Stockwatch Energy todaySnow throughout the midwest US 25 inches followed by temps dipping to -25F for those of us old enough to remember what that feels like? Percy Salzman did it with a map and a piece of chalk!
Energy Summary for Feb. 4, 2021
2021-02-04 20:12 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added 54 cents to $56.23 on the New York Merc, while Brent for April added 38 cents to $58.84 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.80 to WTI, up from a discount of $11.95. Natural gas for March shot up 15 cents to $2.94. The TSX energy index added a fraction to close at 98.02.
Oil sands giant Suncor Energy Inc. (SU) lost 27 cents to $21.97 on 39.9 million shares, on news of a massive full-year loss and a not-quite-so-massive asset sale. The company released its year-end 2020 financials after the close yesterday, recording a full-year loss of $4.31-billion, compared with earnings of $2.89-billion in 2019. Impairment charges played a large role in this reversal of fortune. For the fourth quarter of 2020, net loss came to $169-million. This partly reflected $432-million in impairment charges related to the cancellation of Cenovus Energy Inc.'s (CVE: $8.08) West White Rose project in Newfoundland, as well as $142-million in expense provisions for TC Energy Corp.'s (TRP: $55.23) cancelled Keystone XL pipeline. (The last few months have not been good from a project approval standpoint.)
A $539-million foreign exchange gain in the fourth quarter kept Suncor's bottom line from looking too grim. The overall quarterly loss of 11 cents per share ended up matching analysts' predictions. Yet Suncor fell below analysts' predictions on the closely watched measure of cash flow, which came in at 80 cents a share for the quarter, relative to analysts' forecasts of 84 cents a share. The lower-than-hoped-for cash flow came in spite of higher-than-hoped-for production. Fourth quarter production averaged 769,200 barrels of oil equivalent a day, whereas analysts were expecting about 747,000.
The year-end 2020 results do, at least, put Suncor in a good position to achieve its previously announced 2021 guidance of 740,000 to 780,000 barrels a day. One analyst, Chris Cox of Raymond James, even cheered Suncor this morning for its "solid finish to an otherwise choppy year," adding that "confidence in the 2021 guidance should improve coming out of the quarter." He hiked his price target on the stock to $33 from $32. That is more than $10 above today's close of $21.97. Mr. Cox now sees Suncor as a "wait-and-see story on the dividend increase." (The company slashed its quarterly dividend to 21 cents from 46.5 cents last May, in a move that many investors saw as unnecessary, given that fellow oil sands giants Canadian Natural Resources Ltd. (CNQ: $31.67) and Imperial Oil Ltd. (IMO: $25.93) were leaving their dividends intact. Those two are now trading above last May's levels, while Suncor has been treading water. Its current dividend yield is 3.8 per cent.)
Suncor's management stated in a conference call this morning that it would like to boost the dividend, but not yet. "At this time, we will not increase the dividend, preferring to use our funds flow to increase the share buyback, as we believe our stock is deeply discounted," said chief financial officer Alister Cowan. He nonetheless added that dividends "remain a big part of a shareholder returns," and future cost reductions and margin enhancements will "provide the foundation to increase the dividend going forward." He did not give a timeline, so (as Mr. Cox said) investors must wait and see.
As before, Suncor's caution stands in contrast to the shows of confidence put on by some of its rivals. Today brought a different batch of financials from Shell, which announced that it is boosting its dividend in the first quarter of 2021 -- the second increase since Shell slashed the payout early last April for the first time since the 1940s. Of course, both increases have been small ones relative to the original cut, which took the quarterly payout all the way down to 16 U.S. cents from 47 U.S. cents. Shell nudged the payout up to 16.65 U.S. cents in October and has now given it another nudge to 17.35 U.S. cents. The yield is about 1.9 per cent. Still, a dividend boost is a dividend boost, and Shell also reported a full-year net profit (if the lowest annual profit in over 20 years). The overall results were better than the market had expected, especially coming on the heels of the massive losses reported recently by ExxonMobil, Chevron and BP.
Getting back to Suncor, it separately announced that it has sold its 27-per-cent interest in the Golden Eagle project for $325-million (U.S.). Golden Eagle is a three-field, 37,000-gross-barrel-a-day oil and gas development in the North Sea. Suncor was still expanding in the North Sea as recently as 2018, but in late 2020, Reuters reported that the company wanted to shrink its international footprint and put its North Sea assets up for sale. Analysts reckoned at the time that the Golden Eagle stake could fetch $400-million (U.S.). Today's price tag of $325-million (U.S.) falls short, but Suncor did mention "contingent consideration [of] up to $50-million (U.S.)."
Suncor did not specify the contingencies, or even the buyer. Happily, the London-listed EnQuest PLC identified itself as the buyer, while explaining that the contingent consideration is linked to Brent oil prices staying in a specified range -- $55 (U.S.) to $65 (U.S.), or higher -- from mid-2021 to mid-2023. Seeing as Brent prices are currently rising toward $60 (U.S.), Suncor has a good shot at getting at least some of the money, but not for another 2-1/2 years.
Another, much smaller oil sands producer, Athabasca Oil Corp. (ATH), added seven cents to 36.5 cents on 25.2 million shares, on no news. Buyers and sellers are still jockeying for position following a flood of Athabasca shares into the market two weeks ago, when Norway's Equinor dumped the 100 million Athabasca shares that it had received in 2017 as part of an asset sale. The shares were valued at $1.47 each when the sale was arranged. When they were sold, the price per share was a less than impressive 18 cents. Yet any investors who scooped them up have since doubled their money. Many of them seem to be taking a gamble on rising oil prices; Athabasca tends to hedge only around half of its production, leaving the rest exposed to oil's ups (and downs). Shareholders may also be confident that Athabasca will be able to sort out its finances sooner rather than later. Its balance sheet is weighed down by $450-million (U.S.) in debt that matures in just one year, in February, 2022. By comparison, even with today's jump in the share price, Athabasca's current market cap is $193-million.
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