Stockwatch Energy today
Energy Summary for Oct. 29, 2020
2020-10-29 19:37 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery lost $1.22 to $36.17 on the New York Merc, while Brent for December lost $1.47 to $37.65 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.25 to WTI, unchanged. Natural gas for December shot up 30 cents to $3.30. The TSX energy index lost a fraction to close at 63.42.
Oil prices took another tumble as COVID-19 cases climbed. In a striking (if unsurprising) illustration of the downcast mood, ExxonMobil did something for the first time in nearly four decades: It decided that this year will not include a dividend hike. Its final dividend announcement of 2020 arrived last night and kept the quarterly payout intact. This will be the first year since 1982 that the U.S. oil giant has not raised its dividend. Separately, Exxon announced plans to cut 1,900 U.S. jobs, and on top of all that, it marked an unhappy milestone commemorated in the following Globe and Mail headline this morning: "ExxonMobil's fading star: no longer the biggest U.S. energy company." Wind and solar powerhouse NextEra Energy has surpassed it.
A Canadian giant can sympathize. Suncor Energy Inc. (SU), up nine cents to $15.09 on 17.2 million shares, had its "top Canadian producer by market cap" crown seized by Canadian Natural Resources Inc. (CNQ: $20.86) earlier this month. Today Suncor was in the news after releasing its financials for the third quarter. This was already guaranteed to be a low-production quarter for Suncor, which went through maintenance-related turnarounds as well as some unplanned downtime caused by a fire. Analysts were nonetheless expecting production of around 652,000 barrels of oil equivalent a day (compared with 762,000 one year earlier). Suncor's actual production came to just 616,000 barrels a day. As well, its operating loss was $302-million or 20 cents a share, significantly worse than analysts' predictions of 11 cents a share.
On a happier note, cash flow of 76 cents a share exceeded analysts' predictions of 71 cents a share. Management still acknowledged that the overall figures left much to be desired. "We are disappointed with our recent operational performance," said chief executive officer Mark Little. He added that Suncor will focus on "asset sustainment and strategic initiatives aimed at improving reliability, increasing margins and reducing operating costs."
It was a busy day for quarterly financials. Another company that released them was U.S. shale producer Ovintiv Inc. (OVV), up 70 cents to $12.12 on 1.94 million shares. The attention-grabbing figure was the net loss of $1.52-billion (U.S.). As with the second quarter, when Ovintiv posted a net loss of $4.38-billion (U.S.), the numbers largely reflected massive impairment charges. Ovintiv has now recorded $4.77-billion (U.S.) of such charges within a space of six months. Yet if Ovintiv excludes these and other items -- as it is quite happy to do -- it managed to narrow its operating loss of $8-million in the third quarter from $111-million in the second quarter. Also in the third quarter, cash flow and production of $1.53 a share and 510,000 barrels of oil equivalent a day, respectively, were largely in line with analysts' predictions of $1.51 a share and 502,000 barrels a day.
One analyst, Jason Bouvier of Scotia Capital, noted that Ovintiv managed to generate $47-million in free cash flow during the quarter, exceeding analysts' predictions of $28-million. It is using the money to help with debt reduction. As of Sept. 30, Ovintiv's long-term debt was $7.14-billion (U.S.), down from $7.36-billion (U.S.) as of June 30. Mr. Bean noted that the company has set itself a goal of reducing its debt by $1-billion from June 30, 2020, to June 30, 2021. He has an $11 (U.S.) price target on Ovintiv, compared with today's close of $9.12 (U.S.).
Back in Canada, two companies used their third quarter financials as an opportunity to keep hyping their planned merger. Cenovus Energy Inc. (CVE), down 19 cents to $4.40 on 34.3 million shares, said its results "clearly demonstrated the strength and reliability of our operations," which will only become "more resilient" after the planned takeover of Husky Energy Inc. (HSE), down seven cents to $3.50 on 37.6 million shares. The $3.8-billion all-share takeover was announced four days ago. It understandably overshadowed both companies' third quarter financials, which otherwise might have been attention-grabbing for different reasons. Husky's investors might have been particularly disappointed with the mountainous net loss of $7-billion (including $6.7-billion in impairments) and its low cash flow of 15 cents a share (compared with analysts' predictions of 34 cents a share).
Cenovus's financials were also below analysts' expectations, but not quite as badly. (Analysts were forecasting cash flow of 39 cents a share and Cenovus posted 34 cents a share.) Given that the merger is an all-share deal, in which 0.7845 of a Cenovus share will be issued for each Husky share, Husky's stock is somewhat cushioned from whatever bad news it releases, as long as Cenovus's news is not even worse. In the meantime, all news is an opportunity for some merger-related promotional spin. Alex Pourbaix, who is Cenovus's CEO and will lead the combined company postmerger, waxed poetic about his "vision" of the new company and how "very excited" he is about its opportunities.
Ending on news unrelated to quarterly financials, Paul Baay's Trinidad-focused Touchstone Exploration Inc. (TXP) added eight cents to $1.73 on 327,200 shares, after spudding well No. 4 in its Ortoire exploration program. Investors seemed pleased. So far at the Ortoire block, Touchstone has drilled three wells and made three discoveries since late 2019. Given that the fourth well is being drilled from the same pad as one of the earlier ones, the odds of a fourth discovery are seen as favourable. Results should arrive in about a month and a half.
As well, Touchstone finally provided an update on when to expect some production from its discoveries. It previously hoped to achieve the first tie-in of one of the new wells in the first half of 2020. (The well in question was drilled and tested in 2019, but Touchstone did not have the infrastructure to produce from it at the time, as it turned out to be a large gas well and Touchstone has historically been a relatively small oil producer.) When the COVID-19 pandemic hit, Touchstone updated the timeline to October, which is just about over with no production. Today Touchstone blamed continuing COVID-19 delays and pushed the timeline out to "late in the first quarter of 2021." This is about a year behind the original schedule. Investors did not seem to mind. Thanks to its exploration successes, Touchstone's stock has been one of 2020's rare energy winners, rising to $1.73 from 36 cents since the start of the year.
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