by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery lost 47 cents to $53.31 on the New York Merc, while Brent for December lost 46 cents to $58.96 (all figures in this para U.S.). Western Canadian Select traded at a discount of $17.05 to WTI, unchanged. Natural gas for November lost eight cents to $2.24. The TSX energy index added 1.21 points to close at 126.36.
Today is decision day. All across Canada, voters are heading to the polls to elect the next federal government. For the energy sector, this is a particularly high-stakes election, serving in some ways as a referendum on whether Canada should or should not leave its oil in the ground. The Conservatives have positioned themselves as the champion of the energy sector, promising to build pipelines, tear down regulations and reinvigorate investment. The Liberals claim to be champions of both the energy sector and the environment, citing in the first case their vested interest in the Trans Mountain pipeline expansion, although the industry remains skeptical of just how deep Liberal support really runs. The Greens and the NDP are more or less nightmare fuel for any advocate of the energy sector.
The general feeling is that a majority Conservative government would be the sector's best outcome. If that happens, Canadian stocks could rally 15 per cent over the next two to three weeks, predicted deputy chief investment officer Rob Lauzon of Middlefield Capital during a BNN interview this morning. Alas, most polls are predicting some sort of minority government, which in Mr. Lauzon's view will not "move the needle." He fears "another four years of paralysis." Others have voiced concerns even more bluntly. "Do we want our energy industry ... to go into hibernation and we'll just slowly shut it down? That's the point we're at," Derek Evans, chief executive officer of MEG Energy Corp. (MEG: $4.88), told Bloomberg. Another oil patch CEO, Grant Fagerheim of Whitecap Resources Inc. (WCP: $3.73), forwarded to his employees an e-mailed letter whose anonymous author believes that, absent a Conservative majority in Ottawa, "Alberta's energy sector will just board up the windows and go elsewhere. It will be crippling for the entire nation." In any case, election anxiety will soon be over, one way or another.
Turning to international producers, Valeura Energy Inc. (VLE) plunged 72 cents to 95 cents on 5.6 million shares, going below $1 for the first time in nearly two years, after releasing another disappointing batch of test results from its increasingly lacklustre Turkish gas play. Optimism about this play had previously sent Valeura's stock racing up past $8 in early 2018. Yet in the last month, the stock has plunged from around $3.50. The drop partly reflects concerns about the military situation in Syria (although Valeura operates more than 1,000 kilometres away from the Turkey-Syria border). More importantly, investors have been decidedly unimpressed with the testing program that Valeura and its joint venturer, Norway's Equinor, have been carrying out at their Inanli-1, one of the wells they have drilled at their BCGA (basin-centred gas accumulation) play. Four zones within the well have been tested so far. Gas rates have ranged from 185,000 to 643,000 cubic feet a day, with today's result being a so-so 306,000 cubic feet a day. That is equal to 51 barrels of oil equivalent a day.
Today's result is especially lacklustre because this fourth zone was seen as one of the most promising, due to being relatively shallow with good-looking rock. Shallower zones are less expensive to develop than deeper zones. Of the four tests at Inanli-1, two have targeted shallower zones and two have targeted deeper zones, with the deeper zones showing unexpectedly better performance. Valeura and Equinor were planning to test one more shallow zone, but have now cancelled those plans and will move on to testing deep zones at their next well, Devepinar-1.
Valeura kept up a brave face amid the carnage. "[We] now feel we have a much better understanding," said president and chief executive officer Sean Guest, drawing particular attention to the deeper zones, which "exceeded our expectations." The very fact that the results were so removed from expectations is why investors are unnerved. It casts doubt on Valeura's interpretation of the play, as highlighted by a resource estimate in early 2018 (when the stock reached peak levels) pegging the net prospective resources at 10.1 trillion cubic feet. Even so, Valeura retains one noteworthy advantage: gas developments in Turkey do not need to be big to be profitable. That is because Turkish gas prices are about four times higher than their North American equivalents. With that in mind, Mr. Guest stated today that he still believes in the long-term economic potential of the play, so Valeura and Equinor will now begin economic modelling.
Another international junior, Paul Blakeley's Asia-Pacific-focused Jadestone Energy Inc. (JSE), edged up three cents to 94 cents on 1,500 shares, after filing the field development plans (FDPs) for two offshore gas fields in Vietnam. The fields are known as U Minh and Nam Du. Jadestone has been working on them since before it became Jadestone. Its predecessor, Mitra Energy, was awarded the two blocks containing the fields in 2010. At the time, only U Minh had been discovered (by someone else); Nam Du came along in 2013. In 2015, Mitra submitted ODPs (outline development plans) for both fields, although it was not until 2018 that the ODPs received Vietnamese government approval. Mitra underwent significant changes in the meantime. New management started arriving in 2016, several of whom were former Talisman Energy executives, including its above-mentioned president and CEO, Mr. Blakeley (who used to run Talisman's Asia-Pacific division ). They changed Mitra's name to Jadestone and turned it into a producer by way of making acquisitions in Australia.
Amid all these changes, Vietnam remained a priority, especially after the ODPs were approved in 2018 and paved the way for a (non-binding) gas sales agreement in early 2019. That sales agreement and the newly filed FDPs are taking Jadestone ever closer to production from this "major growth project," as Mr. Blakeley dubbed it this morning. He expects to receive final governmental approval by year-end and to start production from the fields in 2021. The fields are to play a large role in Jadestone's goal of producing 30,000 barrels of oil equivalent a day by 2023. For context, Jadestone's production in 2019 is expected to average 13,500 to 15,500 barrels a day, mostly from the Stag and Montana fields in Australia.
Back in North America, Crescent Point Energy Corp. (CPG) added nine cents to $5.07 on 5.11 million shares, after closing a sizable asset sale in southeast Saskatchewan and Utah's Uinta basin. The company announced this $921-million asset sale at the beginning of September and spent the next two weeks rising to about $6.30 from $4.20. It has since pulled back, perhaps because investors were expecting an update on the sale weeks ago. After all, the sale was supposed to close in batches and the first batch was supposed to close by Sept. 30, a date that came and went without any announcement. This may have suggested a problem with the sale, at least to the more jittery investors. On top of that, some investors may have been expecting greater activity on the company's buyback program. Crescent Point promised when it announced the asset sale that it would buy back $100-million worth of shares before year-end. Though there was a flurry of buyback activity on Oct. 1, when the company dropped nearly $20-million repurchasing shares in a single day, SEDI shows no repurchases in the weeks since then.
In any case, the assets are fully sold, as Crescent Point announced in a brief press release on Friday afternoon. The two-sentence update came as a disappointment to the Saskatchewan-based energy news outlet Pipeline News, which had been hoping for details on the exact location of the sold assets in southeast Saskatchewan. Since the beginning of 2019, Crescent Point has been marketing "pretty much all" of its southeast Saskatchewan assets that are not part of the Viewfield Bakken or Flat Lake plays, noted reporter Brian Zinchuk. He calculated that the assets that have now been sold represented just one-third of what was "up for grabs." A spokesman for Crescent Point declined to give specific details to Mr. Zinchuk, but said some information might be provided when the company releases its third quarter financials next week on Thursday, Oct. 31.