Stockwatch Energy for yesterday
Energy Summary for March 22, 2021
2021-03-22 20:54 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost 13 cents to $61.31 on the New York Merc, while Brent for May lost 22 cents to $64.31 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.18 to WTI, unchanged. Natural gas for April added three cents to $2.58. The TSX energy index lost 2.21 points to close at 116.63.
It was a quiet Monday morning in the energy sector. Many had their eyes on yesterday's headline-grabbing proposal of a megamerger between Canadian Pacific Railway and Kansas City Southern. The deal would see CP buy KCS for $29-billion (U.S.) -- one of the largest foreign corporate acquisitions by a Canadian company in history -- and would link CP's Canadian and northern U.S. lines with KCS's southern U.S. and Mexico routes, improving access for Canadian shippers. These would presumably include crude-by-rail shippers. "The combined rail network will give CP direct access to the U.S. Gulf Coast and beyond, allowing it to seamlessly transport Alberta energy directly to Gulf Coast refineries, improving the economics of crude by rail," Alberta Premier Jason Kenney declared yesterday on Twitter.
Not so fast, warned others. John Zahary, president of Altex Energy (a private company that runs five crude-by-rail terminals in Alberta and Saskatchewan), downplayed any crude-by-rail benefits. "Most of the oil moved to market out of Western Canada goes by Canadian National rather than Canadian Pacific," he told The Canadian Press today. He explained, "The CN main line goes through Edmonton, while the CP main line goes through Calgary -- and most of the oil production in Western Canada is in the northern part of the province." (Edmonton is about 300 kilometres north of Calgary. Indeed, while there are no fewer than three oil terminals within the Edmonton metropolitan region, the nearest terminal to Calgary is over 200 kilometres away in Tilley.) Others observers fell somewhere in between. Cowan Equity Research analyst Jason Seidl told The Canadian Press that he expects some crude-by-rail benefits, but the broader benefit will be the general improvement in route options and service, which should help all Canadian shippers.
Within the energy sector, oil sands giant Imperial Oil Ltd. (IMO) lost 40 cents to $29.45 on 1.86 million shares. It is less than thrilled with an institutional shareholder's proposal that the company should commit to net zero emissions by 2050. The proposal, and Imperial's recommendation to reject it, can be found in the recent information circular for the annual shareholder meeting on May 4.
As outlined in the circular, the shareholder, Aequeo Shareholder Engagement Services -- on behalf of Batirente, a Quebec group retirement system -- feels that Imperial's current emissions target does not go far enough. The company has previously vowed to cut its emissions by 10 per cent by 2023 (relative to 2016). Yet Imperial "has not committed to longer-term targets in line with [the Paris Agreement]," chided Batirente. Twenty-eight countries, including Canada, have adopted net-zero-by-2050 targets, as have a handful of energy companies, including Cenovus Energy Inc. (CVE: $9.79), Enbridge Inc. (ENB: $45.57), ConocoPhillips and France's Total. "Investors increasingly favour companies with energy transition strategies," opined Batirente. It called on Imperial to join the net-zero crowd.
Imperial is recommending that shareholders reject the proposal. It made sure to praise the Paris Agreement as an "important framework," to emphasize that it "respects and supports" Canada's net-zero-by-2050 ambition, and to highlight its progress on the way to a "lower-carbon energy future." Then came the chorus of buts. "Third party outlooks for future energy assume continued progress on policy and technology advancements," it noted. (The above-mentioned Cenovus, for example, backed away from its net-zero-by-2050 promise almost as soon as it made it, clarifying that this is an "aspirational" goal that depends on technologies that do not yet exist.) Imperial said it prefers "concrete targets" with "clear, achievable steps." Until it knows these steps, Imperial concluded that adopting the long-term ambition set out in Batirente's proposal would be "premature."
This is far from the first time these sorts of shareholder-submitted proposals have appeared in a corporate circular. Statistics from Morningstar Canada reveal that since 2004, shareholders have voted on over 400 climate-related resolutions at various companies, from energy firms and utilities to retailers and financial institutions. Boards typically recommend against them and the proposals typically fail. Yet that is not always the case: Notably, at its 2020 annual meeting, the board of Ovintiv Inc. (OVV: $30.95) faced a proposal from the Pension Plan of the United Church of Canada, which wanted it to "disclose climate-related targets that are aligned with the goal of the Paris Agreement." Ovintiv called this proposal "unduly demanding" (and it was not even being asked for an explicit net-zero commitment, like Imperial). Despite Ovintiv's recommendation that shareholders reject the proposal, it surprisingly squeaked through with 56 per cent of the vote. Imperial will be hoping that its shareholders stay in line and follow the recommendation of the board.
Speaking of the board, Imperial's circular revealed a minor board tweak: Dave Brownell is not standing for re-election, and Matthew Crocker is nominated to take his seat. Both men work for Imperial's U.S. parent company, Exxon, which owns 69.6 per cent of its shares. Mr. Crocker is the senior vice-president of fuels at ExxonMobil Fuels & Lubricants Company. At 47, he will also be the youngest member of Imperial's board. (Mr. Brownell is 54. He has not said why he is stepping down.)
Speaking of departures, Craig Steinke and David Elliott's Reconnaissance Energy Africa Ltd. (RECO) dropped 26 cents to $3.40 on 1.32 million shares, after announcing the sudden retirement of IR man Doug Allen. Mr. Allen has been in the financial services and communications industries for nearly 40 years. Retirement is perhaps not a jaw-dropping surprise, but the timing is unfortunate, as he joined Reconnaissance as senior vice-president of investor relations a mere eight months ago. Reconnaissance said at the time that he would play an "important role" as the company prepared for its very first drill program in Namibia. This program ended up being delayed, but Reconnaissance was finally able to spud the much-hyped first well in January. It should reach total depth by the end of March.
With an update and perhaps preliminary results expected any day now, investors do not seem pleased to see the main IR man making a sudden exit. CEO Scot Evans kept a smile on as he wished Mr. Allen "all the best in his retirement and future endeavours." Investors are likely not feeling as gracious, but will have to keep hoping that the imminent update on the first well will put them in better spirits.
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