Stockwatch Energy today
Energy Summary for Nov. 24, 2021
2021-11-24 20:08 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost 11 cents to $78.39 on the New York Merc, while Brent for January lost six cents to $82.25 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.30 to WTI, up from a discount of $19.40. Natural gas for December added 10 cents to $5.07. The TSX energy index added 3.03 points to close at 170.43.
Oil prices wobbled as traders waited for more information on yesterday's announcement of a co-ordinated release of global emergency stockpiles. As discussed yesterday, the White House said it will release 50 million barrels from its strategic petroleum reserve, in tandem with smaller releases from China, India, Japan, South Korea and the United Kingdom. Since then, only the U.K. and India have quantified their commitments -- 1.5 million barrels and five million barrels, respectively -- while China, Japan and South Korea have yet to announce their numbers. Worth noting is that even if the non-U.S. countries match the U.S. commitment and take the overall release to 100 million barrels, this would still be equal to just one day's worth of demand on a global level.
Here in Canada, the mood stayed upbeat, especially among gas producers. Canada's largest gas producer is Mike Rose's Tourmaline Oil Corp. (TOU), up 77 cents to $45.94 on 2.54 million shares. The stock has added about $15 over the last three months and nearly tripled from last December's low of $16.46. Mr. Rose, Tourmaline's founder, chairman and chief executive officer, tried to keep the excitement going during an interview yesterday on BNN.
The interview was a typically friendly affair, with one of the hardest-hitting questions being whether Mr. Rose ever gets "pushback" for calling the company Tourmaline Oil instead of Tourmaline Gas. "Once in a while," replied Mr. Rose with a laugh. He turned the focus to the company's free cash flow -- cash flow after costs, capital spending and dividends -- and marvelled that Tourmaline is currently enjoying $200-million to $225-million in free cash flow per month. His forecast for free cash flow in 2022 is $2.5-billion. Tourmaline previously hiked its quarterly dividend to 18 cents from 17 cents in September (for a yield of 1.5 per cent) and paid a special dividend of 75 cents in October. If prices stay strong, said Mr. Rose, Tourmaline wants to pay another special dividend in the new year. He declined to speculate on the amount, but said investors can "do the math" based on gas prices and the above estimates of free cash flow.
Another company looking to stir up hype was Alberta oil sands producer MEG Energy Corp. (MEG), up 41 cents to $11.81 on 5.33 million shares. It put out a brief but eye-catching notice last night, telling investors that it will release its 2022 guidance on Nov. 29 and hold a conference call about it on Nov. 30.
MEG does not typically hold a conference call to discuss its guidance. It already held a call two weeks ago, when it released its third quarter financials and noted that it is approaching its targeted level of debt reduction (which until now has been eating up every dollar of free cash flow). Chief financial officer Eric Toews set rumours racing during the call when he repeatedly dodged questions about whether MEG is planning to hop aboard the latest trend and launch a dividend and/or buyback. "Just be patient," he said. "We'll talk about that at the back end of this month when we come out with our capital budget." The countdown is on.
Elsewhere in Alberta, Stephen Loukas's Obsidian Energy Ltd. (OBE) edged up one cent to $4.68 on 383,000 shares, after closing an asset acquisition and hinting at some of its own plans for 2022. The acquisition took top billing and still seems to be a source of bafflement for many investors. As discussed when Obsidian announced the deal on Nov. 2, the asset in question is a 45-per-cent interest in the Peace River oil partnership (PROP), a heavy oil joint venture between China Investment Corp. (the seller) and Obsidian (which held the remaining 55-per-cent interest). Considering that Obsidian had been trying to exit PROP since 2014, the announcement that it would instead take full control of PROP caught investors off guard.
Interim CEO Mr. Loukas, announcing the closing of the acquisition today, called himself "extremely pleased" with the deal. He added that Obsidian will start a four-well program at PROP with the goal of boosting production to an unspecified level by the end of January. (PROP is currently producing just 5,000 barrels a day, representing a 50-per-cent drop since 2018. That PROP never lived up to its initial hype is highly evident in the purchase price: China Investment Corp. paid $845-million for the 45-per-cent interest in 2010, yet has now sold the interest to Obsidian for a mere $43.5-million. This too played a role in investors' wary reaction, with the stock plummeting to $4.75 from $5.35 on Nov. 2 and drifting even lower since.)
Mr. Loukas's other plans for 2022 involve restructuring Obsidian's debt -- something shareholders are used to hearing from this company. The company has been struggling with its balance sheet for years, even temporarily putting itself up for sale in 2019 in case someone else wanted to solve the problem. No one did. Buckling down, Obsidian won concessions and extensions from its lenders in 2020, and then again in early 2021. As things stand now, the company has $43.3-million (U.S.) in notes due in November, 2022, along with $340-million drawn on a $415-million credit facility that also terms out in November, 2022.
Mr. Loukas is seemingly tired of the annual scrimmage. He said today that one of his priorities in 2022 will be a refinancing. Early details were scarce, but Mr. Loukas said he wants to secure a "stable capital source that provides operational liquidity and a longer-term maturity profile."
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