Stockwatch Energy today
Energy Summary for Dec. 23, 2021
2021-12-23 19:59 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added $1.03 to $73.79 on the New York Merc, while Brent for February added $1.56 to $76.85 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.70 to WTI, unchanged. Natural gas for January lost 25 cents to $3.73. The TSX energy index lost a fraction to close at 160.70.
Although oil prices were largely stable today, the chatter about triple-digit prices continued to pick up speed. Randy Ollenberger, managing director of oil and gas equity research at BMO Capital Markets, headed to BNN this morning to make the case for $100 (U.S.) oil in or around 2023. "We're definitely in that camp, definitely see the possibility," he said. He pointed to years of underinvestment in oil assets. After prices crashed in 2014, companies slashed their spending, but demand for oil kept rising (COVID blip aside). Mr. Ollenberger predicted that demand will continue to rise for another decade. Given supply shortfalls, this will unavoidably spur higher prices.
Within the sector, Mr. Ollenberger singled out three companies as his top picks, starting with Cenovus Energy Inc. (CVE: $15.36). "Cenovus is our favourite," said Mr. Ollenberger. He likes its rapid debt reduction, as well as its "pretty aggressive dividend hikes," which he expects to continue. (Cenovus doubled its quarterly dividend to 3.5 cents from 1.75 cents in November. The new yield is a fairly unaggressive 0.9 per cent.) In addition, Mr. Ollenberger likes Canadian Natural Resources Ltd. (CNQ: $51.94) and Suncor Energy Inc. (SU: $31.37). He sees both of them raising their dividends (their yields are 4.5 per cent and 5.3 per cent, respectively), while Canadian Natural could also launch a variable dividend linked to oil prices.
The above Cenovus Energy Inc. (CVE), down eight cents to $15.36 on 7.07 million shares, separately received a lovely mention from DBRS. The credit rating agency likes the company's "material free cash flow surplus" and "improvement in [its] financial risk profile." Cenovus has set itself a near-term target of reducing its net debt to $8-billion (down from $11-billion as of Sept. 30 and $13-billion at the start of the year), and DBRS is confident that the company will achieve this goal in 2022. "Shareholder distributions ... will likely trend higher post-achievement of the target," added DBRS (mirroring Mr. Ollenberger's dividend predictions). The agency kept its outlook on Cenvous at "stable" and reiterated its investment-grade (if only barely) credit rating of BBB.
Further afield, Paul Baay's Trinidad-focused Touchstone Exploration Inc. (TXP) added six cents to $1.69 on 192,300 shares. This was on top of the three cents it added yesterday after its Trinidad-based lender agreed to boost its credit facility to $30-million (U.S.) from $20-million (U.S.). The facility was already $15-million (U.S.) drawn -- up from $7.5-million (U.S.) as of Sept. 30 -- so the increase gives Touchstone a good deal more breathing room as it continues exploring its Ortoire block.
Ortoire is currently a bete noire among investors. As discussed on Tuesday, high water cuts in the latest exploration well, Royston-1, have sent Touchstone's stock down toward $1.60 from over $2.30 since the start of the month. (High water cuts, or high ratios of water co-produced with oil, can lead to greater water disposal costs, equipment corrosion and other issues.) Touchstone has faced this problem at other blocks and found ways to address it. Investors were likely not expecting the problem at Ortoire, because up until Royston-1, the wells at Ortoire were gassy. Touchstone tried to hype them up on the unexpected oil discovery, but water washed their enthusiasm away.
A better reaction to the test results might have encouraged Touchstone to announce an equity financing if it felt hard up for cash. As things stand, it opted today for an increase in its credit facility. The last time Touchstone tapped the equity market was in November, 2020, when it raised $39.8-million at $1.64 a share. Subscribers would have been delighted when the stock hit a high of $3.06 in February, 2021, but since then the stock has retreated to $1.69.
Back in Canada, Crescent Point Energy Corp. (CPG) added four cents to $6.13 on 4.8 million shares. One of its directors has finally bought his first shares of the company, more than 2-1/2 years after joining the board. That would be John Dielwart. According to recent SEDI filings, he spent $1-million last week buying his first 175,000 shares at about $6.15 each.
The activity comes years after Crescent Point announced Mr. Dielwart's appointment to the board in February, 2019. It lauded Mr. Dielwart's 40-year career in the industry, including co-founding ARC Resources Ltd. (ARX) in 1996 and serving as its CEO from 2001 to 2012. Over that period, ARC went from being a start-up to an $8-billion company. The 68-year-old Mr. Dielwart stayed on ARC's board of directors until April, 2021, and remains a partner at ARC Financial. He is also the chairman of TransAlta.
According to SEDI, the 175,000 shares of Crescent Point that Mr. Dielwart bought last week were his first purchases in the open market since March, 2019 (when he bought shares of ARC). Presumably he was a fan of Crescent Point's announcement two weeks ago. On Dec. 6, the company unveiled an $825-million to $900-million budget for 2022, vowed to buy back up to $100-million shares over the next six months and hiked its quarterly dividend to 4.5 cents from three cents. The new yield is 2.9 per cent. Mr. Dielwart can now look forward to $31,500 in annual dividend payments.
As this was actually Crescent Point's second dividend increase since September (the previous quarterly dividend was a nominal quarter of a penny), the company may even raise its dividend again shortly, according to Canaccord Genuity analyst Anthony Petrucci. In a recent research note, Mr. Petrucci calculated that Crescent Point could keep every single one of its promises in 2022 "and still have approximately $900-million in funds available for debt repayment or further return of capital to investors."
Mr. Petrucci has a "buy" rating on Crescent Point and a price target of $11, well above today's closing price of $6.13. A disclaimer at the bottom of the note disclosed that the analyst's employer, Canaccord, is a "market maker or liquidity provider" for Crescent Point. Canaccord also expects to receive compensation from Crescent Point for unspecified investment banking services in the next three months.
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