing 1,320 barrels a day. "Our production portfolio continues to go from strength to strength," cheered CEO Mr. Abbott. He did not unveil any guidance for the year, but said Arrow is set up "very well for a strong 2022 as we evaluate further growth opportunities."
"Strong" is an adjective to which Arrow is far from accustomed. This year will mark its fourth birthday -- as Arrow, not counting predecessors -- and most of those years were spent with the stock collapsing from $1.20 in 2018 to 1.5 cents in 2020. The initial enthusiasm reflected the Colombian assets, which Arrow bought in 2018 from Canacol Energy Ltd. (CNE: $3.16). Arrow had assets in Alberta as well, a relic of its go-public takeover of a Montney junior called Front Range, but it dedicated most of the hype to Colombia. So badly did the assets fail to live up to the hype that Arrow fell into financial straits and put itself up for sale in late 2019. It overhauled its management in 2020, including appointing CEO Mr. Abbott, who previously led and sold four companies since 2002. He arranged a series of asset sales to repair the balance sheet. As well, as global oil and gas prices rallied, the Canadian assets joined the Colombian ones as feedstock for the hype machine.
At today's close of 17.5 cents, the stock remains well off its 2018 high of $1.20, but shorter-term shareholders should be doing well. Arrow last raised money in October, 2020, by issuing $15-million worth of shares at 10.6 cents. Subscribers are now sitting on a gain of two-thirds. The subscribers included the above-mentioned Canacol Energy, which subscribed for 37.5 million of the shares, boosting its ownership to 41.7 million shares out of 213 million outstanding.
Speaking of South America and significant shareholders, Manolo Zuniga's Peru-focused Petrotal Corp. (TAL) added two cents to 52 cents on 1.72 million shares, after announcing that Fidelity International now owns over 5 per cent of its shares. "We welcome Fidelity International into our major shareholder group," cheered president and CEO Mr. Zuniga. He noted that Fidelity has provided notice of its ownership of 42.3 million shares, or 5.1 per cent of Petrotal's current (bloated) share count of 831 million. By his reckoning, Fidelity is No. 5 in the roundup of Petrotal's top five shareholders.
Mr. Zuniga did not disclose how, when or at what price Fidelity made its investment. Worth noting is that another of Petrotal's top five shareholders, specifically No. 2 shareholder Kite Lake Capital Management, obtained a sizable chunk of its shares just two months ago from Gran Tierra Energy Ltd. (GTE: $1.08). Gran Tierra had owned 137 million shares of Petrotal and unloaded all of them through private sales in late November. Kite Lake subsequently disclosed that it picked up 40.9 million of the shares, nearly doubling its position to 87.1 million.
Petrotal's No. 1 shareholder has been around since the beginning. Meridian Capital International was the largest owner of Sterling Resources, a struggling North Sea junior that was in the process of winding up when Petrotal swooped in with a reverse takeover offer, allowing it to go public in 2017. (As part of this go-public deal, Petrotal acquired assets from Gran Tierra, which is why Gran Tierra owned so many shares.) Meridian obtained 79 million shares of Petrotal as a result of its Sterling position. In June, 2020, Meridian showed support for Petrotal by buying another 75 million shares -- boosting its position to 154 million -- at 17 cents. The stock has since rallied nicely to today's close of 52 cents. Gavin Wilson, an investment manager at Meridian, sits on Petrotal's board of directors.
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