by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery reached an intraday high of $50.30 -- its first time above $50 since last February -- before closing at $49.93, up $2.31, on the New York Merc (all figures in this para U.S.). Brent for March added $2.51 to $53.60. Western Canadian Select traded at a discount of $14.99 to WTI, up from a discount of $15.15. Natural gas for February added 12 cents to $2.70. The TSX energy index added 6.71 points to close at 98.79.
After yesterday's stumbling start to the new year, oil prices staged a hearty rally today, on news that Saudi Arabia will voluntarily cut its output by an extra one million barrels a day in February and March. These cuts are on top of Saudi Arabia's existing commitments under the OPEC+ production-cutting pact, and come as the kingdom tries to persuade other members of OPEC+ to hold output steady (rather than hiking it in February) amid concerns that new COVID-19 lockdowns will hurt demand. These concerns were already around when OPEC+ held its most recent policy meeting in late November and December. That meeting resulted in the group changing its plan to boost production by two million barrels a day on Jan. 1; the boost became 500,000 barrels a day instead. Now Saudi Arabia is unilaterally removing that extra supply and then some.
Here in Canada, oil sands giant Suncor Energy Inc. (SU) added $1.74 to $23.13 on 19.4 million shares, as investors easily shrugged off news of a $425-million non-cash writedown at one of Suncor's non-oil-sands assets. That would be its 26-per-cent non-operated interest in the White Rose oil field off the coast of Newfoundland. Suncor announced the writedown yesterday evening, citing uncertainty about the field's lifespan.
By way of background, White Rose produced 17,500 gross barrels a day in 2019, but was expected to get a 75,000-barrel-a-day boost in 2022 -- simultaneously extending the project's useful life by 14 years -- once its proposed West White Rose extension came on-line. The operator and majority owner, Husky Energy, began to throw doubt on this timeline last March, when it suspended construction because of COVID-19. Then in September, Husky said West White Rose was under review because it was too expensive to justify at current oil prices. (The project is about 60 per cent done, but needs another $1-billion or so to finish the job.) The final slam of the door came in October, when Husky announced its takeover by Cenovus Energy Inc. (CVE: $8.39) and Cenovus showed little to no interest in keeping West White Rose going. This takeover closed yesterday. The current state of things is that White Rose is producing as usual, but the future of West White Rose is, to use Suncor's words, in "significant doubt."
Suncor's investors were unfazed. For one thing, as described above, the risks to West White Rose's timeline have been evident for months. For another, Suncor's net share of production from White Rose is a drop-in-the-bucket 4,500 barrels a day (whereas Suncor's overall 2021 production guidance is 740,000 to 780,000 barrels a day). No material spending on White Rose was included in Suncor's 2021 budget. All in all, while a $425-million writedown is surely no fun, it is also no surprise, and is easy to brush aside when oil prices are having as good a day as today. Suncor's stock ended the day firmly in the green.
Alberta gas producer Peyto Exploration & Development Corp. (PEY) also had a green day, adding 19 cents to $3.16 on 3.41 million shares. President and chief executive officer Darren Gee has published his latest monthly update on Peyto's website, his first update of 2021. He seemed in a celebratory mood. "We rang in the near year with a bang," he declared, noting that Peyto exceeded its year-end production target of 85,000 barrels of oil equivalent a day. (He did not say by how much, but a chart in the letter showed that monthly production in December averaged 86,000 barrels a day.) In addition, the production that Peyto added throughout 2020 was done "at the lowest cost [per barrel] in Peyto's history," boasted Mr. Gee. Alas, after that his mood seemed to sour somewhat, with much of the rest of the update being dedicated to his (unfavourable) opinion of the carbon tax hike that Ottawa announced last month. Investors nonetheless found snippets to cheer about. A chart in the letter showed that Peyto produced an average of 80,000 barrels a day for full-year 2020, generally in line with analysts' predictions.
Elsewhere in Alberta, the Cardium-focused Obsidian Energy Ltd. (OBE) shot up 13 cents to $1.02 on 273,000 shares. Some of the excitement likely reflected today's jump in oil prices, but Obsidian did have news this morning, specifically the release of its guidance for the first half of 2021. The company is planning to spend $35-million and produce around 23,200 barrels a day. The planned seven- to eight-well drill program will build on the company's 2020 activity in the Willesden Green area, which "resulted in some of the best wells we've seen in the history of our Cardium program," declared interim president and CEO Stephen Loukas. He added that the first-half program will allow Obsidian to maintain production near year-end 2020 levels while generating free cash flow for debt repayment. (Net debt was $479-million as of Sept. 30, compared with a current market cap of $74.9-million.)
Of course, no press release from Obsidian these days would be complete without a mention of "creating the Cardium champion." This has been one of the company's favourite phrases since August, when it began to pester another Cardium producer, Bonterra Energy Corp. (BNE: $2.57), about a potential merger. Merging would directly create "the Cardium champion," insisted Obsidian. Bonterra ignored it. Obsidian ignored the ignoring and took its hostile bid directly to Bonterra's shareholders, who have until Jan. 25 to accept an offer of two Obsidian shares for every Bonterra share. Back in August, this ratio valued Bonterra's stock at $1.02, whereas the stock was actually trading at $1.50. Obsidian's stock has risen sharply since then, but so has Bonterra's, meaning the gap has persisted and the above figures are now $2.04 and $2.57. Bonterra has urged its shareholders not to tender to Obsidian's below-market bid. Obsidian has frequently tried to change their minds by using its press releases as a chance to rehash its pitch. While today's announcement was more subtle, not even mentioning Bonterra by name, the reference to the "Cardium champion" suggests that this unusual courtship is still very much on Obsidian's mind.