by Stockwatch Business Reporter
It was a quiet trading day, with U.S. markets closing early so shoppers could hunt for Black Friday bargains. West Texas Intermediate crude for January delivery added 54 cents to $45.53 on the New York Merc, while Brent for January added 40 cents to $48.18 (all figures in this para U.S.). This is the fourth week in a row that both benchmarks have ended the week higher. Western Canadian Select traded at a discount of $11.40 to WTI, unchanged. Natural gas for January lost five cents to $2.84. The TSX energy index added a fraction to close at 91.34.
Heading into the weekend, all eyes were on the upcoming OPEC meeting, at which the group will decide whether to increase production effective Jan. 1. The group known as OPEC+ (OPEC plus non-member countries such as Russia) is currently restricting output by 7.7 million barrels a day. The cuts are scheduled to be eased to 5.7 million barrels a day in the new year, which would effectively cause a two-million-barrel-a-day increase in global supplies. The next policy meeting at which OPEC will decide whether to stick to this easing or postpone it will be held on Nov. 30 and Dec. 1. Prior to this meeting, a panel of OPEC+ members will hold informal on-line talks this Sunday.
Meanwhile, South American oil producer Frontera Energy Corp. (FEC) added 15 cents to $3.27 on 387,300 shares, while the exploration-stage CGX Energy Inc. (OYL) did the opposite and lost one cent to 51 cents on 36,800 shares, despite both having the exact same news. The news had to do with their joint venture at two offshore oil blocks in Guyana. They arranged this joint venture, covering the Demerera and Corentyne blocks, back in 2018. Their goal at the time was to drill their first well at Corentyne in 2019 and their first well at Demerera in 2020. In mid-2019, however, they decided to drill both wells back to back in 2020, to cut costs and provide extra time for surveying. The revised plan would still easily allow them to meet their block commitments of drilling a Corentyne well by Nov. 27, 2020, and a Demerera well by Feb. 12, 2021.
The COVID-19 pandemic derailed these plans. Today's date, Nov. 27, 2020, is the deadline for the Corentyne well, and it need hardly be said that the well does not exist. Fortunately, the government of Guyana has agreed to extend the Corentyne deadline by a full year to Nov. 27, 2021. CGX made sure to lavish praise on the government for engaging in the "constructive and collaborative" discussions. Ideally, the discussions would also have included an extension of the Demerera deadline (Feb. 12, 2021), but perhaps those talks are still in progress.
Guyana has good reason to treat its oil producers well. The little country burst onto the global oil scene in 2015, after ExxonMobil made the first of what is now 18 discoveries at its massive offshore Stabroek block. Production from Stabroek began late last year, officially turning Guyana into an oil producer. Even allowing for the economic fallout of COVID-19, the International Monetary Fund has estimated that Guyana's GDP will expand by over 50 per cent in 2020 because of oil. Frontera and CGX Energy, along with nearby explorer Eco (Atlantic) & Gas Ltd. (EOG: $0.375), are some of the Toronto-listed companies looking to participate in the boom.
Here in Canada, Doug Bailey's Alberta-focused Razor Energy Corp. (RZE) had a wonderful day, bounding up 12 cents to 24.5 cents on 393,500 shares. The only news it released was its third quarter financials. On their own, these do not explain today's excitement, but they merit a brief look. Razor pegged its production for the quarter at 3,600 barrels of oil equivalent a day, down slightly from 3,800 barrels a day during the second quarter and from 4,200 in the first quarter. The decreases reflect shut-ins related to weak commodity prices. Razor has started restoring some of this production, and estimates that its production could rise by over 1,000 barrels a day once all of its wells are back on-line. Before it feels comfortable enough to do that, however, it wants to restructure its $47.7-million loan facility with Alberta Investment Management Corp. (AIMCo), which is currently in default and is due to mature on Jan. 31, 2021. AIMCO has "indicated their intention to work with the company to renew the loan," according to Razor. It is keeping a tight lid on its spending in the meantime and is forecasting "limited activity" in the fourth quarter.
In the first three quarters of the year, most of Razor's capital activity was directed not toward standard drilling and completions, but rather to its geothermal power project -- and here is where some of today's excitement may have come from. Over in Saskatchewan, a small private company called Deep Earth Energy Production made headlines today after drilling what is being described as a "landmark" well for the nascent geothermal industry. Chief executive officer Kirsten Marcia explained to the Financial Post that the well, called Border-5Hz, is not only a record-setter for Saskatchewan (being the province's deepest ever horizontal well and first ever horizontal geothermal well), but is also a "gusher" capable of producing enough electricity to power 3,000 homes. The well flowed 100 litres per second of steaming hot water and brine. The Financial Post, which did some gushing of its own about the "groundbreaking" well that "signals the arrival of a new energy source in Canada," went on to give a brief mention to Razor and its geothermal project next door in Alberta. This seems to be all it took to send the stock on today's thrilling rise.
For the curious, there are some differences between Deep Earth's geothermal project and Razor's. Deep Earth is drilling wells specifically to access the high volumes of hot brine needed to generate electricity. Razor is more interested in co-production -- that is, it is testing the hot fluids that are pumped to the surface alongside oil and gas to see whether the fluids are useful for electricity generation. This can involve retrofitting the wells, as most oil and gas drillers (at least in Western Canada) stop about 500 to 1,000 metres short of the depths required for optimal geothermal drilling. (Going deeper leads to more sedimentation, harder rock and higher quartz content, all of which will wear out the drilling equipment faster and thus increase costs.) In addition, geothermal wellbores need to be about twice as wide as their oil and gas counterparts, and special pumping equipment may be needed.
The idea is nonetheless interesting and potentially lucrative, given the market's increasing interest in renewables. Razor is hoping that its project will have a power-generating capacity of 21 megawatts, including six megawatts from geothermal. Deep Earth's geothermal project is for 20 megawatts. As a general estimate, one megawatt is enough to power 1,000 homes for one year.