by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added $1.17 to $53.29 on the New York Merc, while Brent for April added $1.37 to $59.12 (all figures in this para U.S.). Western Canadian Select traded at a discount of $17.35 to WTI, unchanged. Natural gas for March lost two cents to $1.96. The TSX energy index added 2.85 points to close at 133.57.
Anti-pipeline protesters have mounted a fresh rail blockade, this time halting rail traffic near Edmonton. Similar blockades in Eastern Canada have already forced national rail companies to suspend large swaths of service, causing hundreds of millions of dollars in manufactured goods to sit idle, with incalculable disruption to passengers and consumers. The protesters see this as a smashing success and are doubtless hoping to recreate it in Western Canada. Photographs from the blockade show signs emblazoned with "Wet'suwet'en strong," "Reconciliation is dead" and other slogans, indicating that, like the others, this protest is in support of a smattering of indigenous agitators who oppose the Coastal GasLink pipeline in Northern British Columbia. The fact that Coastal GasLink is supported by the elected representatives of the Wet'suwet'en -- and in fact all of the elected band councils along the pipeline's route -- is apparently easily dismissed by the protesters, if they are aware of it at all. They have other things on their minds. Those at today's blockade, for example, complained to Global News about being called protesters, suggesting that they instead be called protectors or defenders of the land. The Alberta government used another term altogether, with Justice Minister Doug Schweitzer declaring on Twitter that his province "will not be economic hostages to law-breaking extremists."
Within the oil patch, companies continued their everyday jockeying for investors' attention. Some of them got a helping hand today from the energy analysts at Scotia Capital. They have released the eighth edition of The Valuation Book, a 355-page tome in which they "endeavour to value the future prospects of the companies in our coverage universe." Along with coverage of 40 Canadian energy stocks, 35 U.S. ones and nine international ones, the analysts highlight "key observations" such as: "Balance Sheet Health is the Most Critical"; "Timing Can Be Everything"; and "Margin Between Victory and Defeat is Often Slim, but It Can Be Everything." The gist of their take is that "the truth is likely in between the skeptic and contrarian cases." How helpful this is will be up to the individual reader, but for those interested, the Toronto-listed "top picks" selected by the analysts include Canadian Natural Resources Ltd. (CNQ: $40.40) in the senior oil sands/integrated category (with a price target of $47), ARC Resources Ltd. (ARX: $7.30) in the intermediate category (with a price target of $12), Advantage Oil & Gas Ltd. (AAV: $2.48) in the junior category (with a price target of $6) and Parex Resources Inc. (PXT: $21.44) in the international category (with a price target of $30.50).
Down in South America (where the aforementioned Parex operates), Frontera Energy Corp. (FEC) edged up five cents to $8.64 on 405,100 shares, after releasing its year-end 2019 reserve report. It highlighted an 11-per-cent increase in its PDP reserves (proved developed producing -- the highest level of certainty that reserves will be produced) in Colombia. As well, its overall 2P reserves (proved and probable, in both Colombia and Peru) stayed stable at around 171 million barrels of oil equivalent, as new reserve additions balanced the decline from production. Frontera had previously pegged its production for 2019 at 70,875 barrels of oil equivalent a day. That was higher than its guidance of 65,000 to 70,000 barrels a day.
Most of Frontera's production -- about 63,600 barrels a day in 2019 -- is from Colombia. Colombia thus got most of the attention in the latest update, with Frontera taking the opportunity to remind investors of its most recent Colombian oil and gas discovery, made earlier this month at the VIM-1 block (a joint venture with the above-mentioned Parex). The La Belleza-1 exploration well tested at an encouragingly high 4,766 barrels a day. This well was not included in the 2019 reserve report, nor is it included in the 2020 production guidance. As for Peru, Frontera gave it little attention in the update, possibly because it might soon be saying goodbye to its main Peruvian asset: Its contract to operate the roughly 8,500-barrel-a-day block 192 expires next month. A December presentation on Frontera's website made reference to a "new contract opportunity [at] block 192," but just yesterday, BNAmericas (a Latin America-focused news website) reported that state-owned Petroperu is working with Bank of American Merrill Lynch to find someone new for the block. Investors will find out in the coming weeks.
Frontera will have plenty to keep it busy even if it exits block 192. In the second half of this year, it plans to start exploration programs in two new countries, Guyana and Ecuador. Guyana is becoming a particularly attention-grabbing exploration hotspot. It is also, as of yesterday, officially making money from oil production. The Guyanese Ministry of the Presidency released a statement yesterday cheering the country's first million-barrel lift of oil onto an oil tanker. The oil came from Exxon's offshore Liza field, where the major has made over a dozen discoveries since 2015. Dr. Mark Bynoe, director of Guyana's Department of Energy, visited Liza's floating production and storage vessel to witness the lift and mark the "significant moment in Guyana's history." Government officials have estimated that impoverished nation can earn at least $300-million (U.S.) from oil sales this year. Frontera and its joint venturer in Guyana, little CGX Energy Inc. (OYL: $0.69), will not be able to add to that production any time soon, but with any luck, their back-to-back two-well exploration program this year will stir up further excitement.
Another international producer, Touchstone Exploration Ltd. (TXP), lost nine cents to 77 cents on 2.71 million shares, after arranging $9.1-million (U.S.) financing to speed up its drill program in Trinidad. It plans to issue over 18 million shares at 38 pence (about 66 Canadian cents). This is a generous discount to its trading price, but Touchstone is keen to accelerate its drilling at its onshore Ortoire block. President and chief executive officer Paul Baay recently called this block "a beast" after the first two exploration wells turned up much higher-than-forecast levels of gas. (For example, the most recent well, Cascadura, peaked at 5,248 barrels of oil equivalent a day (86 per cent gas), which was about 10 times greater than predrill expectations.) The problem -- and it is a nice one to have, all things considered -- is that Touchstone's current production is predominantly oil, and it does not have the infrastructure to turn itself overnight into a big gas producer. It also cannot work on building that infrastructure until it drills a few more prospects at Ortoire and gains a better sense of scale. That will require some extra cash, hence today's financing.
The sole bookrunner of the financing is the London brokerage firm Shore Capital (Touchstone is listed in London as well as Toronto). The name will likely ring a bell for investors, given that Shore Capital analyst Craig Howie wrote a glowing review on Touchstone less than a week ago, speculating that Touchstone will be able to start production from Ortoire by year-end 2020 and boost its 2021 production all the way to 7,000 barrels a day (compared with 1,700 currently). There is good reason for Mr. Howie's chumminess. Shore Capital has been Touchstone's broker since it listed in London in 2017, initially as a joint broker with GMP and then, as of late 2019, as sole broker. It will conduct the newly announced financing through an accelerated book-building process, with the new shares expected to be up and trading in one week. Participants in the financing should not have long to wait for Touchstone's next bit of news: Mr. Baay has hinted that the market can expect another test result from the Cascadura well in early March. (The above-mentioned test rate was from the lowermost section of the well; Touchstone is now testing a larger upper section.)