by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added 36 cents to $45.64 on the New York Merc, while Brent for February added 46 cents to $48.71 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.39 to WTI, down from a discount of $11.25. Natural gas for January plunged 27 cents to $2.51. The TSX energy index added a fraction to close at 87.84.
Oil prices were subdued as OPEC+ finally reached an end to its days of wrangling over whether to increase production in January, coming to the following conclusion: yes and no. Jan. 1 was scheduled to be the day on which the group could relax its current output restrictions to 5.7 million barrels a day from 7.7 million, effectively adding two million barrels a day to the market. Some members of OPEC+ were eager for this increase and others wanted to defer it by a few months. Now, in the type of ideal compromise that displeases everyone equally, the group has agreed to increase production on Jan. 1, but only by 500,000 barrels a day. It will hold monthly meetings on if and how quickly to ramp up to the full two million. At these meetings, "we could tweak upward, we could tweak downward, we could stay put," according to Saudi Energy Minister Prince Abdulaziz bin Salman (who had favoured a three-month extension). In other words, there is plenty more uncertainty to come.
Here in Canada, uncertainty continued to hang over Newfoundland's offshore oil industry, despite the province's best efforts to lift it. The provincial government announced this morning that it will take $41.5-million from its Oil and Gas Industry Recovery Assistance Fund and give it to Husky Energy Inc. (HSE: $5.59) in an attempt to keep Husky's West White Rose project clinging to life. West White Rose is one of the biggest offshore operations in the province and was on track to start production in 2022. In March, 2020, however, Husky suspended it because of COVID-19. Husky then announced in September that it was reviewing the entire future of West White Rose and might cancel it altogether. There was still some hope at the time that the project might resume construction in 2021. That hope appeared dashed in late October, when Husky announced that it had accepted a takeover offer from Cenovus Energy Inc. (CVE: $6.86). A spokesman for Husky told CBC News at the time that "the 2021 construction season has been cancelled."
That brings the story to today. Not only is the provincial government splashing out $41.5-million to keep West White Rose on life support, but Husky will kick in the same amount, with this money being used to "maintain jobs in 2021." This does not mean a resumption of construction in 2021; rather, the jobs appear mostly maintenance related. Husky said the money "helps preserve the option to restart West White Rose construction in 2022, as global economic conditions permit." By then, of course, Husky will be owned by Cenovus. All Cenovus has said about Husky's Atlantic assets are that "all options are on the table."
One company that has just firmed up its plans for 2021 is the Texas- and Saskatchewan-focused Baytex Energy Corp. (BTE), down two cents to 68 cents on 6.49 million shares. It released its 2021 guidance yesterday after the close. The proposed budget is $225-million to $275-million, which is intended to support production of 73,000 to 77,000 barrels a day -- and to generate an estimated $75-million in free cash flow. Baytex gave itself several pats on the back for its ability to live below its means. (As its lofty net debt of $1.9-billion can attest, this ability is both newfound and hard-won.) Baytex added that every $1 (U.S.) increase in WTI oil prices should boost its cash flow by approximately $23-million.
Investors and analysts yawned. "Production and spending expectations for the year were largely in line with our existing expectations," wrote Canaccord Genuity analyst Anthony Petrucci this morning. He gave Baytex mild praise for its hedging program and its success in reducing costs. Meanwhile, Raymond James analyst Jeremy McCrea focused on the $75-million free cash flow projection, opining, "While this is moving in the right direction ... there remains a long way to go." Both analysts were still kind enough to raise their price targets on the stock, Mr. Petrucci to 75 cents (from 60 cents) and Mr. McCrea to 70 cents (from 50 cents). Yet the new targets are barely any different from today's close of 68 cents.
Further afield, two international producers had much jollier days. First came the increasingly standard announcement of Trinidadian drilling success by Paul Baay's Touchstone Exploration Inc. (TXP), up 16 cents to $2.21 on 1.08 million shares. The company has hit 1,315 feet of gas pay at its Cascadura Deep-1 exploration well on the Ortoire block in Trinidad. This is the fourth well that Touchstone has drilled at Ortoire, and the fourth successful one, for a 100-per-cent success rate (which is admittedly easier to achieve when the history of the drill program is short). Moreover, the Cascadura Deep-1 well was "the best well we have drilled on the Ortoire property to date," cheered president and CEO Mr. Baay. He added that the well is so good -- with such lovely, highly pressured gas zones -- that Touchstone will need different equipment with "more drilling horsepower" to finish its evaluation. It hopes to complete the well and start production tests during the first quarter of 2021.
Investors do not seem to mind the thought of a wait. They are getting used to it: Touchstone was originally hoping to achieve production from Ortoire in the first half of 2020, but has repeatedly postponed that schedule, and is currently hoping for March, 2021. Delays aside, Touchstone has been one of the rare energy stocks for which 2020 has brought all-time highs. The stock has soared to $2.21 from just 20 cents over the last year.
The other international junior in a jubilant mood was the Egypt- and Alberta-focused TransGlobe Energy Corp. (TGL), up 16 cents to 83 cents on 2.62 million shares. Its news came from Egypt, where it has reached a long-awaited agreement with the government to amend its Eastern Desert licences on better terms. This has been one of its overarching goals for 2020, and with just weeks left to go in the year, it has finally achieved it. The current three concessions will be merged into one major concession, allowing for easier access to infrastructure. There will also be "modernized financial concession terms [to] promote increased investment," said TransGlobe. President and CEO Randy Neely dropped the jargon as he called the arrangement "an incredible win-win" that should allow TransGlobe to boost its cash flow and reverse its recent production declines. (TransGlobe's Egyptian production was around 13,000 barrels a day at the start of the year, but has since dropped below 10,000.) Mr. Neely added that TransGlobe will hold a conference call soon to talk up the new concession arrangement. The date and other details are still being finalized.