by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery lost $1.31 to $39.29 on the New York Merc, while Brent for November lost $1.40 to $41.03 (all figures in this para U.S.). Demand concerns continued to weigh on oil prices as the worldwide COVID-19 death toll surpassed one million, according to data from John Hopkins. Western Canadian Select traded at a discount of $10.75 to WTI, unchanged. Natural gas for November shot up 46 cents to $2.56. The TSX energy index lost 2.92 points to close at 65.66.
Alfred Sorensen's Alberta gas producer, Pieridae Energy Ltd. (PEA), added 3.5 cents to 40.5 cents on 282,700 shares. Its news today was not about its Alberta assets but rather its dreams of becoming a major LNG (liquefied natural gas) exporter from its $10-billion (U.S.) proposed Goldboro terminal in Nova Scotia. The company has hired Bechtel as the engineering and construction contractor for Goldboro. "Bechtel has a significant experience building and delivering global LNG projects, helping their customers deliver about 30 per cent of the world's LNG capacity," marvelled Pieridae's chief executive officer, Mr. Sorensen, as he touted this "very positive step forward." A Bechtel executive returned the compliments and described his firm as "honoured" to work on Goldboro.
The press release is strikingly similar to the one that Pieridae released back in April, 2019, when it hired Kellogg Brown & Root (KBR) to be its Goldboro contractor. That was a "major step" and KBR was "excited." Alas, the excitement lasted only 15 months. KBR walked away in July, 2020, without having delivered the construction and commissioning contracting that Pieridae was originally hoping to receive by the end of 2019. Pieridae sought to reassure shareholders that plenty of other contractors would be interested, even under the time constraints facing Goldboro. (Under a prior arrangement with the main Goldboro customer, Pieridae is supposed to deliver its final investment decision by mid-2021.) To chivvy things along, Pieridae hired LNG specialist Andy Mukherjee last month as its senior vice-president of LNG, touting his past work with contractors such as SNC-Lavalin, Fluor and the above-noted Bechtel. Mr. Mukherjee has apparently had a productive first month on the job.
Pieridae has learned from the KBR debacle and put specific timelines within the Bechtel agreement. While last year's press release made only vague references to timing, such as "[Pieridae] expects to start construction activities in 2019," the press release this morning emphasized that Bechtel must develop a "comprehensive engineering, procurement, construction and commissioning (EPCC) execution plan by March 31, 2021," and deliver the final, lump-sum EPCC contract by May 31, 2021. There was some wooliness about "meaningful engagement" with the local Mi'kmaq First Nations, but Pieridae is not expecting problems there, as Goldboro already has a benefits agreement in place with the Assembly of Nova Scotia Mi'kmaq Chiefs. It also has all of its major regulatory, environmental, import/export and construction permits. With all that in mind, Pieridae says Goldboro is not just shovel-ready but -- the trendy new term -- "shovel-worthy" as well.
International oil and gas producer Vermilion Energy Inc. (VET) had another rough day, dropping 21 cents to $3.19 on 3.22 million shares. It had no news, but this morning, Moody's Investors Services commented negatively on the news that Vermilion released last Friday, after (as discussed in last Friday's Energy Summary) French energy giant Total said it would stop processing crude oil at its Grandpuits refinery in France. This includes the roughly 5,000 barrels a day that Vermilion has been sending to Grandpuits. No, the facility is not closing its doors due to COVID-19 hardship; Total simply wants to transform it into a "zero-crude platform for biofuels and bioplastics." Total praised itself mightily for "demonstrating its commitment to the energy transition." Of course, Total will still be refining plenty of crude, including Vermilion's, just at a different refinery. The move to a new refinery will unfortunately lead to a $20-million increase in Vermilion's annualized transportation costs. Moody's opined this morning that the overall news is "credit negative for Vermilion, as it will lead to higher costs and highlights growing ESG [environmental, social and governance] risks."
Gloomy shareholders may well feel that Moody's has spent all of 2020 highlighting Vermilion's risks. Like many oil and gas producers under coverage, Vermilion had its outlook downgraded to "negative" by Moody's in March, near the start of the COVID-19 downturn. Moody's did not change Vermilion's credit rating, which at Ba3 was already a few steps into junk territory. More recently, Moody's finished a standard periodic review of Vermilion earlier this month, making no changes but reiterating its view that the company is "challenged by [a] low commodity price environment ... and execution risk." If Moody's changes its rating or outlook as a result of the refinery news, it will put out a separate update.
Getting back to France's Total, it was in the news again today after releasing a bearish new forecast for global oil demand. In its "Total Energy Outlook" published this morning, the company predicted that oil demand will peak in 2030 and then start to fall. "Net zero target requires decarbonization," intoned Total. Its outlook on gas was more positive, as it reckoned that gas will continue to play a key role for decades in providing power, heat and transportation. Total is not the first to peg 2030 as the potential peak year for oil demand. BP made a similar prediction two weeks ago in its own annual energy outlook. In fact, BP's report looked at three scenarios, one of which found that demand for oil already peaked in 2019.
Despite the global doom and gloom, some oil producers here in Canada are showing "signs of life," according to RBC analyst Luke Davis. He made the comment in a research note this morning on PrairieSky Royalty Ltd. (PSK), down 29 cents to $8.34 on 1.32 million shares. Based on discussions with PrairieSky's management, Mr. Davis found that drilling activity by Western Canadian oil producers is "muted" but picking up. "Management noted some licensing in oil-weighted plays," wrote the analyst. He also pointed to "commentary from oil-focused E&PS [explorers and producers] highlighting $45 (U.S.) a barrel as a key trigger point for incremental activity." (Current oil prices are just below $40 (U.S.) a barrel.) The rising activity bodes well for PrairieSky, which leases oil and gas properties to Western Canadian producers and then collects royalties from them. Mr. Davis upgraded his rating on PrairieSky's stock to "outperform" from "sector perform" and hiked his price target to $12 from $10. The stock closed today at $8.34.