by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery added $2.02 to $73.66 on the New York Merc, while Brent for August added $1.39 to $74.90 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.88 to WTI, unchanged. Natural gas for July lost two cents to $3.19. The TSX energy index added 6.28 points to close at 140.95.
Oil prices headed higher as traders weighed the implications of Iran's federal election on Friday. The victor was Ebrahim Raisi, a hard-line conservative judge who is under U.S. sanctions over alleged human rights violations. Having a president-elect under sanctions could, of course, complicate Iran's current efforts to talk the United States into lifting sanctions against various Iranian industries, including oil. This lowered the odds of a near-term boost in Iranian oil exports and therefore sent prices higher. Prices got an additional boost from a bullish new Bank of America forecast. In a research note yesterday, BofA Global Research predicted that "robust global oil demand recovery will outpace supply growth over the next 18 months." It hiked its 2022 Brent forecast to $75 (U.S.) from $60 (U.S.) and mused that Brent might even touch $100 (U.S.) for the first time since 2014.
Here in Canada, oil stocks rode prices higher. One noteworthy gainer was oil sands producer Athabasca Oil Corp. (ATH), which added nine cents to $1.01 on 17.5 million shares, its first time above $1 since April, 2019. Similarly, heavy oil producer Gear Energy Inc. (GXE) reached an intraday high of $1.01 -- its first time above $1 since October, 2018 -- before settling at 96 cents, up 21 cents, on 12 million shares. Both of them are counting on rising oil prices to relieve pressure on their balance sheets. In Athabasca's case, the rally improves its odds of refinancing a daunting $450-million (U.S.) in notes that will come due in February, 2022, a short eight months away. Athabasca has been trying to refinance these notes for about two years. Meanwhile, Gear recently wiped out about $13-million of debt by issuing 41 million shares, but says oil prices will help it tackle the rest without dilution. It wants to use free cash flow to reduce its roughly $43-million debt to $15-million by the end of the year.
Further afield, Colombian oil producer Frontera Energy Corp. (FEC) added 24 cents to $6.30 on 357,100 shares, after closing a $400-million (U.S.) note offering. The notes mature in 2028 and bear interest at 7.875 per cent. Frontera was originally aiming to raise just $350-million (U.S.), but on June 10 it boasted that its financing was "oversubscribed and upsized." Demand for energy debt has been sturdy lately, even from junk-rated companies such as Frontera. Many of them have seized the moment to refinance older debt that came with more onerous terms. In Frontera's case, it was looking to raise $350-million (U.S.) so that it could repay a different batch of $350-million (U.S.) notes bearing interest at 9.7 per cent. Now it can do that and have some money left over.
As it happens, Frontera recently poured some money into its joint venturer and investment company, CGX Energy Inc. (OYL), up 18 cents to $1.42 on 541,300 shares. Frontera provided CGX with a $19-million (U.S.) convertible loan (bearing interest at 9.7 per cent) on May 28. CGX will use the money to help pay for its share of work on the companies' jointly owned Corentyne and Demerara blocks off the coast of Guyana. The two of them arranged their joint venture in 2018 in the third quarter of this year, but have yet to drill a single well together. In November of last year, they promised that they would definitely, absolutely, 100 per cent spud their first well by November of this year. They have since firmed up their plans by hiring a drilling contractor and (in CGX's case) securing the money. The executive chairman of CGX, Suresh Narine, declared last month that they are "targeting an early third quarter spud." This could potentially be as little as a week and half away. With excitement building, CGX's stock has shot up to $1.42 from 93 cents over the last week (and has quadrupled from 35 cents since November).
Back in Colombia, Charle Gamba's gassy Canacol Energy Ltd. (CNE) stayed unchanged at $3.29 on 297,800 shares, failing to impress investors with the test results from its Aguas Vivas-1 exploration well. This was Canacol's third exploration well this year and -- thankfully -- its first successful one. It tested at 35.5 million cubic feet of gas a day (about 6,200 barrels of oil equivalent a day). Canacol quickly put the well on production. It also spudded the first appraisal well, Aguas Vivas-2, with Aguas Vivas-3 following immediately thereafter. Lastly, Canacol announced a quarterly dividend of 5.2 cents a share -- the usual rate, although it took a pause during COVID-19 -- which is payable on July 15 and represents a yield of 6.3 per cent.
Investors remained aloof. Colombia is looking tense these days, with on-and-off national protests erupting since April, and even before that, the economy and the local gas market were not recovering as quickly as hoped from COVID-19. "A rebound in spot natural gas demand ... has been slow to materialize to date," admitted BMO analyst Mike Murphy in a research note on Canacol this morning. He downgraded the stock to "market perform" from "outperform." He did, however, maintain that he "still like[s] the company's long-term business model and growth prospects," and kept his price target at $4.50 (relative to today's close of $3.29).
One company can undoubtedly sympathize with Canacol. Serafino Iacono and Frank Giustra's NG Energy International Corp. (GASX), up 2.5 cents to $1.00 on 119,200 shares, was enjoying quite the ride in late 2020 and early 2021 as it promoted two of its own gassy assets in Colombia. It repeatedly emphasized that the Colombian gas market is (normally) sturdy and premium-priced. For that reason, even though NG is not producing any gas, its stock shot up from 40 cents in July, 2020, to as high as $1.88 in February, 2021. The excitement came as the company firmed up its spiel on its SN-9 block (with estimated resources of over 800 billion cubic feet) and its Maria Conchita block (which has about one-quarter of the resources of SN-9, but is much closer to production -- Mr. Iacono is aiming to achieve this next quarter). Alas, the recent political and economic turbulence in Colombia has pushed NG's stock back down to $1.
Funnily enough, NG may have benefited today from Canacol's Aguas Vivas-1 announcement even though Canacol itself did not. The Aguas Vivas prospect happens to be just 10 kilometres from the Hechizo prospect on NG's SN-9 block. The successful test therefore bodes well for NG's first four-well drill program at SN-9, which will start next quarter and include one well at Hechizo.