Happy new year to all!
Energy Summary for Dec. 31, 2021
2021-12-31 20:16 ET - Market Summary
by Stockwatch Business Reporter
On the last day of the year, West Texas Intermediate crude for February delivery lost $1.78 to $75.21 on the New York Merc, while Brent for February lost $1.75 to $77.78 (all figures in this para U.S.). Today's decreases aside, both benchmarks ended 2021 with their biggest annual gain since 2009, rising over 50 per cent since the start of the year. Western Canadian Select traded at a discount of $13.60 to WTI, up from a discount of $13.65. Natural gas for February added 17 cents to $3.73. The TSX energy index added a fraction to close at 163.79.
The oil patch bade farewell to another dramatic year. This time last year, all of the stocks in the TSX energy index were ending 2020 at a lower price than they began it, with just one exception. Now, with no exceptions, every single one of the 22 stocks in the index is ending 2021 higher. The gains ranged from 25 per cent to 467 per cent and averaged 157 per cent.
The big winner in the index was Baytex Energy Corp. (BTE), which entered the year at 69 cents and has since more than quintupled to today's close of $3.91. Baytex produces light oil in Texas and Saskatchewan and heavy oil in Alberta. All of its core plays benefited from rising oil prices.
Baytex also spent much of the year talking up a spotlight-grabbing new oil play, the Alberta Clearwater, where a land rush kicked off in late 2020 and intensified throughout 2021. Numerous companies including Headwater Exploration Inc. (HWX: $5.15), Tamarack Valley Energy Ltd. (TVE: $3.85) and Rubellite Energy Inc. (RBY: $2.24) announced one Clearwater deal after another. At the moment, Baytex's Clearwater production is fairly small -- contributing about 2,000 of the company's total 80,000 barrels a day of production -- but the play adds "sizzle to the story," as Raymond James analyst Jeremy McCrea opined in a research note on Baytex last month. Baytex is devoting one-10th of next year's $425-million budget to the Clearwater.
The second-best performer in the index was Jim Riddell's Montney- and Duvernay-focused Paramount Resources Ltd. (POU), up 31 cents to $24.59 on 165,700 shares. It has more than quadrupled from $5.10 since the start of the year. During the year, Paramount hopped aboard the dividend bandwagon, launching a two-cent monthly dividend in June and tripling it to six cents in November. The current yield is 2.9 per cent.
Also in November, Paramount laid out a five-year outlook in which it predicted that it would enjoy $2.7-billion in cumulative free cash flow from now through 2026. It hinted that it may use some of this money for "strategic acquisitions." Paramount is not a frequent acquirer, but when it does go shopping, the deals tend to be large. Its last major acquisition was in 2017, when it bought Apache Canada and Trilogy Energy -- two deals that were effectively one, as they were done conditionally and in conjunction with each other -- for a total of $994-million.
The third-best performer in the index was Andy Mah's Alberta Montney gas producer, Advantage Energy Ltd. (AAV), up 49 cents to $7.41 on 1.53 million shares. Rising gas prices helped push the stock up from just $1.75 at the start of the year. While Baytex jumped into the Clearwater and Paramount paraded its payout, Advantage hopped on a different trend, going all in on green. It set up a clean-tech subsidiary called Entropy Inc. to develop carbon capture projects. It vowed to achieve net zero emissions by 2025, well ahead of most of its competitors. It even polished its brand by dropping all traces of fossil fuels from its name -- which used to be Advantage Oil & Gas -- and revamping itself as Advantage Energy.
(In fairness to Advantage, scrubbing the sticky fossil fuel out of one's name is a practice going back years. Other Canadian companies to do so include Obsidian Energy Inc. (OBE: $5.21), which used to be Penn West Petroleum, the private Hammerhead Resources, which used to be Canadian International Oil, and the once-public Painted Pony Energy, which used to be Painted Pony Petroleum (and is now part of Canadian Natural Resources Ltd. (CNQ: $53.45), which had the luck or foresight to pick "Resources" at the outset in 1975). International companies do this too. The British Petroleum Company became BP, Norway's Statoil became Equinor, Gaz de France became Engie, and so on. The non-English-speakers have to be careful that their greener names do not accidentally cause red faces. Danish Oil and Gas did a brief stint as Dong, before switching quickly to Orsted.)
Advantage happened to be one of the few energy companies ending the year with some news. Its above-mentioned Entropy subsidiary announced today that it has arranged a "non-binding strategic financing agreement" for $300-million, to be provided by an unnamed "leading energy transition investor." Entropy is hoping to finalize the financing in early 2022. It will use the money to "accelerate its mission" of installing carbon capture projects wherever it can. So far, there is just one company that has signed up to install one of Entropy's projects, namely its supportive parent, Advantage. Phase 1 of the Advantage project is to come on-line this spring. Ideally, it will lend support to Entropy's negotiations with other potential customers; it said today that it has signed 34 non-disclosure agreements and eight memorandums of understandings.
Fellow Alberta gas producer Pine Cliff Energy Ltd. (PNE) -- a sizable investment of Vancouver broker Robert Disbrow, who owns 37.8 million of its 339 million shares -- stayed unchanged at 68 cents on 232,600 shares. It has closed a $22-million acquisition in the Ghost Pine area. CEO Phil Hodge announced this acquisition last week, finally keeping a promise that he had been toying with all year. Pine Cliff has long relied on acquisitions as its main means of boosting its production to over 20,000 barrels a day (compared with just 100 barrels a day in 2012). It paused its shopping spree in mid-2019, then revived the idea in early 2021, and has now closed a deal just before the new year.
Now investors' attention will turn to Mr. Hodge's other promise. Thanks to rising gas prices, the company has been enjoying healthy free cash flow, which it has been using to bring its debt down to the lowest level since 2015. Mr. Hodge took that as his cue to start making noises last month about a potential dividend. His hope, as of last week, is to "implement a sustainable dividend model in the second half of 2022." He left the amount and other details up to investors' imaginations.
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