Energy Summary for Dec. 6, 2022
2022-12-06 20:36 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost $2.68 to $74.25 on the New York Merc, while Brent for February lost $3.33 to $79.35, falling below $80 for the first time since January on concerns about global economic slowdowns (all figures in this para U.S.). Western Canadian Select traded at a discount of $28.50 to WTI, unchanged. Natural gas for January lost 11 cents to $5.47. The TSX energy index lost 8.76 points to close at 240.77.
Canadian energy stocks fell with commodity prices. For stout-hearted bulls, however, this time of year marks the start of a parade of year-ahead stock picks from crystal-ball-gazing analysts. The ones at TD Securities got things started today by listing "top picks" for 2023. They singled out Canadian Natural Resources Ltd. (CNQ: $75.59), ARC Resources Ltd. (ARX: $17.88) and Crescent Point Energy Corp. (CPG: $9.39), on which they have price targets of $97, $26 and $18.50, respectively. (Another list that investors may wish to be aware of is the list of disclosures from the analysts' employer, TD, which is a "market maker" in all three companies' securities, among other ties.)
Oil sands producer Cenovus Energy Inc. (CVE) lost 94 cents to $25.14 on 12.6 million shares, after unveiling its 2023 guidance. It plans to spend $4-billion to $4.5-billion and produce 800,000 to 840,000 barrels a day. President and chief executive officer Alex Pourbaix also promised "continued growth in shareholder returns," predicting that Cenovus will reach its "net debt floor" of $4-billion by the end of this year and then look to return to "100 per cent of excess free funds flow to shareholders." (The current target is 50 per cent, in the form of dividends and buybacks, including a 10.5-cent quarterly dividend that represents a yield of 1.7 per cent.)
Despite Mr. Pourbaix's dangling of greater rewards for shareholders, the reaction in the market was cool. Cenovus's production guidance of around 820,000 barrels a day was in line with analysts' predictions, but the proposed budget of up to $4.5-billion came in on the hefty side, as analysts were expecting it to stay at or below $4-billion. This year's budget is just $3.3-billion to $3.7-billion. Explaining the higher budget this year, Mr. Pourbaix pointed cheerfully to "portfolio adjustments" (such as previously announced acquisitions) and pointed less cheerfully to inflation.
Aside from its budget, Cenovus is also expanding its board of directors. It announced today that it is adding Melanie Little to its board at the beginning of January. Ms. Little is the executive vice-president and chief operating officer of Magellan Midstream Partners, which she joined in 2004. Before that, she was a project manager for the U.S. Army, working on civil construction and environmental remediation projects. She currently sits on the boards of Diversified Energy Company, the International Liquid Terminals Association and (starting Jan. 1) Cenovus.
Further afield, an international bright spot glowed amid the broader market carnage. Sean Guest's Valeura Energy Inc. (VLE) vaulted up 80.5 cents to $1.45 on 6.68 million shares, pleasing investors with a proposed acquisition in Thailand. It plans to acquire three offshore Thai licences that are collectively producing 21,200 net barrels of oil a day. The deal will cost $10.4-million (U.S.) upfront and up to $50-million (U.S.) in future payments, "contingent upon certain upside price scenarios."
President and CEO Mr. Guest hyped the "transformative" deal as the start of an "exciting chapter in our company's history." He calculated that the assets are generating pretax cash flow of around $30-million (U.S.) a month. To buy them for barely $10-million (U.S.) upfront, even if the price ultimately rises to around $60-million (U.S.), will send Valeura "charging into 2023 as a transformed company," he proclaimed.
There is always a catch. The modest upfront price tag belies the mammoth decommissioning responsibilities lying in wait, which Valeura will be required to assume as part of the deal. Mr. Guest waited until near the end of the lengthy press release to reveal the estimated decommissioning costs of $214-million (U.S.). This particular region of Thailand is also experiencing an "increase in decommissioning activity," he warned, referring to the many projects that are coming to the end of their economic life spans. Indeed, one of the fields that Valeura is buying was originally thought to be ending its useful life this year. Infill drilling and other activities have helped push the fields' currently estimated life spans to a range of 2025 to 2028, and Valeura is hoping that its own efforts can push them into the 2030s. In the meantime, it may want to earmark a good chunk of the monthly cash flow for a big rainy day fund.
Another international producer, Paul Baay's Trinidad-focused Touchstone Exploration Inc. (TXP), lost 11 cents to 93 cents on 1.7 million shares, after arranging and quickly closing a pair of equity financings. It said last night that it had hired brokers to carry out a private placement in Canada for at least $5.5-million (U.S.). At the same time, it was "contemplating" a U.K. financing for perhaps the same amount. The contemplation came to a fast and decisive end, and today Touchstone announced that it had raised a little over $13-million (U.S.) in total, with $5.8-million (U.S.) coming from Canada and $7.5-million (U.S.) coming from across the sea.
The price in both offerings was 90 cents a share (in Canadian currency). That is a steep drop from the $1.65 at which Touchstone was trading less than four months ago, but president and CEO Mr. Baay expressed optimism, as any promoter should, that subscribers will see a gain on their investment shortly. He hyped Touchstone's "substantial progress towards becoming an energy production company of significant scale."
For context, Touchstone's production in October averaged about 2,500 barrels a day. In a research note back in August, Canaccord Genuity analyst Charlie Sharp predicted that Touchstone could get its production all the way 30,000 barrels a day at some point in 2023. Investors should not be surprised to see further boosterish musings from Mr. Sharp in the imminent future. His employer, Canaccord, was one of the bookrunners involved in today's financings.
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