Energy Summary for Nov. 30, 2022
2022-11-30 20:27 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added $2.35 to $80.55 on the New York Merc, while Brent for January added $2.40 to $85.43 (all figures in this para U.S.). Western Canadian Select traded at a discount of $29.07 to WTI, unchanged. Natural gas for January lost 31 cents to $6.93. The TSX energy index lost 2.41 points to close at 259.58.
Canada's main oil province was in a pensive mood as Alberta Premier Danielle Smith introduced her controversial sovereignty act, seeking broad powers for the province to stand up to what she sees as a meddlesome Ottawa. The act, formally titled the Alberta Sovereignty Within a United Canada Act, fulfills a promise that Ms. Smith made during her leadership campaign. It is also much more expansive than previously indicated. Among other things, it would give the provincial cabinet the ability to rewrite laws without legislative debate, and would allow the cabinet to order government agencies, police, cities and more to ignore federal laws deemed "harmful" to the province.
If passed, according to the province, the act could be used to "stand up to federal government overreach and interference in areas of provincial jurisdiction." There are many such areas -- the province listed health, education, agriculture, firearms and more -- but there is one in particular that Ms. Smith seems especially keen to defend. "[The act] begins the conversation with Ottawa so that they do not continue to pass aggressive policy targeted specifically at our industry and specifically at our development of our natural resources," she told the press. In other words, she is firing a warning shot over federal climate policies that could hinder the oil and gas sector.
The act is controversial, even among other oil and gas sector advocates. Former premier Jason Kenney, who has previously called the act "catastrophically stupid," resigned his seat in the legislature after the introduction. Taking a more diplomatic approach, the Canadian Association of Petroleum Producers (the sector's main lobby group) said today that it is still reviewing the act but is "concerned about any government policy that has the potential to create uncertainty for investors." Such concerns were echoed by chief executive officer Deborah Yedlin of the Calgary Chamber of Commerce, who told The Canadian Press that the act "could be perceived as being undemocratic," which would hurt Alberta's reputation and scare off investment. She also said the energy sector may find it harder to seek federal support for various investments, such as the multibillion-dollar carbon capture network being proposed by the province's six largest oil sands producers.
One of those producers is oil sands giant Canadian Natural Resources Ltd. (CNQ), down 40 cents to $80.31 on 10.5 million shares. Today it stayed safely out of the murky realm of politics, keeping its eyes firmly trained on its 2023 guidance, which it released this morning. It will aim for production of 1.33 million to 1.37 million barrels a day on a budget of $5.2-billion. These figures are in line with analysts' predictions.
Management also unveiled an "updat[ed] commitment to provide incremental returns to shareholders." The new goal is that when net debt hits $8-billion (down from $12.4-billion as of Sept. 30), 80 to 100 per cent of the company's free cash flow will go toward dividends and buybacks, up from the current level of 50 per cent. (To put the numbers in context, Canadian Natural spent about $2.5-billion on dividends and $1.7-billion on share buybacks during the third quarter. It increased the quarterly dividend earlier this month to 85 cents from 75 cents, for a yield of 4.2 per cent.)
Elsewhere in Alberta, Rick McHardy and Fotis Kalantzis's Montney-focused Spartan Delta Corp. (SDE) added 81 cents to $15.41 on 2.23 million shares, after it too released its 2023 guidance -- with a curious twist. The company announced this morning that it is setting a "preliminary" target of 80,000 to 82,000 barrels a day on a budget of $430-million. It added, however, that it is mapping out its broader future and has launched "a formal process to evaluate strategic repositioning alternatives." These could include "a corporate sale, merger, corporate restructuring, sale of select assets, sale of a royalty, purchase of assets, the spinout of select assets into a newly formed company," or any combination of the above.
A core reason for the review is that Spartan seems to feel rather unappreciated lately. It rattled off a list of its attributes, such as its rising production, lofty free cash flow, decades of drilling inventory and multibillion-dollar tax pools, all achieved while "accelerating a robust return-of-capital program with a specific focus on dividends." (Spartan does not pay a regular dividend, but declared its first special dividend earlier this month, a 50-cent one-time payout that shareholders will receive in January.) "Despite the achievement of these key milestones, the current trading price of the company's common shares does not fully reflect the underlying value of the asset base," management huffed. As a result, before upgrading its guidance from preliminary to formal, it wants to conduct a "timely and prudent" review of all of its options.
Shareholders seemed intrigued. Spartan's executives are no strangers to selling their promotions; their current company is the fourth in a lineup that includes Spartan Exploration (sold in 2011 to Obsidian Energy Inc. (OBE: $10.19)), Spartan Oil (sold in 2013 to Bonterra Energy Corp. (BNE: $7.81)) and Spartan Energy (sold in 2018 to Vermilion Energy Inc. (VET: $6.59)). The average return for shareholders was about 360 per cent. Should the current Spartan opt against a sale, management hinted that shareholders will still get plenty of perks, such as a possible "significant return-of-capital strategy for 2023."
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