by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added 13 cents to $56.34 on the New York Merc, while Brent for October added 29 cents to $60.03 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.30 to WTI, unchanged. Natural gas for September added one cent to $2.22. The TSX energy index lost 1.56 points to close at 123.69.
For the first time in its 27-year history, the Canadian Association of Petroleum Producers (CAPP) has registered as a political third party, as it bolsters its advocacy efforts ahead of October's federal election. The energy lobby group told the Edmonton Journal that it is unaffiliated with any specific party but, due to a recent change to the Canada Elections Act, was required to register in order to publicly discuss issues that could be associated with a particular candidate. Media relations manager Jay Averill explained, "Given that energy remains one of the top issues being discussed by political leaders, we registered as a third party to allow us to represent our members on key issues that impact the oil and natural gas industry." Party registration is compulsory for any group that wants to address the public on these and other issues during the writ period.
This marks the second time in weeks that the energy industry has taken a federal election message directly to voters. On Aug. 1, the chief executive officers of Canadian Natural Resources Ltd. (CNQ: $30.86), Cenovus Energy Inc. (CVE: $10.95) and MEG Energy Corp. (MEG: $4.74) published an open letter urging voters to think about energy when they head to the polls this October, and to "help our country thrive by supporting an innovative energy industry." The letter focused on "leaders of all political stripes" and did not single out any party or candidate. CAPP was not involved with this letter, which itself was unusual for an industry that usually lets CAPP speak for it. The letter was even seen as something of a rebuke to CAPP, especially in light of Cenovus CEO Alex Pourbaix's comment to The Globe and Mail that a key reason for the letter was the belief that "we have not done a good enough job of communicating to Canadians all elements of our business." If communicating to Canadians is part of CAPP's job -- and it absolutely is -- then one hopes that political party registration will prove a useful tool.
Some are hoping not to have to wait until the election for a shot at good news. Among gas producers, ears perked up after David Keane, president of Woodfibre LNG, told the Financial Post yesterday afternoon that his company's liquefied natural gas (LNG) project is set to receive its final investment decision "at the end of summer or shortly thereafter." He said the engineering contract negotiations are in the final stages and the next phase will be "active construction." If that happens, the $1.6-billion Woodfibre LNG plant, located near Squamish, will become the second B.C. LNG project to begin construction, following in the footsteps of Shell's $40-billion LNG Canada project in Kitimat. As the price tags suggest, Woodfibre will be much smaller than LNG Canada, designed to export 2.1 million tonnes annually rather than 14 million. Even so, Mr. Keane sees progress on Woodfibre as "important psychologically for the industry and for Canada." He reckons that the coming final investment decision will be an important morale boost for suffering gas producers, many of which are trading at or near all-time lows.
One such struggler is David Wilson's Montney-focused Kelt Exploration Ltd. (KEL), down eight cents to $2.92 on 1.18 million shares. It traded above $9.50 just a year ago and was worth as much as $15.62 in 2014. The latest bit of bad news arrived about two weeks ago, when Kelt released its second quarter financials and warned that it will likely be at the low end of its 2019 production guidance of 33,500 to 34,500 barrels of oil equivalent a day. It also lowered its cash flow forecast to $220-million from $240-million. Not everyone was put out by the financials. Scotia Capital analyst Cameron Bean dubbed the results "neutral" or even "solid," and kept his rating at "sector outperform" with a price target of $7. He opined that Kelt is "one of the best investment opportunities in the E&P [exploration and production] space."
Kelt's insiders seem to agree. Over the last eight days, four directors and officers have spent a total of $2.11-million buying 739,900 shares. The biggest buyer was Kelt's president and CEO, Mr. Wilson, who bought 678,900 shares at prices ranging from $2.70 to $3.13. He now controls 16.28 million of Kelt's 184 million shares. Mr. Wilson has been in charge of Kelt since it was created in 2013 as part of a larger arrangement through which he and his fellow Kelt executives sold their previous promotion, Celtic Exploration, to Exxon for $24.50 a share.
Another Montney producer enjoying insider buying is Rob Zakresky's Leucrotta Exploration Inc. (LXE), unchanged at 68 cents on 85,800 shares. About a month ago, as noted in the July 23 Energy Summary, Vancouver broker Robert Disbrow disclosed himself as a significant shareholder of Leucrotta, with 20.06 million of its 200 million shares. He has since boosted that position to 20.19 million shares. As well, in the same four-week period, Thomas Claugus's GMT Capital bought 31,700 shares and boosted its holdings to 37.42 million.
Both Mr. Disbrow and Mr. Claugus may have high hopes for Leucrotta's second quarter financials, which are scheduled to be released next Wednesday, Aug. 21. In a recent research note, Canaccord Genuity analyst Anthony Petrucci said he expects the financials to include an update on Leucrotta's recent Montney drilling activity, including the Lower Montney well drilled in the first quarter. The Lower Montney is the most widespread zone across Leucrotta's land base and contains, by Leucrotta's estimates, over five million barrels of light oil and possibly over five trillion cubic feet of gas. Leucrotta has said it is in the "development-ready phase" on 140 of its 220 sections, and plans to assess the remaining appraisal-stage sections by drilling a horizontal well in late 2019 or early 2020. Mr. Petrucci sees this horizontal well as one of Leucrotta's near-term "potential catalysts." He has a "hold" rating on the stock and a $1 price target.
Down in South America, the Penafiel family's Argentina-focused Madalena Energy Inc. (MVN) edged down half a cent to 14 cents on 438,000 shares, on top of the half cent it lost yesterday after releasing its second quarter financials. It held a conference call to discuss the financials this morning. CEO Jose Penafiel praised Madalena for increasing its conventional production to 2,010 barrels of oil equivalent a day in the second quarter, up from 1,843 barrels a day in the same period last year. Both of those figures are still well below Madalena's full-year guidance of 2,600 to 3,000 barrels a day. Madalena warned last month that it would likely fall below this range. It does not appear to have officially reduced its guidance, but during today's conference call, Mr. Penafiel indicated that the forecast has gone down to a more achievable 2,000 barrels a day.
Madalena's other big news revolved around its unconventional assets, particularly the 35-per-cent-owned CASE block, where the company and its joint venturers are assessing the Vaca Muerta shale. Madalena announced the start of a four-well drill program in May. Now this program has been expanded to five wells, mainly because, as Mr. Penafiel explained during the call, "[We are] taking advantage of the fact that we have the rig and they [the operator, Pan American Energy] see room to further delineate and prove up the block." He added that the first well of the program has been completed and the second is being drilled. Though he declined to provide any preliminary results for the first well, he said the joint venturers are feeling "generally encouraged." The well's 30-day initial production results may be ready for release in the next three to four weeks.