Stockwatch Energy today
Energy Summary for Nov. 16, 2021
2021-11-16 20:54 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery edged down 12 cents to $80.76 on the New York Merc, while Brent for January added 38 cents to $82.43 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.19 to WTI, up from a discount of $19.20. Natural gas for December added 16 cents to $5.18. The TSX energy index lost a fraction to close at 164.73.
In a rare peek into its pricing assumptions, the International Energy Agency (IEA) has publicly predicted that Brent oil prices will average $79.40 (U.S.) in 2022. The forecast came in the agency's monthly report, released today. These reports typically do not include price assumptions. "We publish our price assumptions when we think that this can be useful for the understanding of our forecast. As current prices are getting more elevated, they start to have a significant effect on demand," the IEA said in a statement to Reuters. It noted that in last month's report, its 2022 Brent assumption was just $76.80 (U.S.).
International producers whose oil prices are tied to Brent include the Lundin family's Africa Oil Corp. (AOI), up nine cents to $2.16 on 424,300 shares. Today it impressed investors with its third quarter financials. Its 50-per-cent Prime Oil subsidiary in Nigeria fired off two dividends during the quarter, putting a total of $112.5-million (U.S.) in Africa Oil's pocket, and allowing the company to continue repaying the debt it took out to buy Prime in the first place. "I am delighted that Africa Oil is now in a positive net cash position," cheered president and chief executive officer Keith Hill.
By way of background, Prime is a private producer that operates producing assets in Nigeria and provides its owners with dividends out of this production. Africa Oil acquired a 50-per-cent interest in Prime at the beginning of 2020, taking out a $250-million (U.S.) loan to do so. The loan balance as of Sept. 30 was just $23-million (U.S.). Africa Oil's cash balance as of Sept. 30 was $38.8-million (U.S.), hence Mr. Hill's delight.
The delight did not fade in the slightest during a conference call to discuss the financials. "[Prime] seems to be the gift that keeps on giving," declared Mr. Hill. He is optimistic that Prime will pay out another dividend by year-end and thus wipe out the rest of the loan. The fact that the loan has come down so quickly reflects "aggressive" production hedging in both 2020 and 2021, said Mr. Hill. Now the debt is almost gone, Prime is easing up on hedging and in fact has no hedges after April, 2022. Mr. Hill is looking forward to this "good upside exposure to oil prices next year" as he is a "very big oil bull." Also bullishly (if coquettishly), Mr. Hill dropped hints about Africa Oil's desire to pursue dividends, share buybacks or "additional things our shareholders have been waiting for a while and we're very eager to move forward on."
Another international producer, Gary Guidry's Colombia-focused Canacol Energy Ltd. (CNE), added eight cents to $3.42 on 269,800 shares. It has priced a $500-million (U.S.) note offering. As discussed on Monday of last week, Canacol is conducting a debt refinancing, whereby it publicly made a cash tender offer for one batch of notes and less publicly proposed a sale of another batch of notes. According to Fitch Ratings and Moody's Investor Service, the new batch was going to be for $450-million (U.S.) of seven-year notes with an unspecified coupon. Demand seems to have been healthy: Today, Canacol announced that it is selling $500-million (U.S.) of seven-year notes, bearing interest at a relatively favourable 5.75 per cent. (The notes that are the subject of the tender offer bear interest at 7.25 per cent.)
Speaking of Moody's, it has just given a nod of approval to U.S. shale producer Ovintiv Inc. (OVV), up 11 cents to $45.04 on 394,500 shares. Moody's analyst Paresh Chari upgraded Ovintiv's credit rating to Baa3 from Ba1. This is just one notch, but it is a triumphant one: It moves Ovintiv out of junk status into the clean air of investment-grade territory. "Ovintiv's rapid debt reduction through 2021 accelerated its path to reducing net debt to $4.5-billion (U.S.), or by almost $2.5-billion (U.S.), which improved leverage in 2021 and increased balance sheet durability," cheered Mr. Chari. He obligingly added that he sees Ovintiv maintaining "strong investment-grade leverage metrics and a low-cost structure that will lead to top-tier capital efficiencies."
Here in Canada, John Jeffrey's Saskatchewan-focused Saturn Oil & Gas Inc. (SOIL) added three cents to $4.32 on 205,700 shares. Today it strove to impress investors by emphasizing "record cash flow from operations" in its new third quarter financials. Investors would have been shocked if cash flow had failed to set a record, considering that the quarter included the June 7 acquisition of Crescent Point Energy Corp.'s (CPG:$ 5.88) Oxbow oil assets, immediately boosting Saturn's production to nearly 7,000 barrels a day from about 300. Year-over-year revenue accordingly shot up to $48.4-million from $2.1-million and cash flow climbed to $13.9-million from $981,000. Alas, profitability went in the opposite direction. Saturn was dragged into the red by higher operating costs and hedging losses, widening its year-over-year net loss to $23.3-million from $795,000.
Saturn is using hedges in part to reduce the debt that it took on to complete the $93-million Oxbow purchase. Net debt was $71.7-million as of Sept. 30. "[We have a] goal of significantly reducing debt levels in the near term," said chief financial officer Scott Sanborn, predicting that Saturn will be able to halve its debt by the end of 2022.
Meanwhile, CEO Mr. Jeffrey tried to stir up some hype with an appearance on The Market Herald Canada, the Canadian arm of an Australian media and IR firm. A disclaimer at the bottom noted that the firm is "retained and compensated by the companies that we provide information on to assist them with making information available to the public." Compensation from Saturn was not disclosed, but was enough to cover an inning's worth of softballs from Mr. Jeffrey's interviewer, who made such queries as, "I understand you've broken some records -- can you elaborate on that?" Mr. Jeffrey was happy to oblige. He claimed the Oxbow acquisition created a "night-and-day difference" within the company. The goal now is to continue to "showcase the company's strong cash, the low decline of our light oil production base and the fantastic team that we have here at Saturn."
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