Energy Summary for Dec. 1, 2021
2021-12-01 20:52 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost 61 cents to $65.57 on the New York Merc, while Brent for February lost 36 cents to $68.87 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.00 to WTI, unchanged. Natural gas for January lost 31 cents to $4.26. The TSX energy index lost 2.92 points to close at 155.33.
Oil prices edged lower as traders trained their eyes on tomorrow's OPEC+ meeting. Gas prices tumbled to their lowest level in three months on forecasts of mild winter weather. Notably, in addition to the fall in front-month gas prices (the January contract), the March-April spread plunged to its lowest level in 20 months. This is the notoriously volatile spread between the March contract, which falls within the peak winter pricing season, and the April contract, in the shoulder season. The industry colloquialism for the March-April spread is the "widowmaker" because it has scalped more than a few traders with wrong-way bets. Most famously, the widowmaker brought down Brian Hunter's Amaranth hedge fund in an $8-billion (U.S.) collapse in 2006.
Here in Canada, oil sands producer Cenovus Energy Inc. (CVE) edged down two cents to $15.14 on 17.5 million shares. Yesterday after the close, it announced a series of asset sales to speed up debt reduction. It plans to sell its Husky retail assets and its Wembley Montney assets for a total of $658-million.
The Husky retail assets came as part of the package when Cenovus closed its $3.8-billion takeover of Husky Energy last January. It was mainly interested in Husky's upstream heavy oil and downstream refining assets. Husky itself had been trying since 2019 to sell the retail and commercial fuel assets, which comprise over 500 gas stations, cardlock fuelling stations, travel centres and bulk distribution facilities across Canada. Analysts valued them at $500-million to $700-million. Although Cenovus said in April, 2021, that it had cancelled Husky's 2019 sales process, it has evidently cancelled the cancellation, having now announced that Parkland Corp. and Federated Co-operatives Ltd. will scoop up the assets for $420-million. The price is lower than the above range because the deal is solely for the 337 gas stations and does not include the other facilities.
Cenovus has also agreed to sell its Wembley assets in the Alberta Montney for $238-million. The assets are producing 3,200 barrels of oil equivalent a day, virtually a rounding error next to Cenovus's total production of over 800,000 barrels a day. The company previously sold some more productive Wembley assets to NuVista Energy Corp. (NVA: $6.11) for $625-million in 2018. This time, it did not identify the buyer. Companies active in the area include NuVista, Canadian Natural Resources Ltd. (CNQ: $51.19), Ovintiv Inc. (OVV: $42.07) and more.
Cenovus kept its eyes on the dollar signs. "With these latest transactions, we now expect to realize more than $1.1-billion of total proceeds from sales announced in 2021," cheered president and chief executive officer Alex Pourbaix. He was presumably including all of Cenovus's recent dealings, from a $102-million royalty sale in May to a $227-million secondary sale of shares of Headwater Exploration Inc. (HWX: $4.40) in October. It still has plenty of other assets it could sell. Notably, in April, Mr. Pourbaix expressed interest in selling the company's Asia-Pacific business, which is another Husky holdover and produces about 60,000 barrels a day. Analysts have valued these assets at $3.6-billion to over $4-billion.
Back in the Montney, Jeff Tonken's Birchcliff Energy Ltd. (BIR) lost 11 cents to $6.38 on 2.95 million shares. It likely expected a more enthusiastic reaction to its announcement that it has doubled its dividend. Two factors dampened the excitement. First, the previous quarterly dividend was only half a cent, so doubling it to one cent still leaves Birchcliff with a relatively uncompetitive yield of 0.6 per cent. Second, Birchcliff is mostly a gas producer and is a fully unhedged producer, leaving it more exposed than most of its competitors to fluctuations in gas prices. This has generally been a good problem to have lately. Today's drop aside, the stock has more than quadrupled to $6.38 from about $1.50 since the start of the year.
Elsewhere in Alberta, Jim Evaskevich's Cardium-focused Yangarra Resources Ltd. (YGR) added one cent to $1.48 on 422,300 shares. After the difficult month of November, which the stock entered at around $2 and subsequently shed one-quarter of its value, Yangarra strove to redeem itself today with ambitious new guidance for 2022. It plans to spend $105-million and produce an average of 12,000 barrels a day.
For context, Yangarra's production in the third quarter was just 8,700 barrels a day. The third quarter results arrived on Nov. 3, kicking off the month-long slump, as the numbers were below analysts' expectations. The company claimed to be "negatively impacted by below-type-curve initial flush performance." In other words, its new wells did not gush as much as hoped. Yangarra hastened to add that its even newer wells did not suffer from this "initial underperformance," and that it "remains confident with the corporate type curve" -- but the damage was already done. The stock immediately fell to $1.72 from $1.95 and drifted even lower over the following weeks.
Insiders took the sell-off as a buying opportunity. From Nov. 5 to Nov. 24, five directors and officers spent over $130,000 buying a total of 65,611 shares, including president and CEO Mr. Evaskevich, who bought 50,000 shares. (This does not include option exercises. Also during November, seven directors and officers spent over $500,000 exercising options to buy 399,999 shares, of which Mr. Evaskevich bought 133,333.)
Yangarra is now trying to shake off the weak third quarter. Since quarter-end, proclaimed Mr. Evaskevich today, the company has brought four new wells on production, with plans to bring on four more by the end of the month. It has also started a new 14-well program to support production in 2022. All told, according to Mr. Evaskevich, Yangarra expects to boost production to 10,000 barrels a day for the fourth quarter and 12,000 next year. He added that Yangarra's free cash flow next year should be about $25-million. Yangarra has previously promised to earmark its free cash flow debt reduction. At some unknown future point, when it is more comfortable with its debt, it has vowed to "return a portion of the free cash flow to shareholders via a dividend policy."
© 2021 Canjex Publishing Ltd. All rights reserved.