Stockwatch Energy today
Energy Summary for Jan. 11, 2022
2022-01-11 20:14 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added $2.99 to $81.22 on the New York Merc, shooting above $80 for the first time since November, while Brent for March added $2.85 to $83.72 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.24 to WTI, unchanged. Natural gas for February added 17 cents to $4.25. The TSX energy index added 5.83 points to close at 183.46.
Oil prices had one of their best days in months, as no less than the U.S. Federal Reserve chairman downplayed the effects of the COVID Omicron variant on global economies (and therefore fuel demand). "It should be short-lived," chairman Jerome Powell told the Senate banking committee today, referring to Omicron's potential economic damage. He reiterated his position that the Fed might hike interest rates several times this year to curb inflation. In response, the U.S. dollar fell, giving a further boost to oil prices. (The greenback and oil prices tend to have an inverse relationship, as a high U.S. dollar makes oil more expensive in other currencies, whereas a low U.S. dollar makes oil cheaper in other currencies and thus more appealing.)
Here in Canada, oil sands giant Canadian Natural Resources Ltd. (CNQ) added $1.06 to $60.71 on 7.87 million shares, setting a new all-time high in the stock. The company released its 2022 guidance this morning and held a conference call to discuss it. President Tim McKay was in a jolly mood as he emphasized the company's "industry-leading free cash flow, making Canadian Natural unique, robust and sustainable."
The proposed budget for 2022 is $4.35-billion. Like fellow oil sands players Suncor Energy Inc. (SU: $35.18), Imperial Oil Ltd. (IMO: $48.97) and Cenovus Energy Inc. (CVE), this represents an increase from the 2021 budget, which in Canadian Natural's case was $3.48-billion. Also like the above companies, Canadian Natural is opting to shovel money at shareholders and its balance sheet, rather than take on major expansion projects. "[We want to] have production growth, but at the same time [we] are increasing shareholder returns and driving debt down further," said Mr. McKay during today's call. He talked of "approximate total increases in production of 63,000 barrels per day by 2025." (For context, Canadian Natural's expected output in 2022 is about 1.3 million barrels a day.) The increase is to be squeezed largely out of existing assets rather than new investments.
All in all, the guidance came in generally as analysts expected, and investors seemed pleased with the continued focus on dividends and share buybacks. Canadian Natural hiked its dividend twice in 2021 and currently has a quarterly payout of 58.75 cents, for a yield of 3.9 per cent. Mr. McKay vowed that buybacks would take up as much as half of the company's free cash flow in 2022.
Fellow oil sands player Cenovus Energy Inc. (CVE) added 62 cents to $17.84 on 16.7 million shares. It announced this morning that it will soon redeem two batches of notes maturing in 2023 and 2024. This comes on the heels of about $1.7-billion (U.S.) in separate note repurchases in September, followed by another $425-million (U.S.) in redemptions in October. Today's press release did not specify how much Cenovus plans to spend this time, but considering that it expects to close an $800-million asset sale by the end of the month (selling the Tucker thermal project to Adam Waterous's private Strathcona Resources), it has plenty of money to plunk down. Cenovus came into 2021 owing about $13-billion. It wants to get this down to $8-billion by mid-2022.
Another company is considering taking out some debt. The Lundin family's International Petroleum Corp. (IPCO), up 30 cents to $7.93 on 35,700 shares, announced this morning that it plans to arrange fixed-income investor meetings "in connection with a potential issuance of rated senior unsecured bonds in the Nordic bond market." (The Lundins are Swedish-Canadian.) The company is optimistic that it could sell $300-million (U.S.) in five-year bonds. It would use the proceeds to refinance existing debt and for catch-all "general corporate purposes." Given the age of its assets in Canada, France and Malaysia (mostly Canada), investors are likely expecting some of these purposes to include acquisitions.
The meetings with bond investors come at an opportune time. Today, International Petroleum received pleasant mentions from not one but two credit ratings agencies. Its "healthy balance sheet" and "sound liquidity profile" won a nod of approval from Moody's Investors Service, which assigned the company a rating of B1. Senior analyst Janko Lukac noted that he expects International Petroleum to "either actively engage in acquisitions or to undertake a major investment campaign over the next 24 months" in order to boost confidence in its "relatively mature" assets. Separately, S&P Global bestowed a rating of B. Both ratings are in junk territory, but International Petroleum just seemed happy to get some attention. It issued a press release to share the ratings (not mentioning that they are non-investment-grade) and to emphasize that both agencies gave it a "stable" outlook.
In the Alberta Montney, Keith MacPhail and Ronald Poelzer's NuVista Energy Ltd. (NVA) shot up $1.05 to $8.24 on 6.98 million shares, impressing investors with a quarterly operations update. The company was "very pleased" to report that its production in the fourth quarter averaged just over 60,000 barrels a day.
The number is a milestone for an unusual reason. Long-time investors may remember that producing 60,000 barrels a day used to be one of NuVista's overarching goals for 2021 -- that is, until late 2018, when NuVista closed a sizable asset acquisition from the above Cenovus Energy and updated its 2021 goal to 110,000 barrels a day. Understandably, this did not happen. NuVista got up to 57,000 barrels a day in late 2019 before COVID hit in 2020 and everything skidded off the rails. The company has not tried to revive its predictions of when its production might surpass six figures. Getting to 60,000, and above pre-COVID levels, is satisfying enough.
NuVista was also "very pleased" to announce a new director appointment. The newcomer is Kate Holzhauser, an engineer by training and a former senior executive at Chevron, BP and global chemical giant INEOS. She retired from her role as vice-president of EHS&S (environmental, health, safety and security) for Chevron Phillips Chemical last March. These days, she is a director of Certarus Ltd., a private Calgary-based company that distributes low-carbon CNG (compressed natural gas) to remote areas. NuVista will represent Ms. Holzhauser's first time on the board of a public company.
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