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Msg  61038 of 61056  at  6/25/2020 8:39:28 PM  by


Energy Summary - 25th

Energy Summary for June 25, 2020

2020-06-25 20:23 ET - Market Summary

by Stockwatch Business Reporter

West Texas Intermediate crude for August delivery added 71 cents to $38.72 on the New York Merc, while Brent for August added 74 cents to $41.05 (all figures in this para U.S.). Western Canadian Select traded at a discount of $9.50 to WTI, down from a discount of $8.95. Natural gas for July plunged 12 cents to $1.48, breaking below $1.50 for the first time since 1995, on swelling stockpiles. Weekly data released today by the U.S. Energy Information Agency showed storage levels currently sitting at around 3.01 trillion cubic feet, up from 2.27 trillion this time last year. The TSX energy index added a fraction to close at 76.41.

Colombian oil producer Parex Resources Inc. (PXT) added 57 cents to $16.04 on 1.01 million shares, after hyping "action plans" to boost production and ramp up spending. It trumpeted "greater visibility to stabilizing netbacks" as it detailed its get-back-to-work activities. Some of these activities appear to have started shortly after Parex made a considerably glummer announcement in mid-May, when it said it was deliberately decreasing its production. It reckoned that output could get as low as 30,000 barrels of oil equivalent a day in May and June, down from 47,000 barrels a day in April. Analysts in response pinned their estimates for Parex's second quarter production at around 38,000 barrels a day. Now Parex has provided its own estimate (which should be reasonably accurate, given that less than a week of the quarter remains) and pegged its second quarter production at 41,200 barrels a day. This suggests that either the shut-ins were short-lived or that Parex was able to bring them back on-line quickly, or both.

Parex also provided production forecasts for the third and fourth quarters. When combined with other quarterly figures, these suggested a full-year average of 45,300 to 46,900 barrels a day. Although this is below the 2019 average of 52,700 barrels a day, as well as Parex's previous 2020 guidance of about 55,400 barrels a day (which was withdrawn in April), it is noticeably above recent analyst forecasts of just 40,000 barrels a day. This in part reflects a big budget boost. Parex is now planning to spend a total of $144-million (U.S.) to $155-million (U.S.) this year. Again, while this is below the original 2020 guidance of around $225-million (U.S.), it is well above the budget that Parex set in April of around $105-million.

Some investors will no doubt raise an eyebrow at a company so eager to switch back into spending mode so early. Presumably for that reason, Parex dedicated a section of the press release to its "financial strength," highlighting its $360-million (U.S.) cash and its undrawn $200-million (U.S.) credit facility. This certainly worked on Scotia Capital analyst Gavin Wylie, who marvelled at the "admirable" balance sheet in a research note this morning. He also praised Parex for "putting capital back to work." Mr. Wylie has "sector outperform" rating on the stock and a price target of $23. Given that the stock closed today at $16.04, it is clear that not all investors share in the analyst's enthusiasm. This may reflect uncertainty over how Parex will deploy its plentiful pile of cash. The company has expressed a vague desire to "replenish and diversify" its portfolio, but in the absence of details, rumours abound, including some that see the company hunting for sizable and potentially risky deals outside its core area of Colombia.

That scenario aside, Parex's ramp-up of activities makes for a pleasant change from the more typical news lately of layoffs and debt woes. Regarding the latter, there was some interesting action today on the U.S. side of the border, following a report from Reuters that the embattled California Resources Corp. (U:CRC: $1.33) -- the largest oil and gas producer in the state sharing its name -- has managed to keep its creditors at bay a while longer. The company was facing rumours of imminent bankruptcy after it failed to make an interest payment last month on some of its $4.9-billion (U.S.) debt. Now, apparently, the company has managed to scrape together the payment, sending it in just before the end of the grace period. "They must feel as though they have enough liquidity to get through the short term and stave off a restructuring," John Thieroff, a vice-president at Moody's Investors Service, mused to Reuters.

