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Msg  61139 of 61635  at  9/17/2020 8:29:08 PM  by


Energy Summary - 17th

Energy Summary for Sept. 17, 2020

2020-09-17 20:02 ET - Market Summary

by Stockwatch Business Reporter

West Texas Intermediate crude for October delivery added 81 cents to $40.97 on the New York Merc, while Brent for November added $1.08 to $43.30 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.75 to WTI, up from a discount of $11.20 Natural gas for October tumbled 23 cents to $2.04. The TSX energy index lost a fraction to close at 71.51.

Producers in the North Dakota Bakken breathed a sigh of relief upon hearing that the Dakota Access pipeline, the largest pipeline moving oil out the play, is likely safe from a shutdown this year. A newly filed federal court schedule indicates that the court will not be prepared to rule on halting the pipeline until late December at the earliest. As discussed in yesterday's Energy Summary, a district judge had ordered a shutdown in July, saying the pipeline needed a lengthy environmental review. This order was stayed by a higher court until it can decide whether a shutdown is really necessary. According to the new filing, late December -- more specifically, at some point after Dec. 18 -- is the earliest time that the court feels it will be able to make the decision after reviewing all the relevant documentation. Producers using this line can now relax for a few months. Canadian producers in the North Dakota Bakken include Enerplus Corp. (ERF: $2.68) and PetroShale Inc. (PSH: $0.125).

Here in Canada, David Wilson's Montney-focused Kelt Exploration Ltd. (KEL) added seven cents to $1.69 on 3.32 million shares, after Mr. Wilson announced that he spent a total of $7.35-million yesterday buying five million shares at $1.47. This took his ownership position in Kelt over the 10-per-cent threshold. Previously Mr. Wilson owned 18.78 million shares, or 9.97 per cent of the 187 million shares outstanding; now he owns 23.7 million shares, or 12.62 per cent. Mr. Wilson has been Kelt's president and chief executive officer since it was formed in 2013 as a spinout of his prior promotion, Celtic Exploration. He sold Celtic to ExxonMobil for $24.50 a share. The assets that Exxon did not want were spun out into Kelt, which started trading at around $5.50. Just over a year later, in mid-2014, Kelt's stock was worth as much as $15.62, but after six years of downturn, it is now worth $1.69.

Mr. Wilson nonetheless sees opportunity, especially with Kelt having recently closed an asset sale to ConocoPhillips for $510-million. The deal cut Kelt's production in half but wiped out its debt and gave it a $34-million working capital surplus. Even so, Kelt says it is sticking to a cautious plan for the rest of 2020, with a second-half budget of just $20-million and only a four-well drill program. Investors have largely yawned off this program. The sizable purchase by Mr. Wilson should give them some more to talk about.

Further afield, Tanzania-focused Orca Energy Group Inc. (ORC.B) added five cents to $5.90 on a relatively heavy 35,200 shares. (The stock is a thin trader. Over 99 per cent of its Class A common shares and 16 per cent of its Class B subordinated shares are controlled by the estate of its founder, David Lyons, who died in August, 2018.) Yesterday after the close, the company announced "changes to its strategic direction." This is an impressive way of saying that not much is changing at all. All of Orca's operations are in one particular Tanzanian gas field -- the Songo Songo field -- and though Orca had been considering expanding beyond this field into other parts of Africa, it has now changed its mind and will go back to business as usual.

There is, however, a proper change at the management level. Nigel Friend is stepping down as CEO. He took charge of Orca in October, 2018, two months after the death of founder David Lyons. During his tenure, in May, 2019, Orca received a $7.50-a-share takeover offer from a company called Swala Oil & Gas. Swala owns a 7.9-per-cent interest in the Songo Songo field, with Orca holding the rest. On paper they might have seemed a good fit, but Orca said it had good reason to believe that Swala could not actually afford the takeover, so the offer was rejected. Yet the idea of a takeover clearly intrigued Orca, and in July, 2019, it launched a "strategic review" -- code for going up for sale. This drew no takers (apparently not even a redo by Swala) and in January, 2020, Orca concluded the review with nothing but a promise to buy back shares and to pursue "other African gas opportunities." The first goal was handily accomplished through a buyback bid covering nearly one-quarter of the shares in February. The second goal, as noted above, is being abandoned.

Getting back to Mr. Friend, he is stepping down for undisclosed reasons, and will be replaced by interim CEO Jay Lyons. Jay Lyons is the brother of the above-noted David Lyons. He has been a director of Orca since May, 2019. His biography on Orca's website describes him as "a private investor with considerable experience in the oil and gas industry." Vague as that as, investors can be confident that Jay, like David, was steeped in oil and gas from a young age thanks to their father, the late Alberta gas man Verne Lyons. The senior Lyons was the founder of Alberta Eastern Gas and was more than once described by The Globe and Mail as an "energy pioneer." Part of Alberta Eastern Gas still lives on today, in the form of the public Methanex Corp.

Another international junior, Guyanese oil explorer Eco (Atlantic) Oil & Gas Ltd. (EOG), added 1.5 cents to 39.5 cents on 27,300 shares, on top of the four cents it added yesterday on much heavier volume of 264,400 shares. The excitement may have reflected a boosterish research note from the London-based brokerage Peel Hunt (Eco is listed in both Toronto and London). Peel Hunt, which bills itself as "the specialist for U.K. investment banking," is known widely enough that its report was mentioned briefly in yesterday's Globe and Mail, with the sentence, "Peel Hunt initiated coverage of Eco (Atlantic) Oil & Gas Ltd. with a 'buy' rating."

The Globe did not mention Peel Hunt's price target: a full 100 pence, equal to about $1.71, or more than four times today's close of 39.5 cents. Peel Hunt analyst Matt Cooper said that Eco's 2021 Guyanese drill program will be "one of the most exciting" of the year. Eco and its joint venturers in Guyana last drilled their block in 2019 and made two oil discoveries. The discoveries sent Eco's stock up from around 70 cents at the start of 2019 to nearly $3 by the end, although the stock subsequently collapsed after the oil was found to be heavy crude instead of the desired light crude. Peel Hunt's Mr. Cooper is unfazed, writing, "In our view, all data points indicate that light oil is likely to be found next year." The joint venturers are planning a two-well program. By Mr. Cooper's estimates, each well will target around 600 million barrels of prospective resources. He concluded that he would "urge investors to consider this excellent risk/reward opportunity."

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