Energy Summary for Feb. 2, 2022
2022-02-02 20:05 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery edged up six cents to $88.26 on the New York Merc, while Brent for April added 31 cents to $89.47 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.00 to WTI, unchanged. Natural gas for March shot up 75 cents to $5.50. The TSX energy index added 1.71 points to close at 201.43.
Oil prices were flat as OPEC+ continued to resist outside pressure to accelerate its planned production boosts. At today's monthly meeting, the group agreed to stick to its previously announced plan of moderate rises every month. It also washed its hands of responsibility for rocketing oil and gas prices, blaming them on governments that have tried to shift too quickly to green energy sources and failed to invest adequately in oil and gas. The next OPEC+ meeting will be on March 2.
Speaking of surging prices, U.S. natural gas prices shot up as a blast of cold weather threatened the Midwest. Bloomberg reported that gas supplies in Oklahoma, Texas and Arkansas plummeted by 22 per cent as frozen pipelines limited the flow of fuel, exacerbating concerns about gas storage levels that are already below the historical norm. The situation may test the abilities of states' power grids to handle a deep freeze. In February of last year, lack of preparedness for winter storms led to a massive infrastructure failure in Texas, leaving more than 4.5 million homes and businesses without power and causing the deaths of an estimated 250 to 700 people. Here in Canada, Neil Roszell's Headwater Exploration Inc. (HWX) added 21 cents to $7.18 on 6.04 million shares, after cheering "exploration success" and an expansion in Alberta. Both the exploration and the expansion took place in the core Clearwater oil play.
The similarity of the names Headwater and Clearwater are coincidence, but must bring a smile to the faces of Mr. Roszell (chairman and chief executive officer) and the rest of Headwater's management, as they have long had a taste for water themes. They previously built and sold Raging River Exploration to Baytex Energy Corp. (BTE: $4.98) in 2018, Wild Stream Exploration to Crescent Point Energy Corp. (CPG: $8.52) in 2012 and Wild River Resources to Crescent Point in 2009. They named their next promotion Headwater in early 2020 and entered the Clearwater in late 2020.
At the time of entry, Mr. Roszell and his well-hydrated crew were producing about 2,800 barrels a day. Now, thanks in part to new exploration wells -- including three in the latest press release -- Headwater's current Clearwater production has surpassed 10,000 barrels a day. The company also remains "active with our land expansion strategy" and has acquired another 75 sections in the play, boosting its landholdings to 350 sections.
All of this caught the approving eye of analysts. National Bank's Dan Payne boosted his price target to $9 from $7.75, while Desjardins Securities' Chris MacCulluch and BMO's Ray Kwan both increased their price target to $9 from $8. The employers of all of these analysts do business or seek to do business with Headwater. Notably, National Bank co-led Headwater's first brokered private placement in early 2020, when the company raised $30-million at 92 cents a share. Subscribers will be pleased: A $10,000 investment then would now be worth $78,039.
Elsewhere in Alberta, Jim Evaskevich's Yangarra Resources Ltd. (YGR) edged down five cents to $1.88 on 1.32 million shares, after releasing its year-end operational update from the Cardium. The update was mixed at best. This has been a recurring theme for Yangarra lately, which is why the stock has lagged fellow Cardium players such as Obsidian Energy Corp. (OBE: $9.28) and InPlay Oil Corp. (IPO: $3.34), the two of which have shot up 800 to 1,000 per cent over the last year. Yangarra is up 140 per cent -- a fine number on its own, but dreary in context.
President and CEO Mr. Evaskevich held his head high today, declaring that Yangarra has a "stellar track record" and "important building blocks in place." He noted that production in the fourth quarter averaged 10,100 barrels a day. (This exceeded analysts' predictions of 10,000 barrels a day, a pleasing turnaround after Yangarra's third quarter output of 8,700 barrels a day was sharply below predictions of 9,400.) Alas, if investors were impressed, the feeling did not last long. The update also included the year-end reserve report, which showed a large and unexpected drop in proved and probable reserves. These came to 141.2 million barrels as of Dec. 31, 2021, down from 157.5 million a year earlier. "Technical revisions" were to blame. (These occur when an evaluator has overbooked reserves and then found that the reservoir did not perform as well as expected.)
Although the unwelcome dose of reserve realism offset the high quarterly production, Mr. Evaskevich knew where to keep the focus. He reminded investors of Yangarra's ambitious 2022 production guidance of 12,000 barrels a day. Its forecast cash flow is $130-million, more than enough to cover its planned budget of $105-million, leaving plenty of leftover cash for debt reduction or other forms of "strategic progression."
Further afield, Philip O'Quigley's Falcon Oil & Gas Ltd. (FO) winged up 3.5 cents to 20.5 cents on a heavier-than-usual 9.32 million shares. For context, its average volume over the last month was 1.71 million shares. The company looks to be enjoying some area excitement from its Beetaloo shale gas play in Australia. Indeed, it tried to help stir it up, posting on its Twitter account yesterday about the "great" news announced by two other companies in the Beetaloo. These two companies have drilled wells that (according to Falcon) "[represent] another big step forward in proving up commerciality in the basin."
The companies in question are Australia's Santos Ltd. and Tamboran Resources Ltd., two joint venturers that have just drilled and tested two new Beetaloo wells. According to Tamboran's announcement yesterday, one well peaked at 10 million cubic feet a day, while the other peaked at four million cubic feet. These results are noteworthy because three million cubic feet a day is widely viewed as the threshold for commercial success in the Beetaloo. This is the theory, at any rate; the Beetaloo does not actually have any commercial wells yet. Santos and Tambaron are hoping to change that, with "the first pilot production targeted for the end of calendar year 2025."
That is a long way off, but from Falcon's perspective, that just means more time to entertain potential suitors. CEO Mr. O'Quigley has been stating since 2013 -- and repeated as recently as December, 2021, during an industry conference -- that Falcon has no grand designs on being a major Beetaloo producer, and will be happy to make a lucrative exit at the right time. It still needs to do some more work to prove that its assets will be worth the price. To that end, as discussed in the Energy Summary for Jan. 25, Falcon and its Beetaloo joint venturer, Origin Energy, recently announced a "high-impact, extensive and really exciting" drill program for 2022. The positive update from their neighbours already has them off to an optimistic start.
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