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Msg  61137 of 61177  at  9/15/2020 8:29:06 PM  by


Energy Summary - 15th

Energy Summary for Sept. 15, 2020

2020-09-15 20:16 ET - Market Summary

by Stockwatch Business Reporter

West Texas Intermediate crude for October delivery added $1.02 to $38.28 on the New York Merc, while Brent for November added 92 cents to $40.53 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.25 to WTI, down from a discount of $8.46. Natural gas for October added five cents to $2.36. The TSX energy index lost a fraction to close at 70.22.

One day after OPEC lowered its global oil demand forecasts for 2020, the International Energy Agency (IEA) has followed suit. In the latest version of its closely watched monthly report, the IEA trimmed its 2020 demand forecast to 91.7 million barrels a day from 91.9 million (which itself was a reduction from an even earlier forecast of 92.1 million). The agency said rising COVID-19 cases and weakening market sentiment are creating a "treacherous" path for demand recovery. Despite the bearish IEA report, oil prices had an up day, as traders kept their eye on Hurricane Sally in the Gulf of Mexico. Sally has already idled numerous rigs along the U.S. Gulf Coast. The supply concerns are heightened by the fact that this is the region's second production disruption in three weeks, after Hurricane Laura ripped through in late August.

Here in Canada, Jim Riddell's Alberta Montney- and Duvernay-focused Paramount Resources Ltd. (POU) edged up five cents to $2.26 on 530,700 shares. The gain came in spite of an announcement that would normally disappoint investors: an increased budget accompanied by decreased production guidance. Paramount announced last night that it is planning to shift $60-million worth of 2021 spending up into the second half of 2020. This means it will now spend $225-million this year instead of $165-million, a 36-per-cent increase.

There are two reasons why this budget boost is not accompanied by higher production guidance. One is simple timing: A budget boost late in the year will naturally have a greater effect on results in the following year. The other reason has to do with a continuing plant outage at Keyera's Wapiti gas plant, which processes some of Paramount's Montney production. As fellow plant customer Pipestone Energy Corp. (PIPE: $0.56) announced last month, the Wapiti plant suffered a problem with its waste heat recovery system starting Aug. 17. Repairs are still in progress. Paramount says the plant should be operating again next week, but because of the downtime, the company now expects to produce just 63,500 to 67,000 barrels of oil equivalent a day this year, down from the previous target of 65,000 to 70,000 barrels a day.

Paramount's investors seemed largely neutral on the update. The plant outage was already public, and Paramount had separately announced in early August that it wanted to "advance certain projects that had previously been planned for 2021," signalling that a budget boost was on the way. What is interesting is the size of the boost. At $60-million or 36 per cent, the boost is larger than many would have been expecting, and by Paramount's own estimates will create a $40-million gap between spending and cash flow in the second half of the year. This raises the question of how to close the gap without adding to an already high debt load (over $750-million as of June 30). The question may already have an answer: In mid-August, Paramount pooh-poohed a merger involving one of its investments, Strath Resources. The merger was not in Strath's best interests, argued Paramount. It exercised its dissent right and therefore became entitled to a cash payment equal to the value of its Strath shares. This value has not been disclosed, but if it is at least $60-million, that would explain Paramount's comfort in hiking the budget so steeply.

Meanwhile, the above-noted Pipestone Energy Corp. (PIPE) lost one cent to 56 cents on 102,900 shares, despite gaining shareholder approval for its planned $70-million financing with institutional investors. The financing will consist of preferred shares that will be convertible into common shares at 85 cents, a price not seen by the stock since early March. The big-name participants are Riverstone Holdings and GMT Capital. When Pipestone announced the financing on Aug. 5, it claimed that the proceeds would allow it to (among other things) hike its 2020 budget to $110-million from $60-million, in turn supporting full-year production of 16,000 to 17,000 barrels a day. The company simultaneously released a preliminary three-year outlook that forecast production of as much as 38,000 barrels a day in 2022. Unfortunately, the 2020 guidance had to be withdrawn later in August as a result of the Keyera Wapiti plant outage, and the fate of the three-year outlook was left unknown. Now that Paramount has announced an end to the outage next week, Pipestone's investors will be looking for a near-term guidance update.

Further afield, the Lundin promotion Africa Energy Ltd. (AFE) lost 1.5 cents to 46.5 cents on 13,900 shares. The drop came in spite of a complimentary mention from Canaccord Genuity analyst Charlie Sharp, who is eagerly awaiting the results of an exploration well that Africa Energy is drilling at its "jewel asset" off the coast of South Africa. The asset is block 11B/12B and the well is targeting a prospect known as Luiperd. Africa Energy owns a 4.9-per-cent interest in block 11B/12B (though it is in the process of doubling this interest to 10 per cent), with co-owners including France's Total, Qatar Petroleum and Canadian Natural Resources Ltd. (CNQ: $23.56). The joint venturers made a sizable gas and condensate discovery on the block last year at a prospect called Brulpadda (which translates to "bullfrog"). Luiperd ("leopard") is in the same fairway as Brulpadda and is thought to be even larger. The well that will help test this theory, Luiperd-1X, was spudded three weeks ago.

Mr. Sharp wrote this morning that the joint venturers will need at least 60 days to finish drilling the well, given the deepwater conditions and the potential for harsh winter weather. Such challenges have done nothing to dampen Mr. Sharp's enthusiasm. He noted that Luiperd, in addition to being larger than Brulpadda, is also more likely to be oily. (Of course, the joint venturers had thought Brulpadda would be oily, up until the well flowed gas and condensate instead.) Whatever the hydrocarbon, a successful result would "derisk a number of other prospects and substantially raise the potential for commercial development," said Mr. Sharp. He hiked his price target on Africa Energy's stock to 47 cents from 31 cents.

Of course, given that the stock closed today at 46.5 cents, this is not as ringing an endorsement as it could have been. Africa Energy last traded at 31 cents in mid-July. It has since enjoyed a 50-per-cent rise, as investors wait to see how high a leopard can leap.


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