Stockwatch Energy today
Energy Summary for July 28, 2021
2021-07-28 20:13 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added 74 cents to $72.39 on the New York Merc, while Brent for September added 26 cents to $74.74 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.95 to WTI, unchanged. Natural gas for August added seven cents to $4.04. The TSX energy index added a fraction to close at 124.84.
U.S. shale producer Ovintiv Inc. (OVV) lost $1.62 to $32.65 on 1.03 million shares, as investors found more to frown than smile about in its second quarter financials. The headline-grabbing number was the surprise net loss of $205-million (U.S.), or 79 U.S. cents a share. Analysts had been forecasting a profit of $1.04 (U.S.) a share. A painful $799-million (U.S.) in hedging losses dragged Ovintiv deep into the red. Unfazed, chief executive officer Doug Suttles patted Ovintiv on the back for having "perform[ed] exceptionally well." So confident is the company, in fact, that it has decided to hike its quarterly dividend to 14 U.S. cents from 9.375 U.S. cents, for a yield of 2.2 per cent.
Ovintiv also held its balance sheet aloft as a beacon of rising strength. "Our track record of free cash flow continued in the second quarter with another $350-million (U.S.) of free cash," cheered Mr. Suttles. The company has been using the cash money to hack away at its debt. It entered the year owing nearly $7-billion (U.S.), promised in February to reduce this figure to $4.5-billion (U.S.) by the end of 2022, and announced in May that it would actually achieve this goal by the end of 2021. (This was not all thanks to cash flow; non-core asset sales brought in over $1-billion (U.S.) and helped with the acceleration.) Today Mr. Suttles laid out a new goal, to reduce net debt to just $3-billion (U.S.) by the end of 2023.
This is to be the last goal set by Mr. Suttles. As announced by Ovintiv last month, Mr. Suttles is retiring as CEO on Aug. 1, to be succeeded by president Brendan McCracken. A good chunk of today's conference call was a thank-you-and-farewell to Mr. Suttles, who talked of the "honour and incredible privilege" of leading Ovintiv for the last eight years. Mr. McCracken -- who has been with the company for 24 years, going back to his days as a summer intern in 1997 -- said that in his new role as CEO, he will remain "laser-focused on delivering free cash flow and quality returns."
Here in Canada, the Alberta- and Saskatchewan-focused Crescent Point Energy Corp. (CPG) added six cents to $4.33 on 7.8 million shares, after it too released its second quarter financials. It reported a profit of $2.1-billion. Seeing as revenue was barely $850-million (or even lower after accounting for $200-million in hedging losses), the high figure reflected volatility in oil prices, as these can cause massive impairment charges when down and massive reversals when up. In Crescent Point's case, its bottom line whipsawed from the effects of $3.5-billion in impairment charges in the first half of 2020, followed by $2.5-billion in reversals in the first half of 2021. The wild swings are why many energy investors tend to focus on cash flow instead. For the second quarter, Crescent Point's cash flow came to 66 cents per share, nicely exceeding analysts' predictions of 62 cents a share. Production of 148,600 barrels a day surpassed analysts' predictions of 142,000.
The financials did not include a dividend increase, but they did include a guidance bump. Crescent Point said it is now aiming to produce 130,000 to 134,000 barrels a day, slightly ahead of the prior target of 128,000 to 132,000. It did so while tightening its capital budget to a range of $600-million to $625-million (compared with $575-million to $625-million previously). "We expect to generate significant excess cash flow in the current commodity price environment," declared president and CEO Craig Bryksa. He promised that the cash would go toward debt reduction. Then he hinted that it might also go toward "return[ing] capital to shareholders." Crescent Point currently pays a quarterly dividend of 0.25 cent, or one penny annualized. This is such a nominal amount -- and such a drastic drop from the annualized peak of 92 cents in 2014 -- that even Mr. Bryksa used the words "bring back a dividend" during today's conference call. He declined to comment on the timing or amount. Naturally, analysts took this as an invitation to peer into their crystal balls. RBC analyst Michael Harvey, for example, predicted the annualized payment will "increase meaningfully" to 15 cents before the end of the year.
The quarterly reporting round-up continued with Tamarack Valley Energy Ltd. (TVE), up three cents to $2.54 on five million shares. Tamarack reported a profit of $230-million, which (as with Crescent Point) exceeded its revenue and reflected sizable impairment reversals. Importantly, cash flow came to 21 cents a share, nicely above analysts' predictions of 17 cents a share. Tamarack was extra nice to itself when coming up with the 21-cent-a-share figure and stripped out various transaction costs, such as those associated with its takeover of the private Anegada Oil in June. Putting those back in would result in slightly diminished -- but still higher than expected -- cash flow of 19 cents a share. Production of 32,400 barrels a day exceeded analysts' predictions of 30,400 barrels a day.
All in all, according to president and CEO Brian Schmidt, it was "another very strong quarter." Alas, Mr. Schmidt could not follow in the footsteps of Ovintiv's Mr. Suttles or Crescent Point's Mr. Bryska by announcing a dividend increase or a guidance boost. Tamarack does not even pay a dividend and has never done so in the past. Investors have noted, that lately Mr. Schmidt has developed a certain fondness for dividend dog-whistling, offering some fresh fudge today about the "upside and resiliency" of a "potential return-of-capital profile." As for the guidance, it stayed put at 33,000 barrels a day, although analysts are continuing to forecast an increase later this year.
While there was no big dividend or guidance update, Tamarack did have something new to announce: new faces. It has hired two vice-presidents and made three promotions. Among the newly promoted is John Rooney, a relatively recent director -- he joined the board in March -- who will now become chairman. Mr. Rooney is the founder and former CEO of Northern Blizzard, a Saskatchewan oil producer that was taken private in pieces from 2017 to 2018, at prices ranging from $2.55 to $3.60 a share. (This was, unfortunately, a long way down from its 2014 IPO price of $19 a share. These days, the company is the private Strathcona Resources, a portfolio company of Adam Waterous's Waterous Energy Fund.)
As chairman of Tamarack, Mr. Rooney succeeds Floyd Price, who is retiring after 11 years on the board. Also retiring is engineering vice-president Dave Christensen, who will be succeeded by Martin Malek. Meanwhile, Kevin Screen has snagged a promotion to chief operating officer. Mr. Malek's and Mr. Screen's former titles were vice-president of business development and vice-president of production, respectively. Now those jobs will be taken over by two newcomers to Tamarack, Christine Ezinga and Scott Shimek. Ms. Ezinga is a former executive with Black Swan Energy, which was acquired two weeks ago by Tourmaline Oil Corp. (TOU: $33.88). Mr. Shimek most recently worked for Bonavista Energy, a once-public Alberta oil producer that faced financial woes and had to recapitalize last year. It delisted last August, but is still around as a private company.
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