Stockwatch Energy today
Energy Summary for Dec. 13, 2021
2021-12-13 20:54 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost 38 cents to $71.29 on the New York Merc, while Brent for February lost 76 cents to $74.39 (all figures in this para U.S.). Western Canadian Select traded at a discount of $17.44 to WTI, up from a discount of $17.50. Natural gas for January lost 14 cents to $3.79. The TSX energy index lost 4.65 points to close at 158.14.
Oil prices wobbled as traders sifted through a sea of headlines. The big news over the weekend was the U.S. government's announcement that it has scheduled a Dec. 17 sale of 18 million barrels from the strategic petroleum reserve (SPR). U.S. President Joe Biden previously stated on Nov. 23 that the country would release 50 million barrels from the SPR over "the next several months," in a bid to alleviate high fuel prices for consumers. The administration is now finalizing the details. (For context, U.S. consumption is about 20 million barrels a day.)
Meanwhile, this morning, OPEC put out the latest version of its closely watched monthly report -- the last of 2021. The group stayed upbeat on the level of near-term oil demand. "The impact of the new Omicron variant is projected to be mild and short-lived, as the world becomes better equipped to manage COVID-19 and its related challenges," predicted OPEC. Leaving its full-year forecasts for 2021 and 2022 unchanged, the group reiterated its stance that the world's thirst for oil will rebound to pre-COVID levels by the end of next year. It will publish its first monthly report of 2022 on Jan. 18.
Here in Canada, oil sands giant Suncor Energy Inc. (SU) lost 74 cents to $30.57 on 21.8 million shares, after releasing its 2022 guidance. It is aiming for higher production and higher spending. The 2022 production target is 750,000 to 790,000 barrels a day, on a proposed budget of $4.7-billion. These figures compare with the 2021 ranges of 740,000 to 780,000 barrels a day and $3.8-billion to $4.5-billion.
Suncor seemed more excited by its plan than investors were. For example, though Suncor emphasized that the 2022 production target is "approximately 5 per cent higher than the expected 2021 levels," this served largely to imply that 2021 will come in at the low end of the guidance, as the percentage increase at the midpoint is only 1 per cent. Investors are also aware that the increases of 2022 will come partly as a result of clawing back the decreases of 2020 and 2021 (such as the temporary partial suspension of the Fort Hills oil sands mine). As a result, even though Suncor can (and did) boast about its forecast year-over-year production increase, it could still fall short of what it was doing pre-COVID. The midpoint of its 2022 production target is 760,000 barrels a day. Actual production in 2019 was 777,000 barrels a day.
President and chief executive officer Mark Little reminded investors that Suncor offers more than rising production. He mentioned repeatedly that Suncor recently doubled its quarterly dividend to 42 cents from 21 cents. This represents a generous yield of 5.5 per cent, although -- rather like the forecast production increases -- Mr. Little did not add the context that Suncor's pre-COVID quarterly dividend was ever so slightly higher, at 46.5 cents. He kept his eyes firmly ahead, stating that Suncor will "enter 2022 with strong momentum and remain steadfast in our focus on operational excellence, capital and cost discipline, increasing shareholder returns and delivering a more resilient future."
Suncor is not the only with a doubled dividend and an eye on higher spending. It has both of those things in common with fellow oil sands player Cenovus Energy Inc. (CVE), down 42 cents to $15.28 on 16.6 million shares. After Suncor announced its dividend increase in late October, Cenovus followed suit just a week later (although Cenovus's dividend was lower to begin with, and its new quarterly payout of 3.5 cents offers a far lower yield of 0.9 per cent). When it came to the budget boost, Cenovus was the first one out of the gate, releasing its 2022 guidance last Wednesday. It pinned its 2022 budget at $2.6-billion to $3-billion, relative to the 2021 level of $2.3-billion to $2.7-billion.
For the money, Cenovus wants to produce 780,000 to 800,000 barrels a day in 2022, up from 750,000 to 790,000 barrels a day in 2021. Both figures are well above Cenovus's pre-COVID production of about 450,000 barrels a day. This largely reflects the company's takeover of Husky Energy in January, 2021, which added a great deal of production, as well as a great deal of debt. Cenovus's focus on reducing its debt is one reason for its less competitive dividend. President and CEO Alex Pourbaix still used last Wednesday's announcement to affirm his "commitment to growing shareholder returns" once the debt gets to a more manageable level.
Investors largely yawned; at $15.28, Cenovus's stock has lost about $1 since the guidance came out. One insider took this as a buying opportunity. New SEDI filings show that Jon McKenzie, Cenovus's executive vice-president and chief operating officer -- as well as the former CFO of Husky, though he left Husky and joined Cenovus more than two years prior to the merger -- bought 25,000 shares of Cenovus on Friday. He spent $387,500, a sizable chunk of his annual salary (as of 2020) of $587,500. Mr. McKenzie now owns about 255,000 of Cenovus's two billion shares.
Elsewhere in Alberta, Don Gray's Cardium-focused Petrus Resources Ltd. (PRQ) edged up one cent to 77 cents on 80,700 shares. Today, it too joined the guidance parade, if with a much smaller trumpet. The company is aiming for 2022 production of 7,000 to 7,500 barrels a day on a budget of $50-million to $55-million.
By comparison, so far in 2021 (up to Sept. 30), Petrus has spent a mere $14.6-million and produced about 6,500 barrels a day. It has barely drilled any wells and has focused instead on tidying up its balance sheet. About six weeks ago, it succeeded in closing a "transformative debt reduction," chopping its debt to $60-million to $110-million. (It simultaneously diluted its share count to 96 million from 49 million, but understandably does not emphasize that side of things.)
With the refinancing now behind it, Petrus is planning an ambitious return to drilling. Public data show that it has already spudded three wells so far in the fourth quarter. It announced today that it wants to drill 14 more wells in 2022, with the goal of getting production as high as 9,000 barrels a day by year-end. President and CEO Ken Gray reckoned that this goal is achievable on a budget that is "designed to invest systematically within funds flow" (otherwise known as living within one's means). Incidentally, the surnames of Ken Gray and the above-mentioned Don Gray (Petrus's founder and chairman) are no coincidence; they are brothers. Along with their other brothers Glen and Stuart, they control about three-quarters of the company's stock, making Petrus quite the family affair.
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