Stockwatch Energy today
Energy Summary for Aug. 3, 2022
2022-08-03 20:30 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost $3.76 to $90.66 on the New York Merc, while Brent for October lost $3.77 to $96.78 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.66 to WTI, unchanged. Natural gas for September added 56 cents to $8.27. The TSX energy index lost 9.85 points to close at 223.67.
Oil prices had another volatile day, jumping in the morning in the wake of a widely watched OPEC+ meeting, only to tumble by the close on bearish U.S. storage data. The OPEC+ meeting saw the group agree to a 100,000-barrel-a-day production increase for the next month. This is a big step back from the last few months, when the group's monthly production boosts have been four to six times higher. As several members of the group have struggled to meet their higher quotas, today's relatively meagre boost suggested that members are exhausting their production capabilities after years of underinvestment, raising supply concerns. These sent Brent to an intraday high of over $2 (U.S.).
The rise was short-lived. The U.S. Energy Information Administration released its latest weekly storage report, showing that U.S. crude stockpiles unexpectedly shot up by 4.5 million barrels last week. Analysts were expecting a drop of 600,000 barrels. The lower-than-expected demand clawed back the morning's gains in oil prices and then some, with Brent falling below $100 (U.S.) for the first time in weeks and closing at around $96 (U.S.).
Here in Canada, oil and gas stocks fell with oil prices, and some had the extra difficulty of disappointing quarterly financials. Jim Riddell's Alberta Montney and Duvernay producer, Paramount Resources Ltd. (POU), lost $2.76 to $27.66 on 1.14 million shares. Its production and cash flow for the second quarter were both below analysts' predictions. As well, the company took an inflationary hit to its budget and lowered its five-year forecast for free cash flow.
Management offered up no shortage of excuses. It blamed longer-than-scheduled downtime for its second quarter production of 77,300 barrels a day, a drop from 82,100 barrels a day in the first quarter. Analysts had been expecting flat production. Cash flow of $1.75 a share also came in below analysts' expectations of $1.86 a share. Meanwhile, citing inflation, management hiked this year's budget to a range of $600-million to $640-million -- an increase of $80-million or about 15 per cent -- while hinting that future budgets are heading higher too. "Updated capital expenditure expectations, recent commodity prices and other assumptions" got the blame for a reduction in Paramount's five-year free cash flow estimate, now $3.9-billion instead of $4.1-billion.
To temper the gloom, management also talked up a "highly complementary" asset acquisition in the core Duvernay play, where Paramount has now scooped up another 90,000 acres for $68.5-million. The deal boosts its Duvernay landholdings to 250,000 acres and adds 1,700 barrels a day of production. Paramount counts the Duvernay among its "central Alberta/other" assets, which collectively produced 6,900 barrels a day during the second quarter. Including the new assets, management reckoned today that these assets could eventually produce 50,000 barrels a day. It opted not to estimate when.
A fellow Montney producer, Keith MacPhail and Ronald Poelzer's NuVista Energy Ltd. (NVA), lost 64 cents to $10.47 on 2.22 million shares, after it too released its second quarter financials. As it happens, NuVista is a sizable investment of Paramount, which owns 37.2 million of its 228 million shares. These include 17.3 million shares bought in 2020 at just 61 cents each. If Paramount needs a pick-me-up after today's financials, it can remind itself that these 17.3 million shares, if sold at current market prices, would bring in a rousing profit of $178-million.
In any case, during the second quarter, NuVista produced 65,000 barrels a day and took in cash flow of 83 cents a share. These figures (unlike Paramount's) were slightly better than analysts' predictions of around 81,000 barrels a day and 80 cents a share. As well, NuVista trumpeted the start of its very first buyback program in June, boasting that it has already bought back 4.6 million shares (or 2 per cent of the share count). Lastly, management kept the budget intact at $355-million to $375-million, although it acknowledged that it may have to "revisit this in the fall to assess any changes to inflationary pressures."
By the fall, NuVista will be well into the transition process of getting a new chief financial officer. Ross Andreachuk, the current CFO and vice-president of finance, announced today that he will retire on Dec. 1, after 16 years with the company. His successor will be Ivan Condic, the current controller. Mr. Condic has been with NuVista since 2014 and before that worked in financial roles at various energy juniors and as an accountant at KPMG.
Further afield, and bucking today's trend of energy stocks in the red, Paul Baay's Trinidad-focused Touchstone Energy Corp. (TXP) added seven cents to $1.01 on 520,900 shares. It is just about ready to begin gas production at its Coho development. Today it patted itself on the back for submitting a notice of precommissioning at the Coho gas facility, a precursor to start-up.
"[This] will be a significant milestone for Touchstone, as it will represent our first natural gas production and is expected to double our current [oil] production on a boe [barrel of oil equivalent] basis," cheered Mr. Baay, president and chief executive officer. Coho will add an estimated eight million net cubic feet a day, the equivalent of about 1,300 barrels a day. Touchstone produced 1,400 barrels a day in the first quarter.
Mr. Baay added that he "would personally like to thank our shareholders for their continued patience." Patience is an understatement. Touchstone is running more than two years behind its original plan of getting Coho on production in early 2020, a bruising run of delays for which it has blamed everything from COVID to regulatory foot-dragging. As recently as March, Mr. Baay was still trying to pinpoint a date to bring Coho on-line, choosing May and then watching another deadline sail past. He has since (wisely) dropped any attempt to pick a date, instead sticking to adverbs like "imminently" or vague promises to "keep all stakeholders informed of our progress." With any luck, he will finally get his long-awaited gas sales by the end of the summer.
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