Energy Summary for Nov. 3, 2022
2022-11-03 21:05 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery lost $1.83 to $88.17 on the New York Merc, while Brent for January lost $1.49 to $94.67 (all figures in this para U.S.). Western Canadian Select traded at a discount of $29.70, up from a discount of $30.10. Natural gas for December lost 29 cents to $5.98. The TSX energy index added 6.81 points to close at 270.88.
It was another day, another shower of rewards for energy investors. Today's additions to the parade of third quarter financials and bumper profits included oil sands giant Canadian Natural Resources Ltd. (CNQ: $82.44), which included the news that it is hiking its dividend for the second time this year. The new quarterly payout of 85 cents (up from 75 cents) represents a yield of 4.1 per cent. Meanwhile, Canada's largest gas producer, Tourmaline Oil Corp. (TOU: $81.55), hiked its quarterly dividend to 25 cents from 22.5 cents (for a yield of 1.2 per cent) and declared a special dividend of $2.25. South of the border, ConocoPhillips boosted its quarterly dividend to 51 U.S. cents (from 46 U.S. cents) and announced a near-doubling of its share buyback program to $45-billion (U.S.).
In the Alberta oil sands, Suncor Energy Inc. (SU) added $1.81 to $48.47 on 11.9 million shares, after it too released its third quarter financials -- but no bumper profit. Investors were not expecting one. Suncor warned them last week that the financials would include a roughly $2.6-billion impairment charge on its 54.1-per-cent in the Fort Hills project. This was a side effect of its deal to pay $1-billion for a 21.3-per-cent interest held in Fort Hills by Teck Resources, implying a lower overall market value for the project and giving rise to the impairment. As a result, Suncor turned a net loss for the quarter of $609-million or 45 cents a share.
Suncor's accounting wizards stepped in to save the day, waving their wands to "adjust" all sorts of unpleasant negatives into nothingness. Once that was done, management cheerfully trumpeted an adjusted operating profit for the quarter of $2.56-billion or $1.88 a share. This was nicely above analysts' predictions of $1.76 a share. Cash flow of $3.28 a share also surpassed analysts' predictions of $2.95 a share, while production was in line with predictions at 724,000 barrels a day.
Unsurprisingly, Suncor left its 47-cent quarterly dividend intact, keeping the yield at 3.9 per cent. The company previously boasted in May (when it hiked the payout from 42 cents) that this is "the highest quarterly dividend in [its] history." While the boast is accurate, it has failed to impress investors who remember that Suncor had a pre-COVID dividend of 46.5 cents, just half a penny different from today. (By contrast, the above Canadian Natural's dividend was 42.5 cents pre-COVID and has since doubled to 85 cents. These two oil sands stocks used to trade fairly closely together; now Suncor trades at a steep discount.) Suncor kept its chin up and reminded shareholders of its progress on debt reduction. It has just achieved its goal of getting its net debt below $15-billion -- the figure was $14.5-billion as of Sept. 30 -- and it hopes to reach its next goal of $12-billion early in 2023.
Elsewhere in Alberta, Jim Riddell's Montney- and Duvernay-focused Paramount Resources Ltd. (POU) added $1.09 to $32.03 on 743,000 shares, as it jumped aboard the more popular dividend-boosting bandwagon. The company is increasing its monthly dividend to 12.5 cents from 10 cents, for a yield of 4.7 per cent. This is the fourth time that Paramount has hiked its dividend since introducing it less than a year and a half ago. Management said this increase came on the back of "record third quarter results." Production averaged 97,600 barrels a day and cash flow came to $2.27 a share. Analysts had been predicting ever-so-slightly better results -- 98,300 barrels a day and $2.30 a share -- but Paramount came close.
Paramount also laid out its 2023 guidance and a five-year outlook. Its existing Montney and Duvernay plays are getting the bulk of the attention, but it seems that Paramount is also about to go wading into a splashy new play, the Clearwater. This play has been getting significant hype lately from companies such as Tamarack Valley Energy Corp. (TVE: $5.31), Headwater Exploration Inc. (HWX: $7.42) and Baytex Energy Corp. (BTE: $7.75) (with Tamarack recently buying a private Clearwater producer called Deltastream for $1.4-billion). Paramount has a presence in the play through a subsidiary called Cavalier Energy. An updated presentation on Paramount's website suggests that Cavalier may poke some holes in the ground with a two-well drill program in 2023.
In search of a quicker expansion is Paul Colborne's Alberta- and Saskatchewan-focused Surge Energy Inc. (SGY), down 61 cents to $9.66 on 6.42 million shares. It has agreed to plunk down $245-million for virtually all of the remaining Canadian assets of Enerplus Corp. (ERF), up 33 cents to $23.72 on 1.84 million shares. The assets are within Surge's core plays and will boost production by 3,850 barrels a day when the deal closes next month.
The sale effectively marks Enerplus's exit from Canada. There was a time, way back in 2004, when all of Enerplus's production was Canadian. Then it made its first move southward by buying assets in the North Dakota Bakken. In 2009, it entered another U.S. play, the Pennsylvania Marcellus. By 2014, these U.S. plays were contributing roughly half of production, and Enerplus started the process of shedding one Canadian asset after another, explaining that the regulatory environment is simply better on the southern side of the border. It announced last February that it was looking to withdraw from Canada altogether. Its Canadian assets were by then making up just 7 per cent of production. Analysts valued them at around $330-million.
Enerplus ended up doing better than that. It announced in July that it had found a buyer for an initial parcel of Canadian assets, namely Journey Energy Inc. (JOY: $6.02), which paid $140-million for assets producing 4,400 barrels a day (though production was just 4,000 barrels a day by the time the deal closed last month). Now Enerplus is selling the remaining assets and their production of 3,850 barrels a day for $245-million to Surge. The combined price tag is thus $385-million, a nice chunk of change for Enerplus. The price includes equity components: Enerplus received three million shares of Journey (originally valued at $14-million, and today worth $18-million) and will receive 3.7 million shares of Surge (valued at $35-million).
Surge's investors are less keen on the deal than Enerplus's. Relative to Journey's deal, Surge is paying more and getting less production, and unlike Journey, Surge has chosen to conduct an equity financing at the same time. It plans to sell $70-million worth of shares at $9.25. Mr. Colborne, Surge's president and chief executive officer, did his jubilant best to pitch investors on the new assets, calling them "one of the highest-quality, low-decline asset packages that we have seen in my nine years at Surge." Despite his efforts, the stock headed down.
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