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Oil & Gas Rally: Choice Stocks to Move Your Energy Investments During the Russia / Ukraine Conflict

Stockhouse Editorial
2 Comments| March 8, 2022

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(Image via Trillion Energy International Inc.)

As the combustive geopolitical situation deepens with the Russia and Ukraine conflict, oil prices surged to over $120 for the first time in years, up 10% in just a few days and double from a year ago.

The battle is driving up the cost of natural gas worldwide and stoking oil supply fears.

For comparison, Brent was trading around the $66 (USD) per barrel mark and WTI was trading around the $63 (USD) per barrel mark, this time last year. In North America, natural gas is also up more than 6% to $4.92 (USD).

This time last year, the commodity was trading at around $2.70 (USD).

Nowhere is the cost of natural gas increasing more rapidly than in Europe, where prices hit an all time high of €192 (Mar 7 2022) up from €18 just a year ago -a 1,000% + increase. Prices have almost doubled since the conflict started just a few weeks ago. Roughly 40% of Europe's natural gas supplies come from Russia, which has only increased over the past 20 years. Europe is acutely dependant upon Russian gas, stoking supply fears. This is a trend that is unlikely to subside anytime soon.

In response to the Russian invasion, a tectonic shift is now underway to wean Europe off of Russian oil and natural gas dependence and to decouple Russia from the world. Countries have been piling on sanctions and restrictions. Recently, Germany halted the certification of the $11 billion (USD) Nord Stream 2 gas pipeline designed to bring natural gas from Russia directly to Europe. The Nord Stream has reportedly filed for bankruptcy. Due to macroeconomic factors and the current inflationary environment, an invasion has impacted oil and natural gas prices and cause them to rise farther than we may have ever seen before. With no sign of a ceasefire, oil and natural gas prices continue to increase with no signs of abatement.

Here is a snapshot of a few key players, both operating in Europe and worldwide, that investors should keep their focus upon ….
TC Energy Corp. (TSX: TRP, Forum) is an energy infrastructure company, consisting of pipeline and power generation assets in Canada, the United States, and Mexico. Its pipeline network consists of over 92,600 kilometers (57,500 miles) of natural gas pipeline, along with 4,900 kilometers (3,000) miles) from the Keystone Pipeline system. The company also owns or has interests in 11 power-Click to enlargegeneration facilities with a capacity of 6,600 megawatts.

With a market cap of $54.7 billion (CAD), TRP recently released its net income for Q4 2021 of $1.1 billion (CAD), equal to the same period in 2020. For the year ended December 31st, 2021, net income attributable to common shares was $1.8 billion (CAD) and comparable funds generated from operations were $7.4 billion (CAD).

Click to enlargeGibson Energy Inc. (TSX: GEI, Forum) is an oil infrastructure company that collects, stores, and processes crude oil and refined products. Reportable segments include marketing, which deals with buying, selling, and optimizing products such as crude oil, natural gas liquid, road asphalt, and oil-based mud product; and infrastructure, which makes up a system of oil terminals, rail loading facilities, pipelines, and an oil processing facility. Gibson Energy services Canada and the United States and boasts a market cap of $3.68 billion (CAD).

Its principal businesses consisting of the storage, optimization, processing, and gathering of liquids and refined products. Headquartered in Calgary, Alberta, the company's operations are focused on its core terminal assets located at Hardisty and Edmonton, Alberta, and include the Moose Jaw Facility and an infrastructure position in the US.

In late February 2022, GEI reported revenues of $7,211 million (CAD) for the full year 2021, including $2,119 million in Q4, a $2,273 million (or 46% increase) over full year 2020, a result of higher commodity prices and volumes.
Click to enlarge
Operating proximate to Europe in the Black Sea, Turkey, is Trillion Energy International Inc. (CSE: TCF, Forum), an oil and gas producing company in the South Western Black Sea. Its natural gas field is out of range from the conflict but within the realm where very high regional natural gas prices prevail. The Company currently receives $15 (USD) thousand cubic feet (MCF) for natural gas in Turkey compared with recent North American prices of $4.92 (USD) / MCF.

(Map via Trillion Energy International Inc. Click to enlarge.)

In a past interview with Stockhouse Editorial, Trillion Energy’s Chief Executive Officer, Art Halleran, explained that the biggest driver for demand and high gas prices is that Tyrkiye imports more than 90% of its gas from external sources, predominantly Russia, where 50% of its gas is supplied from. The conflict in Ukraine therefore represents a significant natural gas supply risk to Europe and Turkiye. Europe also imports about 40% of its natural gas from Russia. The now suspended Nord Stream 2 was expected to be a key conduit for natural gas to Europe from Russia.

The SASB gas field development will help mitigate natural gas supply risk to the region by producing more natural gas to fill a critical void.

Trillion has provided an update on its SASB project in light of the invasion of Ukraine. The company noted that it does not expect to incur any adverse impact from the conflict and currently and plans to proceed with its natural gas field development on schedule for 2022.

The company already has seven existing discoveries with unproduced reserves that are set to be drilled and put into production this year into next. 10 low-risk wells are planned to be drilled from 2023 to 2024 with the team expecting upwards of 80% success. That is an ambitious plan which will be transformative to the Company. The total work program budget is US $77m for 17 wells.

With $355 million (USD) in gas produced to date from eight wells across four pools and $608 million (USD) in offshore gas assets, Trillion Energy has some of the lowest production costs at less than $1 (USD) / MCF.

Trillion recently received a price increase to a record high of approximately $15 (USD) /MCF effective March 2022 for natural gas sales. (The average sale price during 2021 was $8.84 (USD) / mcf.) Further increases are expected because of renewed uncertainty of supply coming from Russia, but Trillion is prepared to meet the demand.

Trillion trades at a small fraction of its peers, such as NG Energy (TSX-V: GASX, Forum) (market cap $208 million (CAD)) with Trillion having a market cap of only $52 million (CAD). As the company generates shareholder value through its rapid production ramp-up, funding for drilling programs will come from a combination of brokered equity financing, debt, and internal cash-flow from production.

In comparison, another company on the Venture Exchange, Touchstone Exploration (TSX-V: TXP, Forum) in South America, which trades at 10-times the multiple (with a market cap of $335 million (CAD)), received only $5.00 (USD) / MCF).

CEO Halleran plans to visit Turkiye and Romania this month to address the planned work program with partners and suppliers to ensure the project moves forward.

Oil will continue to push higher as the Russian invasion of Ukraine continues to ripple through the market. The possible extension of sanctions will offset the potential release of emergency reserves by some countries. Price increases have been widespread: Energy rose just 0.9% in January from the previous month, it is still up 27% from last year. Gasoline, on average, costs 40% more than it did last year.

There are numerous solid plays in the energy market, both domestic and abroad, this list should give any investor looking to make an initial deposit a good head start on due diligence.

FULL DISCLOSURE: Trillion Energy International Inc. is a client of Stockhouse Editorial.

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