Stockwatch Energy for yesterday
Energy Summary for May 20, 2021
2021-05-20 20:28 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery lost $1.31 to $62.05 on the New York Merc, while Brent for July lost $1.55 to $65.11 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.79 to WTI, unchanged. Natural gas for June lost three cents to $2.93. The TSX energy index lost a fraction to close at 124.15.
U.S. shale producer Ovintiv Inc. (OVV) edged down 27 cents to $30.32 on 599,500 shares, after closing an asset sale and announcing a note redemption. The company previously agreed in March to sell all of its assets in the Texas Eagle Ford to Validus Energy for $880-million (U.S.). This price is sharply below the $3-billion (U.S.) that Ovintiv paid to enter the Eagle Ford in 2014, but Ovintiv opted not to focus on that (or even mention it). It said the Eagle Ford assets were simply not a priority anymore and it wanted the money for debt reduction.
With that goal in mind, Ovintiv also announced today that it is redeeming $1.1-billion (U.S.) worth of notes over the next three months. Some of the notes are coming due this year anyway; others do not mature until next year. Because Ovintiv plans to deal with it imminently, "we now expect to reach our debt target of $4.5-billion (U.S.) by the end of this year," cheered chief executive officer Doug Suttles.
This is the second time that Ovintiv has accelerated its debt reduction target. The company, which entered the year owing nearly $7-billion (U.S.), vowed in February to get this figure down to $4.5-billion (U.S.) by the end of 2022. In March, citing stronger oil prices and asset sales, it sped up the target to mid-2022. Now it says it can do it by year-end 2021. Investors did not seem surprised. The previous target was based on WTI oil prices averaging just $50 (U.S.). They have been consistently above $60 (U.S.) since March, creating higher expectations for Ovintiv's cash flow.
Here in Canada, a different company is pursuing asset sales to reduce debt, namely oil sands producer Cenovus Energy Inc. (CVE), down 16 cents to $9.43 on 8.52 million shares. As discussed in yesterday's Energy Summary, Cenovus has just sold a royalty asset to Topaz Energy Corp. (TPZ: $14.51) for $102-million. Now analysts are wondering what assets might be on the chopping block next. Scotia Capital analyst Jason Bouvier speculated in a new research note that Cenovus may try to sell its downstream retail business and its upstream Asia-Pacific division. He mused that those two sales alone could potentially bring in over $4.6-billion.
Cenovus acquired both of the above businesses when it merged with Husky Energy in January. Husky was already trying to sell the downstream retail assets, which consist of over 500 gas stations across Canada, but Cenovus CEO Alex Pourbaix told an industry conference in April that he had called off this process. He did, however, express interest in selling the Asia-Pacific assets (which produce 60,000 barrels of oil equivalent a day, or less than one-10th of Cenovus's total production of 770,000 barrels a day).
Assuming that Mr. Pourbaix still wants to exit Asia and has changed his mind about selling the gas stations in Canada, Scotia's Mr. Bouvier reckoned that the Asian assets could fetch $3.6-billion to $4.1-billion and the gas stations could bring in another $420-million to $560-million. Such sales could play a "key role" in achieving Cenovus's net debt target of $10-billion by year-end, he mused. (Net debt was $13.3-billion as of March 31.) Mr. Bouvier has a "sector outperform" rating on the stock and a price target of $13. That compares with today's close of $9.43. A disclaimer at the bottom of his note indicated that his employer, Scotia Capital, has an "investment banking services client relationship" with Cenovus.
Elsewhere in Alberta, Don Simmons and Charlie O'Sullivan's Hemisphere Energy Corp. (HME) edged down one cent to 54 cents on 500,900 shares, after releasing its first quarter financials. It hailed its "excellent results." (Today might not have been an excellent day for the stock, but it has nearly tripled from 20 cents since the start of the year.) Hemisphere pegged its production for the first quarter at 1,654 barrels a day. This production comes from its Atlee Buffalo EOR (enhanced oil recovery) project in Southern Alberta, where Hemisphere is in the process of shifting toward polymer flooding from waterflooding. Both involve injecting liquids into the reservoir to flush out stubborn oil, but the chemicals in polymer flooding are better at coaxing out the very stubborn stuff, such as the viscous heavy oil at Atlee Buffalo. The first quarter's production represented a nice little bump over the fourth quarter average of 1,502 barrels a day. Hemisphere added proudly that its current production is up to 1,800 barrels a day.
Long-term investors, of course, may remember that Hemisphere used to talk of exceeding 3,000 barrels a day by late 2019. That was its dream back in 2017, when it secured a five-year, $35-million (U.S.) loan from a U.S. energy investment firm. This did not come to pass and Hemisphere has spent most of its time below the 2,000-barrel-a-day mark. Investors now seem optimistic that it is finally finding its footing. In a new presentation on its website, Hemisphere touted revised production plans, under which it finally plans to crack the 3,000 mark in late 2022. It added that it should not need to spend much money to do so because most of the wells are already drilled. Thanks to low costs and high oil prices, Hemisphere is predicting heaps of free cash flow this year and next. Much of that will go toward repaying the above-mentioned loan -- the current balance of $21-million is due in September, 2022 -- but Hemisphere is clearly returning to its old, dreamy self. It talked of potential "strategic acquisitions," "accelerated internal projects," and one day, perhaps, "share buybacks and/or dividends."
All of that would be quite the turnaround for long-time CEO Mr. Simmons, who has been on the job since 2008. At the time, Hemisphere was just finding its way back into the oil and gas industry. The above-noted Mr. O'Sullivan, Hemisphere's former president and current chairman, founded the company back in 1975 to focus on U.S. gas (the stock even hit $16 in 1981 on an Oklahoma gas strike). Then Hemisphere stumbled on a polymetallic deposit in the Northwest Territories and changed its focus to metals in 1987. This eventually caught the attention of Vancouver gold promoter Frank Callaghan, who spent a few years as CEO before leaving in 2006. Returning to its old energy roots, Hemisphere plumped for Alberta. This is familiar turf for Mr. Simmons. Prior to joining Hemisphere, he spent five years as a geologist with the once-major Alberta player EnCana. EnCana is not around in that form anymore, of course. It rebranded as a U.S. shale company last year and is now the above-mentioned Ovintiv.
© 2021 Canjex Publishing Ltd. All rights reserved.