by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery added 33 cents to $39.93 on the New York Merc, while Brent for November added five cents to $41.77 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.75 to WTI, up from a discount of $10.85. Natural gas for October shot up 29 cents to $2.13. The TSX energy index lost 1.69 points to close at 66.87.
Oil prices had an up-and-down day. Bullish European manufacturing data eased demand concerns, but supply concerns are rising as the Libyan oil industry dusts itself off after a nearly eight-month force majeure. Although the country's political future remains far from certain, analysts are expecting Libya's output to roughly quintuple to 550,000 barrels a day by the end of the year, before reaching one million barrels a day in the middle of next year. Officials from OPEC told Reuters that they are monitoring the Libyan situation closely. Currently, OPEC's Economic Commission Board (ECB) is "conducting a thorough technical review of the World Oil Outlook 2020, in light of recent global economic and energy markets' dynamics." The board expects to release the outlook on Oct. 8.
Here in Canada, analysts are sticking to a cautious oil outlook, with Desjardins Securities analysts Justin Bouchard and Chris MacCulloch publishing a research note this morning that emphasized "several structural headwinds." They flagged rising COVID-19 numbers and swelling global inventories. These and other factors are "decidedly bearish" for near-term oil prices, they said, but in the longer term -- a few years, perhaps -- they expect a more "constructive" oil market. To that end, although they currently prefer gas stocks, they also see some oil stocks that are "simply too compelling from a valuation perspective to ignore."
The result was a roundup of eight stocks with varying proportions of oil and gas production. Standouts on the analysts' list included Enerplus Corp. (ERF), which has a roughly even oil-gas production split, and on which the analysts had a price target of $4.50, nearly 90 per cent higher than today's close of $2.37. The oil-weighted TORC Oil & Gas Ltd. (TOG) also had a nearly 90-per-cent gap between today's close of $1.46 and the analysts' target of $2.75. Among gas producers, the analysts seemed most bullish about Peyto Exploration & Development Corp. (PEY), with their target of $4.50 being 77 per cent higher than today's close of $2.54, as well as Tourmaline Oil Corp. (TOU), with their target of $27 being about 60 per cent higher than today's close of $16.79.
A different oil company -- sadly ignored by the above analysts -- took a different approach to seeking investors' attention. Oil sands producer Cenovus Energy Inc. (CVE), down 19 cents to $5.15 on 8.18 million shares, participated yesterday in a webinar hosted by the Global Energy Show (which is normally an industry exhibition in the summer, but these days is running on-line events because of COVID-19. It expects to get back the in-person model in 2021). The title of the webinar was "The Road to Canada's Economic Recovery Runs Through Indigenous Communities." Cenovus's president and chief executive officer, Alex Pourbaix, boasted that his company is "probably one of the most advanced companies" in terms of indigenous relations. He noted that Cenovus has long-term mutual benefits agreements with nine indigenous communities, has spent almost $3-billion over the past decade with indigenous businesses, and links its executive compensation to progress on indigenous engagement and other matters of ESG (environmental, social and governance).
Mr. Pourbaix has a rationale for rattling off indigenous-related achievements: He sees this an area where Canada, and especially the oil sands, can shine. He told the webinar that "99 per cent of the [ESG] conversations" revolve exclusively around greenhouse gas intensity, which is admittedly not the oil sands' finest feature (though per-barrel emissions are decreasing). Yet when it comes to human rights, indigenous relations, worker safety and virtually everything else to do with ESG, "Canada absolutely knocks it out of the park," and its investment reputation should reflect that, insisted Mr. Pourbaix. He is doing his part to "push this conversation beyond simple carbon." Of course, as he is well aware, this will be tall order. He acknowledged that it is "way easier for people to virtue-signal by picking on the oil sands" than it is to learn about them.
To the south (in geography and share price), Gary Guidry's Colombian oil producer, Gran Tierra Energy Inc. (GTE), edged up half a cent to 33.5 cents on 805,600 shares. Last night it released a mixed operational update for the third quarter. Production so far in the quarter has averaged 18,700 barrels of oil equivalent a day, below analysts' predictions of around 20,000 barrels a day. Gran Tierra blamed this partially on the timing of workovers and restarts. It emphasized that its production has been closer to 21,250 barrels a day since the start of September. Even so, Gran Tierra's year-to-date production looks to be averaging somewhere around 22,500 to 23,500 barrels a day, well below the 30,000 at which it started the year. If the company wants to get back above 30,000 next year -- as it said it would do, when it released preliminary 2021 guidance last month -- it will need to pick up the pace.
The problem is that Gran Tierra's ability to pick up the pace is hampered by a debt-heavy balance sheet. As of June 30, the company owed about $789-million (U.S.), including $207-million drawn on a $225-million (U.S.) credit facility that required covenant relief earlier this year. Gran Tierra managed to get some of the covenants relaxed until October, 2021. It is counting partially on tax refunds from the Colombian government to help shore up the balance sheet. So far this year, it has collected $51-million (U.S.) in refunds, with a further $25-million (U.S.) to $35-million (U.S.) expected in the fourth quarter. Gran Tierra is thus still confident in its 2021 ambitions and repeated the 30,000-barrel-a-day target in its new press release.
Investors and analysts do not seem quite as confident. One analyst, Scotia Capital's Gavin Wylie, wrote this morning that he is forecasting 2021 production of just 27,300 barrels a day, not 30,000. (To be clear, that is a full-year production forecast, whereas Gran Tierra's goal is less defined and may simply be to surpass 30,000 at some point during 2021.) Mr. Wylie called the 30,000 target "a critical execution milestone for a more bullish call on Gran Tierra that is unlikely until mid-2021." In the meantime, he is leaving his rating at "sector underperform" and his price target at 55 cents. That price target would still be a delightful 64-per-cent gain over today's close of 33.5 cents.