Stockwatch Energy today
Energy Summary for March 2, 2021
2021-03-02 20:05 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery lost 33 cents to $59.42 on the New York Merc, while Brent for May lost 99 cents to $62.70 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11/08 to WTI, down from a discount of $11.05. Natural gas for April added seven cents to $2.85. The TSX energy index added a fraction to close at 112.54.
Oil sands giant Suncor Energy Inc. (SU) added 52 cents to $26.11 on 32.6 million shares. It did not release news until after the close, but earlier in the day, it had a flurry of filings on EDGAR. These included a term sheet for a $750-million (U.S.) offering of 30-year notes bearing interest at 3.777 per cent.
This is Suncor's fourth note offering in less than a year, and its longest-dated. Last April, seeking to shore up its finances amid the COVID-19 downturn, Suncor sold a batch of 10-year notes for $1.25-billion. It had to stick a hefty 5-per-cent coupon on them. Borrowing costs were spiking at the time, particularly for energy companies. A month later, debt markets were a little more open, and Suncor did two more note issuances for a total of $1-billion (U.S.) -- three years at 2.8 per cent and five years at 3.1 per cent. Had it waited a bit longer, it could have had the debt for cheaper still. Canadian Natural Resources Ltd. (CNQ: $36.20) sold three-year notes at just 1.45 per cent in November and Tourmaline Oil Corp. (TOU: $23.10) sold seven-year notes at 2.077 per cent in January.
Suncor's 30-year note financing indicates that fixed-income investors are once again happy to make long-term bets on energy companies. The interest rate of 3.777 per cent is even lower than the 4.0-per-cent interest rate that Suncor put on a previous batch of 30-year notes in 2017. Moody's Investors Service, for its part, gave the new notes a rating of Baa1 (investment grade) and kept its outlook on Suncor at "stable."
Suncor also filed a preliminary prospectus on EDGAR in connection with the $750-million (U.S.) financing. The final dollar amount in the prospectus was left blank, perhaps suggesting that Suncor is planning additional financings, and indeed Moody's said the company has arranged a second financing for $350-million (Canadian) (no details on coupon or expiry). The prospectus disclosed that Suncor will use the proceeds of the note financings to reduce near-term debt. It has issued redemption notices to the holders of $970-million (U.S.) of notes due later this year.
As noted above, Suncor released an update after the close. It confirmed the $750-million (U.S.) note offering, with an interest rate of 3.75 per cent instead of 3.777, and said the Canadian financing is actually for a total of $500-million in notes. These will also expire in 30 years, but will be slightly more expensive, bearing interest at 3.95 per cent. BofA is running the U.S. financing and CIBC, RBC and TD are in charge of the Canadian one.
While Suncor is one of Canada's top producers and would not generally expect to have much trouble refinancing its debt, the above-noted easing of the debt markets is still good news for companies whose refinancing needs are more pressing. One example is oil sands junior Athabasca Oil Corp. (ATH), up one cent to 43.5 cents on 3.11 million shares. It has risen sharply from just 17 cents since the start of the year. Last week, a $450-million (U.S.) batch of notes officially crossed into the territory of current obligations: They mature on Feb. 24, 2022. (They also bear interest at 9.875 per cent, so nearly anything would be any improvement.) Athabasca has been trying to refinance the notes for over a year, with no luck yet. Its recent budget referred to a refinancing as "a key 2021 priority." Investors will next get an update on Athabasca's balance sheet when it releases its year-end financials, which usually arrive in the first week of March and should thus be out any day now.
One institutional shareholder showing confidence in Athabasca's prospects is Eric Nuttall's Ninepoint Energy Fund, which disclosed Athabasca as a top 10 holding for the first time as of Dec. 31. Mr. Nuttall disclosed at the time that Athabasca had a 6.6-per-cent weighting within the fund. The fund has had a rough go lately; an investor who put in $10,000 at the start of 2020 would have seen this investment shrink to about $4,100 by the end of April. Holding until the end of the year would have brought this back up to around $8,000. The rally will continue in 2021, at least if one asks the bullish Mr. Nuttall, who has lost none of his enthusiasm for energy. Today he told his followers on Twitter that "the run in energy stocks has only just begun." Valuations, in his view, are "shockingly cheap."
Further afield, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), lost three cents to $3.43 on 152,800 shares. Investors hemmed and hawed over a mixed operational update. Canacol noted that its monthly gas sales averaged 187 million cubic feet a day in February, which is up from 177 million in December, but down from around 211 million in February of last year. The COVID-19 downturn battered Canacol's monthly sales to as low as 136 million cubic feet a day last April. Since then, demand and the wider Colombian economy have been steadily climbing, but they have not made a full recovery. Canacol factored that into its 2021 guidance when it set a full-year sales target of 153 million to 190 million cubic feet a day. It was no doubt pleased to see February's sales already coming in near the high end of that range.
Unfortunately, if gas sales are off to a flourishing start, the same cannot be said of this year's drill program. Canacol announced today that its first exploration well of 2021, the Flauta-1 well on the VIM-5 block, failed to encounter commercial gas and has been plugged and abandoned. The company previously held high hopes for Flauta-1, promoting the geological similarities to its Clarinete-1 well, which tested at an impressive 45.3 million cubic feet a day in 2015. So much for that. Canacol's second well of the year, the Oboe-2 development well, seemed to do better, with Canacol describing it as a "successful gas producer" -- but providing no details on the flow rate. Investors will likely have to wait until late April for another drilling update. Canacol is spudding its next two wells next week and expects them to take five weeks to drill and test.
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