The perception that California Resources has yanked itself back from the brink appears to have struck a chord with investors in an even more debt-burdened company, the U.S. shale producer Chesapeake Energy Corp. (U:CHK). Chesapeake owes over $9-billion (U.S.) and has been the subject of persistent bankruptcy rumours for weeks. In early May, following fruitless efforts to reverse the long slide in its share price -- with the artificial exception of a 1-for-200 rollback in April -- Chesapeake itself began publicly mulling a "reorganization under Chapter 11 of the Bankruptcy Code." The rumours picked up steam last week after Reuters reported that the company was within days of filing for bankruptcy. Yet today, Chesapeake's stock bounded up $1.07 to $12.78 (U.S.), its first up day since June 12. Of course, adjusted for the rollback, the stock has still fallen from $430 (U.S.) over the last year and from $8,670 (U.S.) since 2008.

Another U.S. shale producer, Ovintiv Inc. (OVV), added 78 cents to $13.53 on 3.96 million shares. One week has passed since the company confirmed rumours that it is laying off a full one-quarter of its employees, dropping its head count down to 2,100 employees and contractors. Now a respected executive is leaving as well. In a recent EDGAR filing, Ovintiv disclosed that David Hill is leaving effective June 30 and will no longer serve as executive vice-president of land and exploration. The terse one-sentence update did not include an explanation. Mr. Hill has been a familiar face to investors over the years, frequently representing the company on the conference circuit, which is usually the turf of chief executive officers. He joined Ovintiv (then EnCana) in 2002. During the great management shake-up of 2013, when current CEO Doug Suttles took over and ousted many former executives, Mr. Hill not only stayed but was promoted (he had been the vice-president of operations at the company's main gas subsidiary). Now he is abruptly leaving. This is the second eyebrow-raising departure from Ovintiv in less than a month: On May 28, Ovintiv announced that Mike McAllister, the former chief operating officer who had been promoted to president just eight months earlier, is stepping down effective June 30. The above Mr. Suttles will become president and CEO. There is no word yet on if Mr. Hill will be replaced or by whom.

In other personnel news, Jay Park and Craig Steinke's Reconnaissance Energy Africa Ltd. (RECO), down two cents to 65 cents on 202,100 shares, has appointed Nick Steinsberger as senior vice-president of drilling and operations. Mr. Steinsberger is to help the company drill its very first well in the fourth quarter of this year in the Kavango basin of Namibia and Botswana. This could lead to the "opening of the basin," an excitable term that investors may recall from last week's press release from Renaissance Oil Corp. (ROE: $0.055), which on June 16 signed an option agreement with Reconnaissance on the Botswana side of the play. The companies had a prior connection: Mr. Steinke is the CEO of Renaissance and a co-founder of Reconnaissance. Now Mr. Steinsberger deepens that connection, as five years prior to today's update from Reconnaissance, he began working for Renaissance as a technical adviser. This was just as Renaissance was entering the newly non-monopolistic energy industry in Mexico.

Mr. Steinsberger clearly has a taste for uncharted waters. His main claim to fame, however, started closer to home, in the Texas Barnett shale. There, a company called Mitchell Energy -- whose late founder, George Mitchell, is sometimes referred to as the father of fracking -- had been attempting without success to frack the play since 1981. It was not until 1997 that a Mitchell engineer finally (if partly accidentally) made the fracking breakthrough that would turn the Barnett from a marginal formation into one of the largest gas plays in the United States. That engineer was Mr. Steinsberger. Mitchell's success in the Barnett led to a $3.1-billion (U.S.) takeover offer in 2002 from Devon Energy, with which Mr. Steinsberger stayed until 2004. He then founded a consultancy and has worked with numerous companies supervising over 1,500 wells. That number comes from Reconnaissance's COO, Scot Evans, who appears to be quite the fan of Mr. Steinsberger. Today the COO enthusiastically welcomed his new colleague as nothing less than a "world leader" in well design.


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