Stockwatch Energy today
Energy Summary for Dec. 14, 2021
2021-12-14 19:56 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery lost 56 cents to $70.73 on the New York Merc, while Brent for February lost 69 cents to $73.70 (all figures in this para U.S.). Western Canadian Select traded at a discount of $17.40 to WTI, up from a discount of $17.44. Natural gas for January lost four cents to $3.75. The TSX energy index lost 2.59 points to close at 155.55.
Oil prices (and markets in general) edged lower on a warning from the World Health Organization that the COVID Omicron variant is spreading at an "unprecedented" rate. Renewed restrictions are in place in Europe and Asia, prompting traders to worry about declining fuel demand. OPEC breezily predicted in a monthly report yesterday that the effects of the new variant will be "mild and short-lived." In its own monthly report today, however, the International Energy Agency struck a more cautious tone. It reckoned that the new variant will not "upend" the recovery in oil demand, but will "temporarily slow" it.
Here in Canada, oil stocks fell with oil prices, despite some determined attempts to climb higher. Chief executive officer Grant Fagerheim of Whitecap Resources Inc. (WCP), down 29 cents to $7.13 on 5.64 million shares, headed to BNN this morning to promote the company's latest series of acquisitions. Whitecap announced last week that it will spend $342.5-million making three asset acquisitions in Alberta and Saskatchewan.
"I'm excited about the transactions," Mr. Fagerheim said today on BNN. The assets are all in regions that are familiar to Whitecap, and will boost its production by around 9,000 barrels of oil equivalent a day, to a forecast total of over 130,000 barrels a day in 2022. Mr. Fagerheim noted that Whitecap was producing just 68,000 barrels a day this time last year. Its expansive shopping spree since then has encompassed NAL Resources, TORC Oil & Gas, Kicking Horse Oil & Gas and various stand-alone assets. "Size and scale matter," proclaimed Mr. Fagerheim.
His friendly-as-ever BNN interviewer agreed, gushing that Whitecap is "set up to generate such a mountain of cash flow." He speculated -- and Mr. Fagerheim did not disagree -- that the company could use some of the money for further acquisitions. "But it's not as though we need them," Mr. Fagerheim added. He noted that Whitecap also plans to use its cash flow for dividends (its 2.25-cent monthly dividend represents a yield of 3.8 per cent) and share buybacks (the company recently bought a block of 19.2 million shares at $6.95). As well, Mr. Fagerheim made sure to mention Whitecap's rising focus on its "new energy platform," focused largely on carbon capture. He hinted that the company could expand these efforts within Canada and potentially enter the United States. Despite the upbeat talk, using all the different shades of green, the stock headed down.
Much the same happened to Alberta Montney producer Advantage Energy Inc. (AAV), down 28 cents to $6.28 on 2.36 million shares. Its incoming CEO, Mike Belenkie, headed to BNN last Friday to talk up the company's newly released 2022 guidance. The stock has gone stubbornly down ever since. Mr. Belenkie, who has been with Advantage since 2018, currently serves as president and chief operating officer, and will take over from CEO Andy Mah on Jan. 1. Usually Mr. Mah handles the BNN love-fests, but he gave this one to his imminent successor.
Mr. Belenkie wasted no time laying out his plans for Advantage. Long a gas producer, Advantage wants to devote considerably more attention to its oil assets in 2022, in order to benefit from the continuing recovery in prices. The $200-million budget that Advantage released last week is split about 50-50 between oil and gas, said Mr. Belenkie. It is also well above this year's budget of about $150-million. On the back of this higher spending, Advantage expects to produce an average of 52,000 to 55,000 barrels of oil equivalent a day in 2022, up from about 49,500 barrels a day in 2021. A fair chunk of the increase will come from oil.
Although Mr. Belenkie is eager to seize on rising oil prices, there is one trend that he wants Advantage to keep resisting. "We think there's a bit more work to be done" before the company launches dividends or share buybacks, he said. He acknowledged that these are currently "fashionable" in energy circles and can arguably demonstrate financial discipline. Yet in his view, Advantage needs to "optimize our assets" and focus on improving its cash flow. Of course, such is the lure of the fashionable that Mr. Belenkie knew better than to put his foot down too hard. He promised that dividends are "something we think about."
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