by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery added 48 cents to $37.29 on the New York Merc, while Brent for August got briefly above $40 (U.S.) -- its first time there in three months -- before closing up 22 cents to $39.79 (all figures in this para U.S.). Both benchmarks had a rocky day, as bullish U.S. data (specifically, a larger-than-expected decrease in weekly crude stockpiles) warred with bearish OPEC+ rumours (specifically, fading hopes for a meeting tomorrow to finalize an extension of the recent OPEC+ production cuts). Western Canadian Select traded at a discount of $7.12 to WTI, down from a discount of $6.58. Natural gas for July added four cents to $1.82. The TSX energy index added 1.22 points to close at 84.42.
Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), added six cents to $3.93 on 585,500 shares, as it cheered a faster-than-expected strengthening in its gas sales. Investors seemed pleased but cautious. The earlier weakening in sales had caught Canacol off guard, given that it sells the majority of its gas through fixed-price contracts and thus saw itself as "insulated from the current effects of low worldwide oil prices" (its self-satisfied assessment when the downturn began in March). The COVID-19 pandemic and resulting economic lockdowns forced Canacol to admit that it was not quite as insulated as thought. Last month, acknowledging that industrial, construction and commercial gas demand had plummeted, Canacol said it would tweak its contract terms to allow for earlier-than-scheduled downtime, while adding that it was experiencing virtually no sales into the spot market (where it sells a sizable minority of uncontracted gas). The result was that Canacol nudged its 2020 production guidance of 205 million cubic feet a day (or about 36,000 barrels of oil equivalent a day) down to a range of 170 million to 192 million cubic feet a day.
Happily, it looks as though Canacol is already heading to the high end of that range. The spot market is recovering much faster than forecast -- Canacol had not expected this until July or August -- and between that and the contractual deliveries, Canacol's gas sales soared to 181 million cubic feet a day in the second half of May from just 130 million in the first half. The lifting of Colombia's national economic quarantine as of June 1 will presumably support further improvements. On top of that, Colombia had an unusually dry winter, which means its hydroelectric reservoirs are at historical lows and therefore demand for gas at thermoelectric power plants is at historical highs. These are all "encouraging trends," cheered Canacol. It stopped short of promising anything too miraculous -- a lesson learned from March, perhaps -- and said future gas demand "could be volatile," so it will not revise its guidance at this point.
Canacol also provided a drilling update. Investors already knew that the Clarinete-5 well had hit 309 feet of net gas pay in March, proudly touted as "the thickest gas pay section of any well drilled in the history of Canacol." Alas, postdrilling activities were brought up short by the COVID-19 lockdowns. Now testing has finally taken place and the well has flowed a healthy 43 million cubic feet a day. Canacol is moving the drill rig to its next planned well, Pandereta-8, to be spudded in the third week of June. This is nearly a month behind schedule, even the revised schedule that Canacol provided a few weeks ago, when it said the lockdown had forced it to cut this year's drilling activity to nine wells from 12 wells. Pandereta-8 will be well No. 3. Canacol should be able to pick up the pace once its second drill rig arrives next month.
Here in Canada, David Wilson's Alberta and B.C. Montney producer, Kelt Exploration Ltd. (KEL), stayed unchanged at $1.40 on 1.61 million shares. Its bankers have extended the review of its credit facility to July 15. The $350-million facility was $310-million drawn as of March 31, representing the bulk of Kelt's overall debt, which further includes $89.9-million in convertible debentures due May 31, 2021. The company also had a working capital deficit on March 31 of $34.6-million. It said in its first quarter financial statements that it is "evaluating other sources of liquidity."
The bankers seem content to let Kelt keep evaluating. This is the second review extension they have granted; the review was originally supposed to be done in April. As well, unlike several other producers -- such as TORC Oil & Gas Ltd. (TOG: $1.67), Cardinal Energy Ltd. (CJ: $0.55) and InPlay Oil Corp. (IPO: $0.21) -- Kelt's review extension does not appear to have come with strings attached, such as a borrowing cap. There are several factors that could be playing into this. For example, Kelt has expressed interest in the liquidity support programs announced by Ottawa, and it should have a good chance of qualifying given that it: (i) pays no dividend; (ii) was in good shape prior to the downturn; (iii) already publishes climate disclosures; and (iv) has compensation practices that are unlikely to run afoul of the "no excessive pay" requirement. If parts of that list sound vague, this has been a common criticism since the government began announcing the support programs in April. The haze is unlikely to lift any time soon: Part of the application process for LEEFF (the Large Employer Emergency Financing Facility, a feasible route for Kelt) requires the applicant to sign a non-disclosure agreement.
Elsewhere in Alberta, Alfred Sorensen's Pieridae Energy Ltd. (PEA), stayed unchanged at 30 cents on 136,000 shares, making an unremarkable but at least inoffensive debut on the TSX. The company received its notice of official graduation to the TSX from the TSX-V earlier this week. "This is a big step," trumpeted its chief executive officer, Mr. Sorensen, buttering up the TSX as he rattled off a list of expected benefits such as better liquidity, wider analyst coverage and greater access to institutional capital. (Alas, if he was hoping for a glamorous photo op of himself ringing the opening bell this morning, this was not to be. Not only is the exchange doing that in a socially distanced virtual format these days, the honour this morning went to senior executives of TD Asset Management to celebrate the launch of five new ETFs -- sorry, Mr. Sorensen.)
While the above-listed benefits are not going to materialize immediately (if at all, in some cases), there is something to be said for upgrading to the main exchange just at the moment of Pieridae's need for deep-pocketed investors. The company is working on a dream that will cost a cool $10-billion (U.S.) to bring to life. That would be its proposed Goldboro LNG (liquefied natural gas) facility on the coast of Nova Scotia. Mr. Sorensen made sure to mention in this week's update that Pieridae's work on Goldboro "continues to move forward" with "tangible steps" toward the completion of an updated cost estimate.
Mr. Sorensen remained in high spirits in an interview published today in Nova Scotia's local Guysborough Journal. "[We want to] get some boots on the ground. We are construction ready," he proclaimed. Financing, of course, remains an issue, but Mr. Sorensen said he is hopeful that federal and provincial governments will provide support as part of "programs coming out to relaunch the economy." He reminded his interviewer that the Alberta government recently threw its weight behind the Keystone XL pipeline project. An arrangement like that, or "some kind of financing to get us to when the project reaches commissioning," could work for Goldboro as well, he said. He maintained that Goldboro is "an important infrastructure project, not only for Nova Scotia and Alberta, but for all of Canada as well."
Mr. Sorensen was mum on the level of support that Pieridae would be seeking. In fact, the entire article was curiously devoid of dollar signs, even the publicly disclosed cost estimate of $10-billion (U.S.). Mr. Sorensen usually makes sure to mention that the project is eligible in principle for up to $4.5-billion in loan guarantees from the LNG-hungry German government. European financiers are thus seen as a likely source for the remaining $5.5-billion (U.S.) -- particularly if Pieridae can get other European governments on board for loan guarantees -- but lately Pieridae has been leaning heavily into the domestic angle. A recent statement about creating "good-paying middle-class jobs across the country" could have been ripped right from one of the Prime Minister's speechwriters. In any case, there is still time. Pieridae is aiming to make a final investment decision on Goldboro by mid-2021 and begin LNG deliveries in late 2025 to early 2026.