Stockwatch Energy today
Energy Summary for Sept. 10, 2021
2021-09-10 20:06 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added $1.58 to $69.72 on the New York Merc, while Brent for November added $1.47 to $72.92 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.96 to WTI, unchanged. Natural gas for October lost nine cents to $4.94. The TSX energy index added a fraction to close at 124.85.
With predictions of $100 (U.S.) oil becoming old hat -- JPMorgan, Goldman Sachs, BofA, Barclays and others have been tossing the figure around for months -- oil bulls may now have a new magic number to fixate on. Omani Energy Minister Mohammed bin Hamad Al-Rumhi has publicly speculated that prices could get as high as $200 (U.S.). Speaking at a conference yesterday on clean energy transitions, he issued a warning that the world could be at risk of "energy starvation," which could cause prices to skyrocket to a "$100-(U.S.)- to $200-(U.S.)-a-barrel scenario."
His comments were partly a criticism of the International Energy Agency (IEA), which said in May that the industry should immediately have "no new oil and gas fields approved for development" if the world is to reach net zero emissions by 2050. This recommendation was dubbed "extremely dangerous" by the Omani minister. "My biggest fear, if we stop investing in the fossil fuel industry abruptly," he said, "is there will be energy starvation and the price of energy will just shoot [up]." This might sound good in theory for oil producers, but in reality it is "something that I think many of us, if not all of us, would not like to see."
(It should be noted that the minister was talking about oil prices at the mid-century point, not in the near term. He also did not mention the role that inflation might play in these prices. As the Financial Post pointed out, the minister's prediction is not far off from the base forecast of the U.S. Energy Information Administration (EIA), which sees prices reaching $185 (U.S.) in 2050. The EIA specified that in 2020 dollars, this would be about $95 (U.S.). The agency was also careful to note that it is impossible to predict every twist and turn of global economies, fiscal policies and new technologies, all of which will affect oil prices.)
Within the sector, U.S. shale producer Ovintiv Inc. (OVV) added 70 cents to $35.94 on 464,100 shares, giving investors a Friday goodie. The company has unveiled a "new capital allocation framework" to support "increasing shareholder returns." As shareholders were reminded, Ovintiv pays a 14-U.S.-cent quarterly dividend, which was hiked from 9.375 U.S. cents in July and represents a yield of 2.0 per cent. Now Ovintiv has promised to use a percentage of its remaining free cash flow (after dividends and capital spending) for additional, variable dividends and share buybacks. It estimated the effective 2022 yield at over 7 per cent.
The announcement marked something of a grand entrance for new chief executive officer Brendan McCracken. He was already Ovintiv's president, and in June, the company announced that long-time CEO Doug Suttles would retire and Mr. McCracken would replace him. That happened on Aug. 1. Ovintiv has not issued a single press release since then, until today. Perhaps Mr. McCracken wanted to make sure that his first big announcement had some fanfare. He also made his first appearance today as a CEO on the conference circuit, taking the stage (virtually) at the Barclays CEO Energy-Power Conference.
The presentation dug into the "capital allocation framework," or in non-promoter-puffery, how Ovintiv plans to spend its money. Mr. McCracken is forecasting $15-billion (U.S.) in free cash flow over the next 10 years. Some of that will go toward reducing the currently $5.3-billion (U.S.) debt. Ovintiv also needs to set aside about $150-million (U.S.) each year for its dividend. While the remaining cash could go toward things like splashy acquisitions -- and sometimes did, under Mr. Suttles's tenure -- Mr. McCracken wants "no expensive/dilutive M&A" and "no growth into [an] oversupplied market." He prefers "organic assessment and appraisal" of existing assets (to extend their lifespan) and perhaps small tuck-in acquisitions. Above all, apparently, he wants to "amplify" shareholder returns.
All of this seemed to solidify a departure from Ovintiv's old ways. As CEO from 2013 to last month, Mr. Suttles drastically reshaped Ovintiv, changing everything from its name (which used to be EnCana) to its core focus (which used to be Canadian gas). He came under criticism for pursuing U.S. shale acquisitions that investors deemed too expensive. Between that and the oil price crash, the stock fell from over $130 in 2014 to only $30 at the end of 2019 (adjusting for a 1-for-5 rollback in 2020). Then a global downturn took old -- although even Mr. Suttles's fiercest critics do not lay that at his feet -- and sent the stock to an all-time low of $2.95. Investors who bought then have been rewarded by the rally to today's close of $35.94. Yet even with the promise of more perks for shareholders, the new CEO has a long road back to the old glory days.
Further afield, Serafino Iacono's Colombian gas explorer, NG Energy International Inc. (GASX), lost seven cents to $1.20 on 860,600 shares. This seemed to be a sell-on-news reaction, with the stock having spent the four previous trading days racing up to $1.27 from $1.03. Today, NG Energy announced that it has received a crucial environmental licence for its "crown jewel" asset, the SN-9 block in Colombia. This enables the start of a four-well exploration program (with up to 18 more wells allowable under the licence).
Chairman Ron Pantin said drilling will begin in the first week of November. "We as a management team are very excited to begin work," he declared -- and presumably very excited not to have to pay for it. The $27-million (U.S.) four-well program is to be entirely covered by CPVEN, a South American service provider. CPVEN agreed last year to drill and complete four gas wells at SN-9 in exchange for becoming NG Energy's preferred service provider for all phases of the block's development. The companies were originally hoping to have rigs on site in the first quarter of 2021, but permitting took longer than expected. An unfazed Mr. Pantin maintained cheerfully today that the targets show "strong evidence of gas-bearing formations."
Both Mr. Pantin and Mr. Iacono, NG Energy's CEO, remain better known for their previous Colombian promotion. They were formerly the top executives at Pacific Rubiales, a market darling that was worth $8-billion (U.S.) at its peak, had over 30,000 employees and once made headlines for hiring pop singer Marc Antony to perform at a party in 2012. It had a dazzling fall from grace and filed for bankruptcy in 2016. In 2017, it re-emerged as Frontera Energy Corp. (FEC: $6.98), without Mr. Iacono or Mr. Pantin. Mr. Iacono had already landed on his next promotion by then, at NG Energy (though it was called PentaNova in 2017). He brought in Mr. Pantin in 2019 and now they are finally ready to drill.
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