by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added 61 cents to $40.64 on the New York Merc, while Brent for December added 73 cents to $42.46 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.40 to WTI, unchanged. Natural gas for November lost one cent to $3.01. The TSX energy index added 2.67 points to close at 68.39.
"A strong trend of improving underlying fundamentals ... will boost prices into year-end." The bullish new prediction on oil prices came courtesy of Scotia Capital analyst Michael Loewen, who credited production shut-ins, an industry-wide drilling slowdown and a gradual improvement in fuel demand for whittling away at the high petroleum stockpiles that built up during the pandemic. Mr. Loewen looked at weekly inventory data from the U.S. Department of Energy and found that U.S. storage levels now match where they were at during the market rout of 2016. They have been draining slowly but steadily since early August. Interestingly, even at the worst point of the 2016 downturn, there were still 315 oil rigs active in the United States, whereas today there are just 205, pointed out Mr. Loewen. He sees further production declines as "inevitable" given this low level of activity. The escalating undersupply will allow oil prices to "push higher by year-end."
Mr. Loewen was not the only one in a boosterish mood. Here in Canada, oil prices have a bright future too, according to the analysts at BMO. They predicted that U.S. refineries are soon going to need more and more Canadian oil. Mexican crude exports are dwindling and Venezuelan crude is blocked by sanctions, leaving Canadian oil as the best alternative, pointed out the analysts. "We believe this could translate to stronger prices for WCS [the Canadian heavy oil benchmark] or a tighter spread between WTI and WCS." Specifically, although WCS currently trades at about a $10-(U.S.)-a-barrel discount to WTI, the analysts see the discount improving to a range of $5 (U.S.) to $7 (U.S.) a barrel in 2021. They added that the government of Alberta may even be able to get rid of its nearly two-year-old mandatory production curtailments on local oil producers. Several of those producers enjoyed a small pop today, such as Imperial Oil Ltd. (IOM), up 65 cents to $17.30, Suncor Energy Inc. (SU), up 96 cents to $16.07, and Cenovus Energy Inc. (CVE), up 24 cents to $4.94.
Further afield, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), edged up four cents to $3.59 on 226,400 shares. It trumpeted rising gas sales and new drilling discoveries. Average sales during September came to 168 million cubic feet of gas a day (equal to about 29,500 barrels of oil equivalent a day), up from the July and August average of 162 million cubic feet a day. This is still short of the 211-million-a-day average in January and February, but considering that sales dropped to just 130 million a day during the worst of the downturn from April through mid-May, Canacol is pleased with the improvement. The company also provided updates on two new gas wells -- or rather, two older wells that were drilled a while ago but only tested now. The Pandereta-8 development well, drilled in July, has tested at a satisfactory but not earth-shaking 15.3 million cubic feet a day. The Arandala-1 exploration well, drilled back in 2019, has tested at 12.8 million.
Investors largely yawned. Although Canacol tends to garner favourable analyst attention for the mere fact that it remains an active explorer in spite of the downturn -- something it can afford to do because it sells virtually all of its gas under fixed-price contracts -- its actual exploration results have largely failed to impress investors lately. The company is hoping to change that with at least one of its next two exploration wells, Fresa-1 and Flauta-1. It appears particularly excited about Flauta-1. According to a new presentation on its website, the most comparable historical analogue well to Flauta-1 is the Clarinete-1 well. This was a well drilled by Canacol way back in 2015. Clarinete-1 hit two reservoirs, with a combined test rate of 45.3 million cubic feet a day.
Another international junior, Philip O'Quigley's Australia-focused Falcon Oil & Gas Ltd. (FO), added one cent to 20.5 cents on a heavier-than-usual 1.01 million shares. It too looked to be benefiting from recent test results, although not its own. An Australian company called Tamboran Resources put out a boosterish press release cheering "another successful test result" in the Beetaloo basin in the Northern Territory. Specifically, its Tanumbiri-1 well, targeting the Middle Velkerri shale gas play, tested at an average 2.3 million cubic feet a day. "Development of the Beetaloo play has the potential to be a transformative event for our company, the Northern Territory and the energy security of Australia," declared Tamboran's chief executive officer, Joel Riddle. For those wondering what the Tanumbiri-1 well has to do with Falcon, the answer is nothing, except that -- as Tamboran obligingly noted elsewhere in the press release -- Falcon is one of the other companies currently operating in the Beetaloo play. Its Kyalla-117 well is getting ready for testing and should have preliminary results by year-end.
A map in Tamboran's press release shows that Falcon's Kyalla-117 is being drilled about 60 kilometres away from Tamboran's Tanumbiri-1. In a basin that spans 35,000 square kilometres, this makes them practically neighbours. Certainly Tamboran appears full of neighbourly warmth toward Falcon and the handful of other operators in this relatively underexplored basin. Mr. Riddle noted that at least five wells -- which would include Falcon's Kyalla-117 well, in addition to a Velkerri shale well that Falcon plans to drill in the first half of next year -- should have results between now and the end of 2021. "[There will be] more wells drilled in the Beetaloo next year than have been drilled in the past decade," cheered Mr. Riddle, adding that 2021 could be a "breakout year for the highly prospective Beetaloo basin." His promotional efforts seem to have been appreciated by investors. Tamboran itself is unlisted, but Falcon glided higher on heavier-than-usual volume.