Stockwatch Energy today
Energy Summary for July 15, 2022
2022-07-15 20:23 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery added $1.81 to $97.59 on the New York Merc, while Brent for September added $2.06 to $101.16 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.90 to WTI, unchanged. Natural gas for August added 42 cents to $7.02. The TSX energy index added 2.87 points to close at 206.15.
Oil prices headed higher today, but still notched their second weekly drop in a row, with WTI ending the week below $100 (U.S.) for the first time since April. U.S. President Joe Biden arrived in Saudi Arabia today to try to walk a political tightrope on security, human rights and energy supplies. Energy traders focused on comments to Reuters from U.S. national security adviser Jake Sullivan, who lowered expectations that Washington will press Saudi Arabia to immediately start pumping more oil. The implication was that near-term supplies will remain tight.
Here in Canada, the country's oil and gas capital is wrapping up a week of festivities at the Calgary Stampede, back in full force this year for the first time since 2019. The "Greatest Outdoor Show on Earth" was cancelled in 2020 and drastically scaled back in 2021, drawing less than half of the usual attendance. Now COVID restrictions are largely gone, and oil and gas prices -- and people's spirits -- are high. "Even the curmudgeons are excited," chirped Deborah Yedlin, chief executive officer of the Calgary Chamber of Commerce, to Reuters. "[There are] locals who usually leave town during Stampede. This year, some of them are saying, 'I'll stick around.'"
Stampede is also an annual schmooze-fest (and booze-fest) for oil and gas companies. A willing helper this year was RBC Capital Markets, which held a "Stampede Field Trip," apparently its yee-haw version of a conference. Presenters included oil sands giant Canadian Natural Resources Ltd. (CNQ), up 49 cents to $61.58 on 10.1 million shares. President Tim McKay and IR man Lance Casson talked up the company's operations and ambitions, with analysts from RBC providing an obligingly boosterish write-up.
According to the analysts, Mr. McKay hyped Canadian Natural's "long-life, low-decline portfolio and low-cost structure." Low costs aside, the company is feeling the pinch of inflation. Mr. McKay made no outright changes to this year's budget of $3.6-billion, but suggested that next year's could be somewhere between $3.6-billion and $4-billion, just to keep production stable or modestly rising. (This year's guidance is 1.27 million to 1.32 million barrels a day.)
Turning to the balance sheet, Canadian Natural had $13.8-billion in net debt as of March 31, a figure that Mr. McKay wants to cut to $8-billion late this year or early next. He might then consider "increased base dividends, special dividends or accelerated share buybacks," reported the analysts. They added that Mr. McKay believes that the stock is "trading well below its intrinsic value."
Clearly the analysts share this belief; their $90 price target on the stock is well above today's close of $61.58. The analysts also emphasized that Canadian Natural is on the RBC Global Top 30 and Global Energy Best Ideas lists. Investors may wish to make note of a different list, the list of disclosures provided by the analysts' employer, RBC. The bank "makes a market" in Canadian Natural's securities and receives compensation for various banking and non-banking services.
Another oil sands producer that took part in RBC's "field trip" was MEG Energy Inc. (MEG), up 48 cents to $16.24 on three million shares. President and CEO Derek Evans delivered the presentation, along with almost-retired chief financial officer Eric Toews and incoming CFO Ryan Kubik. Like Canadian Natural's Tim McKay, MEG's management raised the likelihood of higher spending next year because of inflation. It is still hoping to achieve its net debt goal of $600-million (U.S.) in the second half of 2023 (relative to $1.7-billion (U.S.) as of the first quarter of 2022). Once that happens, according to the RBC analysts, MEG may consider a "conservative dividend policy, additional debt reduction, brownfield production additions and share buybacks." It will attempt to read "appropriate signals ... given by its shareholder base."
For the analysts, the presentation -- which contained little that shareholders had not already heard or suspected -- reinforced their "bullish stance" on MEG's "capable leadership team, top-quartile oil sands operations ... balance sheet deleveraging and emerging shareholder returns." Their $24 price target remains well above today's close of $16.24. As above, their employer, RBC, is required to disclose that it "makes a market" in MEG's securities and provides various services.
Two other producers that availed themselves of RBC's "field trip" conference were oil sands producer Cenovus Energy Inc. (CVE), up 44 cents to $21.23 on 10.5 million shares, and the Saskatchewan- and Texas-focused Baytex Energy Corp. (BTE), up 20 cents to $5.84 on 8.07 million shares. Neither sent its most senior executives. Both used the opportunity to zero in on specific topics.
Cenovus sent its executive vice-president of the downstream division, Keith Chiasson, who naturally focused on downstream operations. He said the company is aiming to restart its Superior refinery in Wisconsin late this year or early next. (Superior suffered a fiery explosion in 2018 and has been under reconstruction ever since.) Cenovus is also reportedly mulling buying out its joint venturer, BP, at the Toledo refinery in Ohio. Lastly, here in Canada, Cenovus is still working on a $420-million retail sale that it announced last year (involving gas stations to be bought by Parkland). The deal's projected closing date was mid-2022, but Mr. Chiasson said it will likely not close until later this quarter.
Meanwhile, Baytex sent its chief operating and sustainability officer, Chad Lundberg, and several executives from the heavy oil division. They did not focus on Baytex's core producing regions of Saskatchewan or Texas, but instead "dove deep into [the] emerging Cleawater," as the RBC analysts chortled. The Clearwater is an early-stage oil play in Alberta. Baytex started drilling the Clearwater just last year and has already boosted its production to 8,000 barrels a day. The analysts opined that the Clearwater has added some "magic" to Baytex, which has drilled seven of the 10 best wells so far across the play. It will try to improve this record by drilling another 14 Clearwater walls over the second half of the year.
Unsurprisingly, the RBC analysts were delighted with the presentations, reiterating their price target of $32 on Cenovus (relative to today's close of $21.23) and $9 on Baytex (relative to today's close of $5.84). Investors will be equally unsurprised to hear that RBC "makes a market" in both companies' securities and receives compensation from both for various services. RBC also owns 1 per cent or greater -- that is as specific as the disclosure gets -- of Baytex's shares.
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