Stockwatch Energy today
Energy Summary for Feb. 18, 2021
2021-02-18 20:09 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery lost $1.06 to $60.09 on the New York Merc, while Brent for April lost 87 cents to $63.47 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.36 to WTI, unchanged. Natural gas for March lost 15 cents to $3.06. The TSX energy index lost 1.31 points to close at 106.91.
North American shale producer Ovintiv Inc. (OVV) lost $2.46 to $26.59 on 1.23 million shares, as it continued its retreat from Canada in favour of the United States. The company is selling its Alberta Duvernay assets for $263-million (U.S.). It included the announcement as part of the wider release of its year-end 2020 financials.
The Duvernay was once part of Ovintiv's "core four," referring to its four most important plays. Two were Canadian plays (the Duvernay and the Montney) and two were U.S. plays (the Eagle Ford and the Permian). The Canadian assets were responsible for over 60 per cent of Ovintiv's production as recently as 2018. In early 2019, however, Ovintiv made a big move into the U.S. with the $7.7-billion (U.S.) takeover of Newfield Exploration in the Anadarko basin, immediately turning the U.S. into its primary production base. Its headquarters followed suit in 2020, moving to Denver from Calgary. The new sale of the Duvernay assets continues the rush out the door.
The sale is not particularly surprising. The Duvernay was already relegated to the "other" section of Ovintiv's portfolio in 2019, and in September, 2020, the company ended its long-standing joint venture in the Duvernay with PetroChina. They had been working together for eight years, ever since PetroChina bought a 40.9-per-cent interest in Ovintiv's Duvernay assets for $2.2-billion in 2012. The assets were essentially undeveloped at the time. By 2019, they were contributing over 17,000 net barrels a day to Ovintiv's production. Then Ovintiv lost interest. These days the assets' production is just 10,000 barrels a day, which their undisclosed buyer will receive for the relatively bargain price of $263-million (U.S.).
Turning to Ovintiv's fourth quarter financials, these were better than analysts were expecting, showing production of 557,000 barrels a day and cash flow of $2.66 (U.S.) a share. Analysts were predicting 545,000 barrels a day and $2.37 (U.S.) a share. Ovintiv also claimed to be "squarely on track" to achieve its goal of reducing its total debt to $4.5-billion (U.S.) by the end of 2022, which would be a one-third decrease from the Dec. 31, 2020, level of $6.8-billion (U.S.). The sale proceeds from the Duvernay assets will contribute to this goal.
Coincidentally, Ovintiv was not the only one departing the Duvernay. Shell is selling its Kaybob Duvernay for $900-million, and this time the buyer was willing to be identified: It is Crescent Point Energy Corp. (CPG), up 44 cents to $4.62 on 21.2 million shares. Crescent Point issued an upbeat press release about the deal. "We are excited to add the Kaybob Duvernay asset as a strategic core area to our portfolio," cheered president and chief executive officer Craig Bryksa. The assets are producing 30,000 barrels of oil equivalent a day. This is enough to boost Crescent Point's full-year 2021 guidance to around 134,000 barrels a day. Mr. Bryksa also emphasized the assets' long-term potential, noting that Crescent Point is acquiring a total of 500 sections of Duvernay, yet 325 are considered undeveloped -- offering "greater than 10 years of high-return, low-risk inventory," he claimed.
Crescent Point will also gain a noteworthy shareholder as part of the deal. The price to be paid to Shell comprises $700-million cash and 50 million shares (relative to 530 million currently outstanding).
The acquisition marks another about-face for Crescent Point. After going on a $6-billion (U.S.) shopping spree from 2011 to 2016, Crescent Point sought to shed its acquisitive reputation -- and more importantly, its staggering debt -- by overhauling its management in 2018 and putting assets on the block. Under Mr. Bryksa, Crescent Point has roughly halved its net debt to around $2.1-billion (as of Sept. 30, 2020) from over $4-billion (as of June 30, 2018). Over the same period, of course, production fell to around 110,000 barrels a day from over 180,000. Mr. Bryksa now seems confident that he can find a balance between acquisition-led production boosts and a healthy balance sheet.
Analysts raced to show their support. Patrick O'Rourke of ATB Capital Markets dubbed the acquisition a "material positive," hiking his price target on Crescent Point's stock to $5.75 from $3.65. Canaccord Genuity's Anthony Perucci cheered the "great value" as he hiked his price target to $5 from $4.50. Raymond James's Chris Cox hiked his target to $5 from $4, and Stifel's Cody Kwong hiked his to $5.25 from $4.50. The stock closed today at $4.62.
Elsewhere in Alberta, Darren Gee's gassy Peyto Exploration & Development Corp. (PEY) added 18 cents to $5.58 on 3.67 million shares, after firming up its 2021 budget, releasing its 2020 reserves and announcing some acquisitions of its own. The company had mused in November that it would probably spend $300-million to $350-million in 2021. Now it has settled on a range of $325-million to $350-million, well above the $236-million it spent in 2020. As usual, Peyto did not provide a specific production target, but based on the numbers it did provide, it looks to be aiming for a year-end rate of 101,000 to 103,000 barrels a day. That compares with the year-end 2020 rate of 86,000 barrels a day (slightly higher than Peyto's November estimate of 85,000).
Peyto also touted its "22nd year of successful reserves development." It is rare to find a reserve report in which spin masters cannot find something or other to call a success, but in any case, Peyto's PDP, TP and 2P reserves rose by a respectable 3 per cent, 2 per cent and 2 per cent. Those stand for proved developed producing, total proved, and proved plus probable, in order of decreasing quality.
As for the acquisitions, Peyto spent $35-million to expand in its greater Sundance core area, adding production of 2,900 barrels a day plus land and infrastructure. The Sundance is the same area where the company expanded during its last significant acquisition, which happened way back in 2012, when Peyto bought Open Range Resources for about $175-million. It was then unfortunately swept up in a legal battle related to the now-defunct entity that spun out Open Range in 2011. The claims against Peyto were dismissed in 2018, but whether by coincidence or not, after the Open Range takeover, Peyto entered a long period of showing no interest in acquisitions -- until now. It feels it got a good price, especially in light of the infrastructure included in the deal (such as a gas plant that is currently only at half capacity). The seller was not identified.
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