by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery added $2.60 to $60.43 on the New York Merc, its first time above $60 in seven weeks, while Brent for September added $2.85 to $67.01 (all figures in this para U.S.). Bullish traders took heart from a U.S. Energy Information Agency report showing a larger-than-expected weekly draw on crude oil inventories. As well, a brewing tropical storm has prompted several deepwater Gulf of Mexico producers to evacuate their staff, raising the risk of supply disruptions. The U.S. National Hurricane Centre says the storm may strengthen enough to be categorized as a hurricane by this weekend. Meanwhile, Western Canadian Select traded at a discount of $12.40 to WTI, up from a discount of $12.48. Natural gas for August added two cents to $2.44. The TSX energy index added 3.02 points to close at 142.65.
Gary Guidry's Colombian oil producer, Gran Tierra Energy Inc. (GTE), added 12 cents to $2.05 on 5.42 million shares. It patted itself on the back for restoring the production from its Suroriente and PUT-7 blocks. These blocks, with combined production of around 4,500 barrels of oil equivalent a day, were shut down last month by blockades of farmers protesting against the Colombian government. (The protests were unrelated to Gran Tierra and had to do with the government's agricultural policies.) Gran Tierra announced the blockades and a few other "temporary operational issues" on June 19, at which point its stock, which had been trading at over $2.50, began a three-week plunge to an all-time low of $1.87 (reached in intraday trading yesterday). Now Gran Tierra says the government has negotiated an end to the blockades and production from the blocks is back to normal. The stock is safely back above $2.
Gran Tierra's president and chief executive officer, Mr. Guidry, sought to put even greater distance between the company's operations and any domestic discontent. Local communities have access to a wealth of "legal, economic and entrepreneurship opportunities" thanks to Gran Tierra, he declared, pointing to the company's local hiring policies and social programs. He added that Gran Tierra has just been "awarded" four work-for-taxes projects by the Colombian government. (The work-for-taxes program was introduced in Colombia in 2016 and allows companies to pay part of their tax bill by investing in public works. This creates extra work for the companies, which are responsible for everything from planning to maintenance, but some find it worthwhile for the PR benefits and the faster development of key rural infrastructure.)
Despite a fairly quick end to the blockades, Gran Tierra remains likely to reduce its full-year production guidance. It previously set this guidance at 41,000 to 43,000 barrels a day, which it saw as achievable given that it entered the year producing around 40,000 barrels a day. Unfortunately, the blockades were just the latest in a line of problems that have dogged Gran Tierra all year. These problems led to production in the first half of the year averaging just 36,850 barrels a day. Last week, the energy analysts at Canaccord Genuity speculated that the guidance will be reduced to a range of 36,000 to 38,000 barrels a day. Gran Tierra has promised to provide an update on its guidance when it releases its second quarter financials on Aug. 8.
Here in Canada, oil sands producer Cenovus Energy Inc. (CVE) added 30 cents to $12.26 on 5.65 million shares. Its president and CEO, Alex Pourbaix, has confirmed rumours that Cenovus could be interested in buying some of the Alberta government's crude-by-rail contracts. Premier Jason Kenney (whose predecessor, Rachel Notley, signed the contracts shortly before the election) hired CIBC Capital Markets on June 27 to dispose of roughly $3.7-billion worth of contracts, representing about 120,000 barrels a day of capacity. Various oil companies are reportedly interested in buying the contracts if it means that they can circumvent the government's mandatory oil production curtailments (also introduced by Ms. Notley). "The problem right now has been that crude by rail has been relatively slow to ramp up," Cenovus's president and CEO, Alex Pourbaix, told Bloomberg yesterday on the sidelines of the TD Securities Calgary Energy Conference. "What we've suggested is that the government should consider modifications to the curtailment rules that would allow companies to overproduce their monthly commitments as long as they can demonstrate that the product is moving by incremental rail." He added to Reuters that Cenovus is generally "happy with our situation" but would look at the contracts to see if there are any good bargains.
Not all of the executives at the conference chose their words as gently as Mr. Pourbaix. Mark Little, president and CEO of Suncor Energy Inc. (SU: $42.40), scoffed at what he called a "kindergarten MBA test" and demanded: "What's wrong with this picture? We have oil shut in and we have idle takeaway capacity." By his estimates, Alberta has about 260,000 barrels a day of rail shipping capacity that is sitting idle, an amount that exceeds the province-wide oil production curtailment of 175,000 barrels a day. "We're within rounding distance of being able to literally get all of the production to market with the excess rail that's available and get a fair price for it," said Mr. Little. Another CEO at the conference, Steve Laut of Canadian Natural Resources Ltd. (CNQ: $36.15), said his company is "very interested" in acquiring rail capacity and is "seriously participating" in the government's process (which so far is at the request-for-proposal stage). The government, for its part, has not committed to the idea of lifting producers' curtailments in exchange for their taking on crude-by-rail contracts. Alberta Energy Minister Sonya Savage has merely said this is "a possibility."
Elsewhere in Alberta, Andy Mah's Montney gas producer, Advantage Oil & Gas Ltd. (AAV), added three cents to $1.63 on 1.3 million shares. Advantage was discussed in yesterday's Energy Summary, but is worth another mention today in light of a new SEDAR filing from one of its largest institutional shareholders, the Toronto-based Mackenzie Financial Corp. Mackenzie disclosed that its managed accounts acquired 2.9 million shares of Advantage during June. As a result, it now controls 33.35 million of Advantage's 186 million shares, or 17.85 per cent. Mackenzie has been a supportive backer of Advantage all year. It crossed the 10-per-cent ownership threshold last December, disclosing that it owned 19.02 million shares as of Dec. 31. Since that date, it has bought 14.33 million more shares, including 7.56 million in January, 3.21 million in February and (as revealed now) 2.90 million in June. This steadfast buying support has had little lasting effect on the stock. Although Advantage had a mostly pleasant January and February, rising to around $2.50 from $2, it reversed course in March and spent June falling to what were then all-time lows of $1.59. It got as low as $1.47 last week, but has rallied in the past few days and closed today at $1.63.
Mackenzie had another new SEDAR filing of note, this time for Keith MacPhail and Ronald Poelzer's Alberta-focused Bonavista Energy Corp. (BNP), down one cent to 43 cents on 893,400 shares. This time Mackenzie has been selling. It sold 3.93 million shares in June, reducing its holdings to 22.57 million of Bonavista's 255 million shares -- under the 10-per-cent threshold. Mackenzie had just crossed this threshold six months ago by buying 8.91 million shares in January. It says it has since sold a total of 7.20 million (including the 3.93 million in June). These shares are unlikely to have made any profits for Mackenzie's accounts. Bonavista began the year around $1.20 and got as high as $1.63 in mid-January, but has since crumbled to its current level of 43 cents. It crossed under $1 in May, an unhappy month in which Bonavista released weak first quarter financials, suspended its dividend and planted the "going concern" red flag in its financial filings. It said it had entered negotiations for covenant relief in order to avoid the possibility of breaching its debt covenants within 12 months. Presumably the negotiations are still in progress, as there has been no word from Bonavista since early May. Investors can expect an update when the company releases its second quarter financials on Thursday, Aug. 1.