by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added 43 cents to $54.93 on the New York Merc, while Brent for October added four cents to $58.57 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.40 to WTI, up from a discount of $12.70. Natural gas for September lost one cent to $2.11. The TSX energy index lost 1.58 points to close at 125.15.
Eco (Atlantic) Oil & Gas Ltd. (EOG) shot up 69 cents to $1.83 on 2.8 million shares, after trumpeting a sizable oil discovery at its 15-per-cent-owned Orinduik block off the coast of Guyana. The Jethro-1 exploration well, a joint venture with Tullow Oil (60 per cent) and France's Total (25 per cent) -- with indirect involvement by Africa Oil Corp. (AOI: $1.17) as an 18.8-per-cent shareholder of Eco -- has hit 180.5 feet of net oil pay. The well has now been cased ahead of appraisal activities.
Eco's chief executive officer and co-founder, Gil Holzman, could scarcely contain his joy, cheering the "exceptionally exciting discovery" as a "revolutionary moment" that will help create "exceptional stakeholder value for our shareholders and the people of Guyana." Fellow co-founder Colin Kinley, Eco's chief operating officer, got in on the act of praising the "fantastic find," while explaining that the Jethro-1 well confirms the extension of the petroleum system discovered by Eco's nearest neighbour, Exxon. Exxon has made 13 discoveries off the coast of Guyana since 2015. Eco follows these discoveries closely; a presentation on its website tracks the date of discovery and the net pay result of each well. These pay results have ranged from 65 feet to 305 feet. The Jethro-1 well's result of 180.5 feet stacks up nicely and shows that Exxon is not the only one that can make headline-grabbing discoveries. Exxon is, of course, much further down the path of making money from its discoveries. It is hoping to start production -- Guyana's first-ever production -- in early 2020.
Today was a good day for international explorers. In addition to Eco's Guyanese glee, investors of Turkey-focused Valeura Energy Inc. (VLE) watched the stock add 35 cents to $2.76 on 1.48 million shares, following the release of its second quarter financials. The financials were more interesting for the operational update that accompanied them. Notably, Valeura has completed the first in a series of production tests on its Inanli-1 appraisal well, one of the three wells that the company and its joint venturer, Norway's Equinor, have drilled in the unconventional BCGA (basin-centred gas accumulation) play. Inanli-1 well is the first appraisal well to be tested. The test, which has lasted eight days so far, is testing one of the deepest zones in the wellbore (and indeed the deepest zone ever tested in the BCGA). Gas rates have averaged 643,000 cubic feet a day with a condensate-to-gas ratio (CGR) of five barrels per million cubic feet.
While these numbers are not especially lofty -- in part because the frack job was relatively small, for reasons Valeura did not explain -- the results do show a live gas system. This in turn has breathed some life into Valeura's stock, which has fallen from nearly $5 over the last 10 months. One of the main reasons for this drop had to do with the undesirable presence of water in one of Valeura's other wells, Yamalik-1. Valeura emphasized today that the Inanli-1 well's water cut is low, declining and "not a concern for commercial production."
Valeura also noted that the small CGR is inconclusive at this stage of testing. Condensate would not be necessary for a profitable play anyway, given the strength of Turkish gas prices. Last week, the Turkish energy regulator hiked the reference price of gas to about $10.35 per thousand cubic feet. By contrast, our poor North American producers must make do with prices of closer to $2.25 (U.S.) per thousand cubic feet, the quarter-to-date average of the New York Merc benchmark. That benchmark is currently trading closer to $2 (U.S.). This is to say nothing of the plight of Alberta gas producers, which in recent weeks have seen AECO prices as high as $2.25 and as low as just three cents.
Another international gas producer, Colombia-focused Canacol Energy Ltd. (CNE), edged down four cents to $4.78 on 413,200 shares, on top of the 10 cents it lost on Friday after releasing its second quarter financials. These were more or less as analysts had expected. Production of 120.5 million cubic feet of gas a day was slightly behind analysts' predictions of 123 million cubic feet a day, but cash flow matched predictions at 14 cents a share. President and CEO Charle Gamba reminded investors that production should reach 215 million cubic feet a day this month, thanks to a recent pipeline expansion completed by local utility Promigas. This much-delayed completion (which was originally supposed to be finished last year) was already announced on July 25. In the week after that announcement, Canacol's stock rose to $5.04 from $4.55 and enjoyed a flurry of analyst attention; for example, Canaccord Genuity analyst Jenny Xenos praised the "major catalyst delivery," upgraded her rating to "buy" from "hold" and hiked her price target to $6 from $5.
Ms. Xenos repeated her rating and price target in a new research note published in reaction to Canacol's second quarter financials. She deemed the financials "essentially in line with expectations" and added that she sees "significant potential catalysts on the horizon." This month alone, in addition to the production ramp-up to 215 million cubic feet a day, Ms. Xenos expects a drilling update as well as news on yet another pipeline expansion project. The drilling update is expected to be on the Pandereta-5 appraisal well, which is targeting a western extension of the large Panderata field and could lead to a "material increase" in gas reserves. As for the pipeline expansion project, known as the Medellin pipeline project, this would eventually add 100 million cubic feet a day of gas sales capacity. Canacol is aiming to sign a definitive sales contract before the end of the month. Separately, before the end of the year, Ms. Xenos reckons that Canacol will declare a dividend. Her crystal ball did not provide any clues as to the amount of the dividend or whether it will be a one-time event or a recurring payout.
Here in North America, Baytex Energy Corp. (BTE) lost six cents to $1.77 on 4.96 million shares, despite president and CEO Ed LaFehr's best efforts to impress investors this morning at EnerCom's Oil & Gas Conference in Denver. He focused on the changes that have taken place at the company over the last year. It has now been almost exactly one year since Baytex closed its merger with Raging River Exploration on Aug. 22, 2018. This merger added a new core area for Baytex, the Saskatchewan Viking, which doubled the size of the company's light oil business. The rest of this business is dominated by the Texas Eagle Ford. The Viking and the Eagle Ford give off far more income than they require in spending, and together will contribute $270-million of the roughly $300-million in free cash flow that Baytex expects to generate this year, boasted Mr. LaFehr. He added that Baytex also has a "heavy oil torque component" that has been "strongly profitable" this year, thanks to improving price differentials. Each of these three core areas -- the Viking, the Eagle Ford and the heavy oil business -- has the ability to rise in production this year, but Mr. LaFehr said Baytex is choosing to keep its overall production flat at around 100,000 barrels a day while focusing on using free cash flow for debt repayment. (The company's net debt is currently a tad over $2-billion, a key reason why the stock -- once worth as much as $50 in 2014 -- is now limping below $2.)
Though Baytex's general plan is to keep production flat, Mr. LaFehr said the company does have its eye on a potential source of new and rising production, namely the East Duvernay shale in Alberta. This play also came courtesy of Raging River. Mr. LaFehr sees the Duvernay as similar to the Eagle Ford, so he was "very excited" to see Baytex drill "the basin-leading well" in the play earlier this year. This well, as Baytex announced by press release earlier this month, produced 1,360 barrels a day over its first 30 days. It was one of four wells on the Duvernay docket this year. All four were drilled in the first half, with two successes (including the above) and two failures (both abandoned). Mr. LaFehr told the conference this morning that Baytex is now working on future drilling plans for the Duvernay, which he sees as "arguably our No. 1 growth area."