by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery lost $1.16 to $68.14 on the New York Merc, while Brent for November lost $1.15 to $71.45 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.96 to WTI, up from a discount of $12.03. Natural gas for October added 12 cents to $5.03. The TSX energy index added a fraction to close at 124.66.
Oil prices may have been down, but the mood in the offshore Newfoundland oil industry was buoyant, as two of Canada's largest oil producers gave it a ringing vote of confidence. Suncor Energy Inc. (SU), up 32 cents to $23.45 on 17.5 million shares, cheered the "East Coast Canada Energy Future." Both Suncor and Cenovus Energy Inc. (CVE), down six cents to $10.58 on 8.69 million shares, are increasing their interest in the offshore Terra Nova oil field.
Terra Nova has been a mainstay of the offshore industry since 2002. In 2019, Suncor, as the operator of Terra Nova and the largest of its seven owners, halted production in order to send the field's aging FPSO (floating production and storage vessel) off for some badly needed work. This was to be finished in 2020 and to extend the life of the field by a decade. Unfortunately, the global pandemic put a stop to those plans, and the vessel sat idle in a Newfoundland harbour. Rumours arose that some of Terra Nova's owners were ready to walk away and decommission the field. Suncor insisted that it wanted to keep the project going. In June, it released the vague outlines of a plan that would enable Terra Nova to move ahead with the life extension and also increase Suncor's interest in it to 48 per cent from 38 per cent.
Now Suncor has put the finishing touches on the plan. Four of Terra Nova's owners are indeed exiting the project (including three global majors, the latest in a long series of Canadian asset sales by foreigners), but Suncor, Cenovus and the Texas-based Murphy Oil are keeping the faith. They have all agreed to increase their interests in Terra Nova and sanction the life extension. The provincial government is throwing its weight behind the plan, promising up to $205-million in direct financial support. The goal is to resume production at the field by the end of 2022.
Investors seemed only mildly interested. Suncor opted not to mention that at full swing, Terra Nova produces 30,000 gross barrels a day, or 14,400 net to the company (based on a revised interest of 48 per cent). That is a fraction of Suncor's forecast 2021 production of 740,000 to 780,000 barrels a day. Yet the industry's main regional lobby group drummed up enough enthusiasm for everyone. Charlene Johnson, chief executive officer of Noia (the Newfoundland and Labrador Oil and Gas Industries Association), heartily cheered the "extremely positive" news. "[Terra Nova] once looked perilously close to never returning to production," she intoned. Now it promises "significant employment for Newfoundlanders and Labradors now and into the future."
Terra Nova was not the only subject of Suncor's (and Ms. Johnson's) excitement. Suncor separately announced a conditional agreement to increase its interest in another offshore field, White Rose. This is owned with and operated by Cenovus. Under their new arrangement, Cenovus will transfer a 12.5-per-cent interest in White Rose to Suncor -- increasing Suncor's interest to 40 per cent, and decreasing Cenovus's to 60 per cent -- as long as Cenovus makes a decision soon on a stagnating satellite field known as West White Rose.
West White Rose was supposed to come on production way back in 2016 and add 75,000 gross barrels a day (effectively quadrupling output). The former operator, Husky Energy, faced years of delays, but managed to finish about 60 per cent of construction before halting activity in March, 2020. Then Husky was acquired in January, 2021, by Cenovus, which showed little interest in reviving West White Rose. Some prodding from Suncor -- and the promise of a cash payment that neither of them specified -- has persuaded Cenovus to at least think about it. This was more than enough for Noia's Ms. Johnson, who dubbed herself "far more optimistic about the future" of West White Rose. Cenovus said calmly that it will make its decision by mid-2022.
Cenovus had one last bit of news on this busy day. In a press release, it announced a full tender offer for two batches of notes due in 2022 (for a total of $1-billion), plus partial tender offers for notes due in from 2023 to 2029 (up to a cap of $1-billion -- altogether these notes have an outstanding principal balance of $3.9-billion). A separate regulatory filing showed that Cenovus is simultaneously marketing $1.25-billion (U.S.) in fresh notes due in 2032 and 2052. Interest rates are currently highly favourable to this kind of debt refinancing, and Cenovus is far from the first to take advantage. Others that have done so this year include MEG Energy Corp. (MEG: $8.14), Frontera Energy Corp. (FEC: $7.06), the private Teine Energy and a long list of U.S. shale drillers.
In the Alberta Cardium, Doug Bartole's InPlay Oil Corp. (IPO) added two cents to $1.10 on 559,200 shares, striving to impress investors with its preliminary 2022 guidance. The company is tentatively aiming for full-year output of 6,300 to 6,550 barrels of oil equivalent a day. This is about 10 per cent higher than what analysts were expecting. For context, InPlay's current 2021 guidance is 5,500 to 5,750 barrels a day, a range that it already increased once in August (from the prior target of 5,100 to 5,400 barrels a day). Mr. Bartole, InPlay's president and CEO, patted the company on the back for the "strong results" -- nay, the "outperformance" -- of this year's drill program. He sees a "strong foundation" heading into 2022 and is "excited" for the future.
Mr. Bartole made sure that at least one analyst shared in the excitement. That would be Noble Capital Markets' Michael Heim, who released a boosterish research note this morning about InPlay's "strong performance" and "even more impressive" guidance. By his estimates, the company will be able to boost its output considerably, while reducing its debt to just $25-million by the end of next year (from $76-million as of June 30). Pointing out that InPlay's forecast 2022 cash flow is virtually equal to its current market cap (around $75-million), Mr. Heim raised his price target to $3.25 from $2.50 -- nearly three times today's close of $1.10. If that all sounds a bit too friendly, there is good reason for that. The disclaimer section notes that the write-up is "company-sponsored research" and should not be construed as "advice or recommendation to buy or sell any securities."