Energy Summary for Feb. 14, 2022
2022-02-14 19:46 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added $2.36 to $95.46 on the New York Merc, while Brent for April added $2.04 to $96.48 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.69 to WTI, unchanged. Natural gas for March added 26 cents to $4.20. The TSX energy index lost 2.58 points to close at 200.83.
Oil prices hit a new seven-year high as numerous European and North American news outlets reported that Russia will invade Ukraine as soon as Wednesday, raising the spectre of sanctions that could disrupt global oil supplies. Russia denied the reports. Ukrainian President Volodymyr Zelenskiy also expressed skepticism, telling the nation in a video address, "They are trying to frighten us by yet again naming a date." ("When the 'start of the invasion' becomes a sort of rolling tour date, such media announcements [about an imminent invasion] can only be taken with irony," a government adviser later told Reuters.) Even so, the U.S. government said it has relocated its embassy farther from the Russian frontier, citing a "dramatic acceleration in the buildup of Russian forces."
Here in Canada, oil stocks showed little response to surging oil prices. Grant Fagerheim's Alberta- and Saskatchewan-focused Whitecap Resources Inc. (WCP) lost 13 cents to $9.23 on 5.79 million shares, after releasing its year-end reserve report. It hyped the report as "exceptional." Considering that Whitecap completed three big takeovers during 2021 -- NAL Resources, TORC Oil & Gas and Kicking Horse Oil & Gas -- investors were expecting nothing less than a big reserve boost. Proved and probable reserves rose to 769 million barrels as of year-end 2021 from 507 million a year earlier.
Just before year-end, Whitecap announced yet another acquisition, or rather three more. It said it would buy three packages of assets producing a total of 9,000 barrels a day for $342.5-million. The deals were to close in the new year. Today Whitecap revealed that one of them closed on Jan. 10 for a total of $190-million. Regulatory filings showed this to be the takeover of Chuck Sawyer's TimberRock Energy, a private Azimuth Capital-backed producer in the Alberta Garrington area.
Whitecap's management is seemingly not finished shopping yet. "Whitecap is well positioned for accretive acquisitions ... Further opportunities await in 2022," read a new presentation published today on the company's website. The presentation calculated that Whitecap will generate $1.1-billion in free cash flow this year. Half of that will go to the balance sheet or acquisitions, and the other half will be for "further base dividend increases and share buybacks." (Whitecap's current 2.25-cent monthly dividend represents a yield of 2.9 per cent.) Some investors were likely hoping for a dividend boost alongside today's reserve report, but had no such luck. They are now turning their attention to the release of Whitecap's year-end financials on Feb. 24.
Further afield, Gabriel de Alba's Frontera Energy Corp. (FEC) added 24 cents to $12.89 on 228,200 shares, while Dr. Suresh Narine's CGX Energy Inc. (OYL) added 13 cents to $3.23 on 1.95 million shares, after they provided an update on their joint venture in Guyana. They have decided to narrow their focus on just one of the two offshore blocks covered by the joint venture. Previously, the plan was to drill one exploration well at the Corentyne block and then another immediately afterward at the Demerera block. Given "initial positive results" from the first well at Corentyne two weeks ago, the joint venturers announced today that they want to focus solely on Corentyne for now and drop Demerera from this year's drill plans.
The decision is being taken as a sign of optimism about the first well, even with the setbacks it has faced so far. The well, called Kawa-1, was spudded at the Corentyne block last August and faced problems that pushed it weeks behind schedule, driving up the costs to an as-yet-unspecified degree. CGX even said in December that it will have to seek financing to cover its share of the rising costs. All of that appeared forgotten two weeks ago, when early-stage logging results indicated that the well hit 177 feet of hydrocarbon reservoirs. Today's update included additional (though still early-stage) data and bumped the estimate up to 200 feet.
One potential niggle in today's plan is that the joint venturers will need the approval of the Guyanese government. The terms of their licence at Demerera require them to spud a well by Feb. 11, 2022, a deadline they clearly missed. The Guyanese government will likely approve an extension. It is keen to encourage its nascent oil industry, especially in light of the remarkable success of Exxon's neighbouring Stabroek block. If the government values loyalty, it will also remember that CGX has been a particularly patient friend over the decades. The Guyanese-born Dr. Narine has had CGX in Guyana for 24 years, even when the company could not explore for seven of those years because of a legal dispute between Guyana and Suriname over maritime borders. CGX covered nearly $10-million of Guyana's legal bills. The matter ended happily for Guyana and CGX when the United Nations awarded most of the disputed area to Guyana in 2007.
Back in Canada, Pat Carlson's new promotion, Kiwetinohk Energy Corp. (KEC), added 30 cents to $12.20 on 23,500 shares. (The first word is a Cree word that means north and sounds like "key-wheat-in-no." Investors tend to stick to the simple abbreviation KEC.) The company got its first nod of approval this morning from an analyst. BMO's Ray Kwan became the first analyst covering the stock, giving it an "outperform" rating and a price target of $18.
Mr. Kwan wrote approvingly of KEC's multipronged business interests. The company is an 11,000-barrel-a-day Alberta Montney producer that also has carbon capture and renewable projects. In Mr. Kwan's view, it represents "a call on a new business model, where renewables, natural gas-fired generation, CCUS [carbon capture, utilization and storage], natural gas and hydrogen all play a role in the decarbonizing revolution." This is quite the undertaking for any one company's management. "We see CEO Pat Carlson as one of the few capable of handling such a task, given his successful track record," opined Mr. Kwan. (Mr. Carlson previously co-founded and sold Passage Energy, Krang Energy and North American Oil Sands from 1998 to 2007. He then founded Seven Generations Energy, but left in 2017; it was sold last year to ARC Resources Ltd. (ARX: $14.61).)
Mr. Kwan's Valentine's Day love letter may be KEC's first show of support from an analyst, but it is unlikely to be the last. KEC is new to the market, listing (without a financing) on Jan. 14. BMO -- Mr. Kwan's employer -- is the company's primary lender and was a co-lead financial adviser in taking it public. The company's other lenders include ATB Financial and National Bank, and other institutions that helped take it public included RBC and Peters & Co.
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