by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added 80 cents to $45.71 on the New York Merc, its first time above $45 since early March, while Brent for January added 75 cents to $48.61 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.10 to WTI, unchanged. Natural gas for December added 12 cents to $2.90. The TSX energy index lost a fraction to close at 91.14.
Canada's oil and gas consumption may already have peaked, with renewables and nuclear power set to rise in the years ahead, according to a new report by the Canada Energy Regulator (CER). The report, entitled "Canada's Energy Future 2020," suggests that oil and gas consumption levels peaked in 2019. Demand in 2020 is of course being ravaged by COVID-19, but the true long-term effects on oil and gas consumption lie in emerging technologies and tougher climate policies. Assuming these trends continue, the CER is projecting that oil and gas consumption levels will decrease 12 per cent by 2030 (relative to 2019) and decrease 35 per cent by 2050.
Oil and gas production is still necessary, of course, with fossil fuels making up more than 60 per cent of Canada's projected fuel mix in 2050. The CER reckons that oil production will rise to 5.8 million barrels a day in 2039 (up from 4.9 million in 2019) before peaking and then slowly declining to 5.3 million barrels a day in 2050. Gas production, meanwhile, is projected to hit 18.4 billion cubic feet a day in 2040 (up from 15.7 billion in 2019) and then slip down to 16.8 billion cubic feet a day by 2050.
The chief economist of the CER, Darren Christie, concluded in the report that Canada is at "an important inflection point ... [We] now project that Canada has passed its peak for fossil fuel consumption." In a subsequent interview with The Globe and Mail, he explained that "in the demand destruction we've seen this year, we do see fossil fuel demand come back. But as that happens, we've got the dual effect of increasing climate policy as well as improving technologies on the low-carbon technology front." He said the future of the oil and gas industry in Alberta "depends very much on it remaining cost-competitive and carbon-competitive."
Sadly, one way to reduce costs is through layoffs, which continue to rain down on the oil patch. U.S. oil giant ExxonMobil announced today that it plans to cut up to 300 jobs in Canada. An unspecified number of the job losses will occur at Imperial Oil Ltd. (IMO: $24.32), the oil sands producer of which Exxon owns about 70 per cent.
Elsewhere in Alberta, Scott Ratushny's Cardinal Energy Ltd. (CJ) added four cents to 56 cents on 848,100 shares, following a coy announcement about its credit facility. For context, Cardinal has been trying for months to relieve the financial pressure caused by the downturn. It suspended its dividend, gutted its budget, announced salary reductions and other cost cuts, and shut in up to one-quarter of its 20,000-barrel-a-day production (with 10 to 15 per cent remaining shut in as of now). Its bankers rather unhelpfully responded by slashing its credit facility to $225-million from $325-million and placing restrictions on how the facility could be used. For example, Cardinal was informed that it was not allowed to repay debentures using the facility. As things stood on Sept. 30, 2020, Cardinal had $44-million in outstanding debentures (including $16-million maturing this Dec. 31) and $205-million in bank debt. For months, it has been warning of "material uncertainties which may cast significant doubt with respect to the company's ability to continue as a going concern."
Last night, it eased some of the concerns by announcing that it has "agreed to a term sheet, reflecting extensive discussions with certain existing and new lenders, that would provide Cardinal with longer-term certainty around its credit facility." It was being deliberately vague because the agreement is still awaiting formal approvals. The big question is the identity of the new lenders, particularly as Cardinal has made no secret of its desire to take advantage of the government's COVID-19-related liquidity support programs. These programs were announced back in April but have taken several months to deploy. InPlay Oil Corp. (IPO: $0.235) was the first energy company to announce a term sheet for a debt facility with Business Development Bank of Canada (BDC) in August, yet the facility was not actually finalized until November. Fortunately, the pace seems to have picked up a bit lately, with Surge Energy Inc. (SGY: $0.305) announcing a BDC facility (and a separate agreement with Export Development Canada) in early November and then closing it just two weeks later. Whether Cardinal is having similar luck securing federal funds will remain a mystery for a bit longer. The company says it expects to provide an update by Dec. 15.
South of the border, Bruce Chernoff's North Dakota Bakken-focused PetroShale Inc. (PSH) stayed unchanged at 12 cents on 387,300 shares, failing to move investors one way or the other with its third quarter financials. Production dropped to 12,000 barrels of oil equivalent a day in the third quarter from 13,300 barrels a day in the second quarter. Thanks to better oil prices, however, revenue rose quarter over quarter to $32.9-million from $24.2-million and net loss improved to $9.1-million from $23.2-million. PetroShale seemed optimistic that the improvements will continue, announcing that it even expects to generate free cash flow in the fourth quarter. It will use the extra cash to reduce debt. As of Sept. 30, net debt came to $349.5-million, including $171.1-million (U.S.) drawn on a $177.5-million (U.S.) credit facility -- hardly a lot of breathing room.
PetroShale's new chief executive officer, Jake Roorda -- who took over as CEO in late August, but has been a director since 2012 -- said PetroShale is successfully applying "key learnings" to improve its operations. Interestingly, he reiterated the company's full-year 2020 production guidance of 11,000 to 12,000 barrels a day. Based on its year-to-date output (up to Sept. 30), this implies that PetroShale's fourth quarter output could be as low as 4,500 barrels a day. This is unlikely for two reasons. One, PetroShale has already hedged 5,000 barrels a day of output for the fourth quarter, and two, it pegged its current output at 11,800 barrels a day, giving no reason to suspect a drastic near-term drop. Some producers like to set underwhelming guidance in the hopes that surpassing this guidance will later impress investors. It usually does not work.
In other news, in addition to its new CEO, PetroShale is welcoming a new chief financial officer. Current CFO Caleb Morgret is stepping down for family reasons. His replacement will be Scott Pittman, who was lauded by PetroShale for his 15 years of financial and investment banking experience, as well as his prior experience serving in the U.S. Marine Corps. Mr. Pittman was most recently the CFO of Chaparral Energy, where he worked from 2019 until his resignation in April, 2020. Chaparral struggled with debt the entire time. In August, 2020, it filed for bankruptcy.