Energy Summary for March 31, 2022
2022-03-31 20:58 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery tumbled $7.54 to $100.28 on the New York Merc, while Brent for May lost $5.54 to $107.91 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.90 to WTI, down from a discount of $10.80. Natural gas for May added three cents to $5.64. The TSX energy index lost 1.85 points to close at 223.04.
Oil prices headed lower as U.S. President Joe Biden ordered the largest ever release from the country's strategic petroleum reserve, vowing to pour more than 180 million barrels of oil into the market over the next six months. This works out to a release of one million barrels every day. For context, total global oil demand surpasses 100 million barrels a day, but the White House is taking an anything-helps approach to mitigating higher oil prices and inflation (and to appeasing consumers ahead of the congressional midterms later this year).
Meanwhile, OPEC+ held a monthly meeting today and (as expected) stuck to its plan for modest production increases. "Continuing oil market fundamentals ... pointed to a well-balanced market," asserted the group in a press release after the meeting. A small "baseline adjustment" was announced, in that the group agreed to increase production by 432,000 barrels a day next month, a mild increase from the original plan of 400,000. Yet OPEC+ continued to resist calls for more aggressive increases, opining today that "current volatility is not caused by fundamentals, but by ongoing geopolitical developments." The group will hold its next meeting on May 5.
Here in Canada, oil stocks fell with oil prices. Oil sands giant Canadian Natural Resources Ltd. (CNQ) edged down 78 cents to $77.41 on 8.58 million shares, despite a lovely mention today from RBC analyst Greg Pardy. Mr. Pardy published a research note this morning about his recent conversation with Canadian Natural's president, Tim McKay, and its chief financial officer, Mark Stainthorpe. The "instructional" discussion reinforced his "bullish stance" on the stock.
In particular -- and here followed a long list of particulars -- Mr. Pardy likes Canadian Natural's "strong leadership team, shareholder alignment, long-life decline portfolio, free cash generation, strengthening balance sheet and best-in-class operating performance." He confirmed that the company continues to like the full-year guidance that it reaffirmed just a few weeks ago. All in all, the "strategic initiatives are progressing as/better than planned," and Canadian Natural is keeping its spot as Mr. Pardy's "favourite senior producer." He hiked his price target on the stock to $85 from $80. (Disclaimers reveal that his employer, RBC, "makes a market" in Canadian Natural's securities and receives compensation for investment banking and other services.)
In British Columbia, Dale Shwed's Crew Energy Inc. (CR) sailed up 41 cents to $5.18 on 4.95 million shares, its first time above $5 since 2017. It has added nearly $1 since the start of the week. Although Crew has not released any news in over three weeks, it is likely enjoying a rush of excitement courtesy of another B.C. Montney producer, Leucrotta Exploration Inc. (LXE: $2.00), which on Monday accepted a $477-million takeover offer from Vermilion Energy Inc. (VET: $26.25). Crew's Montney assets are just west of Leucrotta's. Naturally, this has stirred takeover speculation, although long-term investors will note that this is nothing new for Crew. The 19-year-old company has been in and out of the takeover rumour mill for many, many years.
Another (potentially less favourable) announcement that Crew's investors are on the lookout for has to do with B.C. government's oil and gas royalty review. The province launched a review of its 30-year-old royalty system last year, with the goal of completing it in "spring 2022" -- so, any week now. The goal is to "modernize" a system that was designed over 30 years ago and takes an outdated view of technology and market conditions, according to critics. For example, the province offers royalty credits for complex techniques that were scarce decades ago but are now commonplace (such as deep well drilling). These lead to reduced royalty revenue in provincial coffers, and cause much angst among green groups, who say the province must eliminate all hydrocarbon credits due to incompatibility with its climate goals.
The industry, naturally, takes a different view. "If we truly care about lowering global emissions, B.C. needs to ensure we do not get left behind in the global push to grow natural gas supply," according to the Canadian Association of Petroleum Producers (CAPP). It is pushing the province to "develop a competitive environment that attracts investment here rather than to countries that do not match our higher environmental standards."
The coming weeks should bring the results of the review. As Crew gets every single drop of its production from British Columbia, it will be watching closely.
Further afield, Philip O'Quigley's Australian gas explorer, Falcon Oil & Gas Ltd. (FO), added half a cent to 17.5 cents on 1.22 million shares. It has arranged a $12.5-million private placement with Bryan Sheffield's Sheffield Holdings LP. Sheffield already owns 27.9 million of Falcon's 981 million shares, and will now acquire 62.5 million more shares at 20 cents each, giving it a total equity interest in Falcon of 8.6 per cent. (As mathematically minded investors will have noticed immediately, Falcon's postfinancing share count will exceed one billion. The company has not said whether it is considering a rollback.)
The name Sheffield is already familiar among many energy investors. The above Bryan Sheffield is the former CEO of Texas shale producer Parsley Energy, which he founded in 2008, after taking over roughly 100 wells drilled by his grandfather during the 1960s and 1970s. Meanwhile, his father, Scott Sheffield, is the CEO of Pioneeer Natural Resources, which bought Parsley for over $7-billion (U.S.) in early 2021. A Forbes article about this deal dubbed the family "the princes of the Permian."
(A prince makes a good change from an oligarch. As discussed in the Energy Summary for March 23, another of Falcon's major shareholders -- with 157 million shares -- is Viktor Vekselberg, the billionaire founder of a Russian energy and mining conglomerate. Falcon put out a whole press release last week emphasizing that Mr. Vekselberg has no influence over its operations and that his shares are considered "quarantined" because of sanctions against him dating back to 2018.)
Now one of the princes has expanded his interests from U.S. shale to Australian shale. Bryan Sheffield popped up in today's press release to dub himself "delighted to have this opportunity to acquire a significant interest in Falcon, and gain exposure to their net one million acres in what may become one of the biggest shale plays in the world." He was referring to the Beetaloo basin. Falcon and its joint venturer, Origin Energy, have been drilling the Beetaloo together since 2014. They have yet to achieve production -- no one in the Beetaloo has -- but are planning more drilling and appraisal this year. Falcon said in January that the joint venturers would provide further details "in the coming months."
© 2022 Canjex Publishing Ltd. All rights reserved.