Energy Summary for Oct. 26, 2022
2022-10-26 21:27 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added $2.59 to $87.91 on the New York Merc, while Brent for December added $2.17 to $95.69 (all figures in this para U.S.). Western Canadian Select traded at a discount of $27.25 to WTI, down from a discount of $26.50. Natural gas for November stayed unchanged at $5.61. The TSX energy index added 4.62 points to close at 259.02.
Oil prices climbed on bullish U.S. energy data. According to the latest weekly report from the U.S. Energy Information Administration (EIA), last week's U.S. crude exports reached 5.1 million barrels a day, setting a new record. The EIA also reported that U.S. crude inventories rose by 2.6 million barrels, a relief to traders who had been bracing for a much higher increase of 4.5 million barrels, the figure reported by the American Petroleum Institute (API) yesterday. (Both weekly reports are closely watched by traders. While they are generally similar, discrepancies can arise, largely because reporting to the API is voluntary whereas reporting to the EIA is mandatory.)
Here in Canada, Craig Bryksa's Crescent Point Energy Corp. (CPG) added 18 cents to $10.66 on 12.3 million shares, after releasing its third quarter financials. It also announced its 2023 budget. Capping it off was the declaration of a 3.5-cent special dividend, giving investors plenty to chew on.
The financials were generally as expected. Production averaged 133,000 barrels a day, in line with analysts' predictions of 131,000 barrels a day, while cash flow of $1.02 a share was slightly ahead of analysts' predictions of 99 cents a share. Management said the company is more or less on track to achieve its full-year guidance, although it did make a few adjustments to those numbers. Its full-year production target is now 132,000 barrels a day (instead of a range of 130,000 to 132,000 barrels a day) and the budget is $950-million (up from a range of $875-million to $900-million).
Management also unveiled the guidance for 2023. It is aiming for 134,000 to 138,000 barrels a day on a budget of $1-billion to $1.1-billion, which it expects will be more than covered by an estimated $1.1-billion to $1.5-billion in cash flow, "allowing for significant returns to shareholders." It was here that shareholders' ears perked up: They have been wondering whether Crescent Point would use today's financials as a chance to hike its eight-cent quarterly dividend, which represents a yield of 3.0 per cent. It did not. As if to ease any disappointment, it declared a special dividend of 3.5 cents (while also reminding shareholders of its share buyback program).
To yield-hungry investors, the above numbers are modest. Several of Crescent Point's competitors, such as Whitecap Resources Inc. (WCP: $10.74) and Surge Energy Inc. (SGY: $9.98), offer yields of at least 4 per cent. As for the special payout of 3.5 cents, it pales next to the 20-cent special dividend offered recently by Birchcliff Energy Inc. (BIR: $10.26) (let alone the $1.50 to $2 gifts from the likes of Canadian Natural Resources Ltd. (CNQ: $81.52) and Tourmaline Oil Corp. (TOU: $77.54)). More broadly, Crescent Point has not budged from using only half of its free cash flow to shower money on shareholders. Other competitors have generally committed to at least 75 per cent, with some (such as Cenovus Energy Inc. (CVE: $27.11)) promising 100 per cent.
Management defended Crescent Point's payout practices during a conference call this morning. "Fifty per cent is a very compelling, strong return," said chief financial officer Ken Lamont. Mr. Bryksa, chief executive officer, said staying at 50 per cent "gives us the ability to then invest within the business," including by "inorganic" means. Investors are taking this to mean that Crescent Point is keeping its dividend costs manageable so it can hunt for acquisitions. Its last big acquisition was its $900-million deal for Shell Canada's Alberta Duvernay assets in April of last year. Today's financials showed that it plunked down another $87-million on a Duvernay land deal during the quarter. In today's conference call, discussing whether Crescent Point would consider further acquisitions, Mr. Bryksa stated -- at least three times -- that "we certainly would."
Further afield, Serafino Iacono's Colombian gas junior, NG Energy International Corp. (GASX), added one cent to 93 cents on 388,000 shares. It has hiked a previously announced $25-million private placement to $30-million. The financing will comprise 30,000 convertible debenture units at $1,000, with each unit consisting of one convertible debenture and 1,000 warrants.
The increased demand comes as NG Energy continues to bask in the initial results of its Brujo-1x exploration well at its SN-9 gas block in Colombia. The company cheered last Thursday that the well hit 783 feet of net pay. Testing is in progress, but even the early-stage results have resulted in rapt applause. Canaccord Genuity analyst Roman Rossi recently hyped the well as "one of the largest onshore discoveries from the past few years." Local news outlet Portafolio gave NG Energy and its new well a prominent place in an Oct. 21 article about Colombian gas discoveries. This article caught the attention of Colombian President Gustavo Petro, who hyped the discoveries on Twitter.
Alas, for all this buzz, the 93-cent stock has not quite made the final push over $1. Investors may wish to note that Canaccord's Mr. Rossi has a price target of $1.40. (They may also wish to note the ties between Canaccord and NG Energy, including the financing that Canaccord co-led for the company last May, a few weeks before Mr. Rossi just so happened to publish his first note on the stock.)
Back in North America, Mehran Ehsan's U.S. Permian junior, Permex Petroleum Corp. (OIL), stayed unchanged at 13 cents on 141,200 shares. It has added Melissa Folz to its board of directors. Ms. Folz is the production engineering and optimization director of Chord Energy, the U.S. Bakken player formed over the summer through the merger of Whiting Petroleum and Oasis Petroleum (where she had served as senior production manager). She has also worked for Sabine Oil and Gas and Southwestern Energy. Mr. Ehsan, Permex's president and CEO, dubbed himself "pleased" to bring in Ms. Folz and her contributions to "strategic plans and growth."
Permex's investors would welcome some growth. More than four years have passed since its 50-cent-a-share IPO in mid-2018, about which perhaps the most noteworthy thing was its successful snatching up of the ticker OIL (which came free after the receivership and delisting of an Alberta junior called LGX Oil). Permex has spent most of its time focused on low-cost land additions. Finally, in September -- yes, just last month -- it started a drill program, which Mr. Ehsan promised to be "transformative." Permex had $7-million in working capital as of June 30 to help with the program, largely thanks to a $10-million private placement at 22 cents last March. With the stock now worth 13 cents, a subscriber who put in $10,000 in March would have $5,909 -- still better off than someone who poured $10,000 in the 2018 IPO, whose investment would now be worth $2,600.
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