by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery plunged $1.80 to $39.31 on the New York Merc, while Brent for November lost $1.71 to $41.44 (all figures in this para U.S.). After last week saw oil prices enjoy their biggest weekly gain since June, a pullback was in order, particularly against a backdrop of a potential supply boost in Libya. The Libyan national oil company has announced a partial lifting of a nearly eight-month force majeure on oil exports. This could result in the country's oil production returning to around 1.1 million barrels a day, nearly 10 times the current level of around 120,000 barrels a day. Here in Canada, Western Canadian Select traded at a discount of $10.65 to WTI, up from a discount of $10.80. Natural gas for October tumbled 21 cents to $1.84. The TSX energy index lost 3.07 points to close at 67.86.
One of today's big headlines came from pipeline giant TC Energy Corp. (TRP), which lost 96 cents to $59.51 on 4.98 million shares, after announcing that president and chief executive officer Russ Girling is retiring at the end of the year. He has been in charge for 10 years. As president and CEO, he led TC Energy through what the company described today as "a period of unprecedented growth and transformation," including the development of a liquids pipelines network, the $13-billion (U.S.) acquisition of Columbia Pipeline Group and other efforts in "delivering tremendous shareholder value." Noticeably absent was any mention of one of TC Energy's highest-profile controversies, the Keystone XL pipeline. Keystone XL is currently (incredibly) celebrating its 12th birthday, with TC Energy having submitted the application to the U.S. State Department in September, 2008. Mr. Girling could hardly have imagined when he was promoted to president and CEO in July, 2010, that the pipeline would still not be built a decade later.
That will all be someone else's problem now. The someone else will be Francois Poirier, TC Energy's chief operating officer (the role Mr. Girling held prior to his promotion 10 years ago). Mr. Poirier knows all about pipeline frustrations; he joined TC six years ago and was put in charge of the ill-fated Energy East file. Energy East was killed in 2017 and Mr. Poirier moved on to higher and higher roles within the company. That he will now take over the top job is not a surprise in anything except timing. Mr. Girling is relatively young for retirement, at only 57.
Within the upstream sector, U.S. shale producer Ovintiv Inc. (OVV) lost $1.02 to $12.29 on 1.35 million shares. On Friday after the close, it came under the glare of Fitch Ratings, which pushed the company's credit rating into junk territory and set its outlook at "negative." Ovintiv was previously just barely an investment-grade company, with a rating of BBB-. Now the rating has been downgraded one notch to BB+, officially junk.
Fitch explained that the "main drivers for the downgrade include Ovintiv's above-average refinancing risk." It flagged the company's high debt load of around $7.4-billion (U.S.), including $1.25-billion (U.S.) in notes due by January, 2022. The situation could deteriorate if weak oil prices "keep the company's spreads elevated and limit the attractiveness of tapping the bond market in the near term," fretted Fitch. As for Ovintiv's operations, Fitch had some nice things to say about their size (with appreciable production of 537,000 barrels a day), but said the company suffers from "below-average netbacks" and "lower expected production growth over the next few years, given capex reductions." Fitch would not be surprised to see Ovintiv cut its capital spending even further if oil prices remain weak.
Further afield, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), lost seven cents to $3.44 on 372,400 shares. It has drawn the ire of local utility Promigas after allegedly backing out of a pipeline-related contract. Promigas began complaining on its website last week that Canacol has decided to "unilaterally terminate the expansion of the natural gas transportation infrastructure" that Promigas built from Canacol's gas fields in Jobo to the port cities of Cartagena and Barranquilla. Long-term investors will remember this agreement from November, 2016. As Canacol announced at the time, it wanted Promigas to build a 100-million-cubic-foot-a-day pipeline expansion, with completion expected by December, 2018. Although construction ran into significant delays, Canacol eventually reported the expansion to have been "delivered in full on Aug. 24, 2019."
Barely a year later, the companies' working relationship appears to be in tatters. Canacol is allegedly refusing to enter an agreed-upon 10-year transportation contract with Promigas, which as a result is accusing Canacol of breach of contract. By Promigas's estimates, according to what it filed late last week with Colombia's Superfinanciera, Promigas is facing harm related to: (i) the investments already made in the expansion, estimated at over $210-million (U.S.); (ii) lost opportunity costs, estimated at $33.9-million (U.S.); and (iii) loss of income that would have been derived from the contract, estimated at $54.7-million (U.S.) annually. Promigas is vowing to "exercise the necessary legal actions ... in the compensation of the damages caused, without being limited to the collection of the foreseen penalties."
Despite releasing several updates in a press release last night, Canacol has not commented on the legal dispute, at least not explicitly. The closest it got was a single paragraph toward the end of the press release. In it, Canacol made vague reference to wanting to provide "clarification concerning the availability of transportation capacity" between Jobo and the above-named port cities. Under Colombian law, explained Canacol, transportation companies (such as Promigas, although Canacol avoided naming it) are more or less forbidden to deny access to the national transport system, which is considered a public utility. As a result, Canacol is moving its gas "without any interruption or issue," and even feels secure enough to reiterate its 2020 guidance of 170 million to 197 million cubic feet a day.
The only other mention of pipelines within the press release came when Canacol claimed to be in "advanced negotiations" over an entirely separate proposed pipeline expansion from Jobo to the city of Medellin. Canacol has been talking about this for ages and originally hoped to have a definitive agreement by the end of 2019. That did not happen, but Canacol wants its investors to believe it will happen by the end of 2020. It says it is "in the final stages" of figuring out how to finance the project and is also choosing among "multiple international pipeline construction and operation companies" to build and run it. It seems safe to assume that Promigas did not make the shortlist.