Come 2020; the world witnessed pandemic effect of deadly Coronavirus - COVID-19. The blaze of global uncertainty is fuelling so high that the prices of Brent crude oil (BZ: NMX) fell by ~26% from maximum US$68.91/b on 6 Jan 2020 to US$50.52/b on 28 Feb 2020 and Natural Gas (NG: NMX) tumbled by 17% from US$2.02/MMBtu to US$1.684/MMBtu during the period from 10 Jan 2020 to 28 Feb 2020.
The plummeting Canadian S&P/TSX Capped Energy Index (TSI: TTEN) and Australian S&P/ASX 200 Energy Index (ASX: XEJ) can also be gauged to understand the intensity of impact. TTEN dwindled from 149.51 on 6 Jan 2020 to 111.35 on 3 March 2020, and on a similar line, XEJ fell from 11861.608 to 9314.355 during the same interval. Even, IEA – International Energy Agency has lowered the 2020 global growth forecast by 365kb/d to 825kb/d, as the O&G market is being hit hard by the novel coronavirus and pervasive shutdown of the Chinese economy.
Interesting Read: Coronavirus Impact: Tumbling Steel and Copper Prices
Let’s gauge through coronavirus impact on the Canadian energy market.
Canadian Energy Market and COVID-19
The falling O&G and other base metal prices may hurdle the country’s capital inflow. The disrupted supply chain due to suspension of flights to and fro China has further rattled the markets. The ratio of US$/C$ has increased by 4% from ~1.3 to 1.35 between 7 Jan 2020 and 28 Feb 2020.
As most of the Canadian business depends on the Chinese components to produce the finished product, the ban is challenging the scalability of the businesses in the country. For example - Maholi Inc., a Canadian company manufacturing jackets in Toronto is unable to sell the product as the metallic branding label comes from China, consequently its operations are now on a locked-down mode.
Also, it is worth mentioning that due to coronavirus, employees of several companies are unavailable at working sites, affecting the production activities.
Further, with falling commodity prices, companies generally stop exploration activities and shift their focus towards acquisition of assets, as witnessed in the strategy of Western Australia-based Calima Energy Limited (ASX: CE1) holding key assets in Montney Formation – a super liquids-rich window.
To Understand Further About Calima’s Strategy, Please Click: Mapping Calima Strategy and Initiative
Impact on O&G Companies and Calima Energy
The performance of companies is not that strong in 2020. Share price for ExxonMobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX) fell by 27% and 23% from US$70.9 to US$51.44 and US$121.43 to US$93.34, respectively, during the period from 2 Jan 2020 to 28 Feb 2020. Also, it is pertinent to mention that the number of active rigs in Texas fell from 553 in October 2018 to 398 in January 2020.
Interestingly, Calima Energy’s counter-cyclically strategy to take advantage of oil & gas (O&G) prices has kept CE1 ahead with the market status quo. On 19 Feb 2020, the Company announced entering a deal to secure the Tommy Lakes Infrastructure, which is anticipated to connect Calima Lands to the processing plant of NorthRiver Jedney, giving entry to the major export routes namely T-North/Station 2, Alliance and NGTL/AECO.
The acquisition completion is vital for the Company for the Field Development Plan (FDP), aiding Calima Lands to be a project ready-for-development. The Company’s focus has always been on toes to sail smoothly through the waves.
How Long Tumbling Prices Will Continue?
The pandemic of COVID-19 is severe than past health emergencies since China has disrupted the supply chain to curb or quarantine the spread, affecting the global economy. However, the recovery is estimated in V shape, as quick downturn is often followed by the impulsive growth, due to the fact that the demand and supply still exists, but supply is blocked by the transportation halt.
Also, recently major countries such as the US cut the interest rate by 0.50%, Bank of Canada lowered the price by 0.5%, and RBA cut rate by 25 bps to mention few. Also, China intends to have worldwide policy to support and neutralise the consequences of coronavirus. With all these efforts, globally, oil & gas prices have started to recover in March 2020.
OECD, which stands for Organization for Economic Cooperation and Development, has mentioned that the global economy is likely to shrink in this quarter. However, it is anticipated to grow overall in 2020 and rally in 2021.
Hence, the anticipated economic boom is likely to support Calima Energy at the right time to move ahead with the product saleability post the Final Investment Decision, which is presently dependent on funding via a JV or project financing.
Stock Price Information – With a market cap of A$15.09 million, the CE1 stock closed at A$0.007 on 5 March 2020. The one-month return of the stock stood at ~40% and its 52 weeks high was noted at A$0.053 and 52 weeks low at A$0.004.
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