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Msg  71165 of 72072  at  2/28/2022 8:34:50 PM  by

carswell


Energy Summary - 28th

Energy Summary for Feb. 28, 2022

2022-02-28 20:11 ET - Market Summary

by Stockwatch Business Reporter

West Texas Intermediate crude for April delivery added $4.13 to $95.72 on the New York Merc, while Brent for April added $3.06 to $100.99, its first time closing above $100 since 2014 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.85 to WTI, up from a discount of $12.30. Natural gas for April lost seven cents to $4.40. The TSX energy index added 5.21 points to close at 209.24.

Global oil prices held their ground in the triple digits for the first time in eight years -- and Goldman Sachs hiked its one-month Brent price forecast to $115 (U.S.) from $95 (U.S.) -- as Western governments stiffened sanctions on Russia over its invasion of Ukraine. "Russia could retaliate to these harsh measures by reducing or even completely suspending energy shipments to Europe," warned Commerzbank. (As things stand, Russia's response has been to order its nuclear forces onto high alert, giving the world more to worry about than supply disruptions.)

Meanwhile, global oil majors BP and Shell announced their intention to exit Russian investments, while Exxon is facing pressure to do the same. Norway's $1.3-trillion (U.S.) sovereign wealth fund, Norges Bank Investment Management (NBIM), said it too will dump its Russian investments, which include substantial interests in the energy firms Gazprom and Lukoil. (Investors may remember that NBIM previously blacklisted four Canadian oil sands producers -- Canadian Natural Resources Ltd. (CNQ: $70.81), Imperial Oil Ltd. (IMO: $56.89), Suncor Energy Inc. (SU: $38.76) and Cenovus Energy Inc. (CVE: $19.93) -- in mid-2020, with its ethics council citing "unacceptable greenhouse gas emissions." Apparently the council had no objection to the Russian energy giants then. A full-scale military assault, it seems, is required to cross the threshold into being at least as unethical as an oil sands company.)

Here in Canada, year-end reporting season trundled on. Mike Belenkie's Alberta Montney-focused Advantage Energy Ltd. (AAV) added 30 cents to $7.41 on 3.11 million shares, on top of the 46 cents it added on Friday after releasing its year-end financials. They were largely as expected. Fourth quarter production averaged 47,900 barrels of oil equivalent a day (compared with analysts' predictions of 47,200 barrels a day) and cash flow came to 37 cents a share (compared with analysts' predictions of 38 cents a share). Advantage boasted about its "record" cash flow and even jumped on the increasingly trendy "shareholder returns" bandwagon.

To be more specific, Advantage said it intends to start a share buyback program in the second quarter. It did not specify a size, merely sticking to the standard script about its perception that "the market price of its common shares does not fully reflect [their] underlying value." Investors were still pleased. With Advantage having reduced its net debt to $165-million from $251-million during 2021 -- and on track to hit zero net debt by this summer, according to its estimates -- they have been expecting the company to join the crowd of producers launching buybacks and dividends. (Investors from long ago may fondly remember that Advantage used to pay a distribution that was as high as 20 cents a month, back when it was an energy income fund rather than a corporation. It converted and dropped the payout in 2009.)

Fellow Montney producer ARC Resources Ltd. (ARX) added 42 cents to $15.67 on 7.6 million shares. It got a nod of approval on Friday from credit rating agency DBRS, which affirmed its investment-grade rating of BBB, with a "stable" trend. The agency patted ARC on the back for its "meaningful deleveraging" since its takeover of Seven Generations last spring. (ARC's net debt went from $2.9-billion as of June 30, 2021, to $1.8-billion six months later.) In addition, DBRS praised ARC's "competitive cost structure," conservative financial policy" and "material free cash flow." It hinted that ARC could pursue "growth initiatives" or continue to raise its quarterly dividend (which was hiked to 10 cents from 6.6 cents in November, for a current yield of 2.6 per cent).

The cloud in DBRS's silver lining had to do with ARC's operations in the B.C. Montney. Since June, 2021, when the B.C. Supreme Court ruled that the province had breached its treaty obligations to the Blueberry River First Nations, new permits have been exceedingly hard to come by for drillers like ARC. The government and the indigenous groups have reached an initial agreement, but "there has not yet been a final resolution, as negotiations continue to progress," noted DBRS. It cheered up and said the delays should not affect ARC's near-term plans. ARC can always redirect spending to its assets on the Alberta side of the Montney.

Elsewhere in Alberta, Doug Bailey and Frank Muller's Razor Energy Corp. (RZE) added 14 cents to $1.43 on 362,100 shares, pleasing investors with its year-end reserve report. Proved and probable reserves rose to 21.0 million barrels as of Dec. 31 from 17.3 million barrels a year earlier. The gain came mostly from an acquisition in the core Swan Hills area last summer. Razor has been carrying out a "production enhancement program" at Swan Hills, largely focused on repairing and reactivating old wells to bring them back on production. It noted that its overall production averaged 4,300 barrels a day in the fourth quarter (up nicely from 3,600 barrels a day in the third quarter).

Enhancing production is just one of Razor's plans for Swan Hills. The play has seen ebbs and flows over the years. Investors remember it being all the rage a little over a decade ago, when adventurous juniors touted it as Canada's next oil hot spot, but the last time it made headlines was when Crescent Point Energy Corp. (CPG: $9.07) bought Coral Hill Energy in 2015 (with those assets subsequently being put up for sale). Undeterred by others' failures in Swan Hills, Razor arrived in 2017 (a year after founders Mr. Bailey and Mr. Muller sold their previous promotion, Striker Exploration, to Gear Energy Ltd. (GXE: $1.60)). It too found Swan Hills to be bumpy indeed. Razor's stock thinned from a high of $4 in 2017 to just 20 cents in early 2021.

The stock has since rebounded to $1.43, thanks to rising oil prices, as well as some geothermal juice in the Swan Hills hype machine. Razor announced last year that it had started building a "first-of-its-kind" facility to harness non-traditional geothermal power at Swan Hills. Unlike most geothermal projects, which drill deep into the ground for hot brine, Razor focuses on co-production, using its own standard, relatively shallow oil and gas wells and recoverting the hot fluids that flow to the surface with the hydrocarbons. The hydrocarbons can be sold as usual, and the hot fluids (traditionally dismissed as "waste heat") can be harnessed for electricity, according to Razor. It vowed to have its geothermal plant up and running in the first quarter of 2022.

Today's update pushed the timeline out to the third quarter instead. Yet Razor remains excited about the project, promising investors that construction "continues to advance." The plant has a design capacity of 21 megawatts. As a rule of thumb, one megawatt can power 1,000 homes for one year.



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