Stockwatch Energy today
Energy Summary for Feb. 3, 2022
2022-02-03 20:41 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery added $2.01 to $90.27 on the New York Merc, crossing $90 (U.S.) for the first time since 2014, while Brent for April added $1.64 to $91.11 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.33 to WTI, down from a discount of $13.00. Natural gas for March lost 61 cents to $4.89. The TSX energy index lost 1.51 points to close at 199.92.
U.S. oil prices reached an eight-year high as freezing temperatures swept across the country, triggering weather warnings from Texas to the Northeast and disrupting production from the Texas Permian basin. So far, the shut-ins appear small and localized, but traders are no doubt remembering the two-thirds plunge in output that ravaged the Permian during an unprecedented cold snap in February of last year. (The Permian contributes nearly two-fifths of total U.S. oil production.) Oil prices also rose on a weaker U.S. dollar and worsening geopolitical tensions in Europe.
Here in Canada, oil sands giant Suncor Energy Inc. (SU) lost $1.35 to $37.10 on 22.7 million shares, as climbing oil prices were offset by disappointing year-end financials. Adjusting for one-time items, Suncor turned a profit of 89 cents a share in the fourth quarter, falling short of analysts' predictions of 94 cents a share. Average production of 743,300 barrels of oil equivalent a day fell from the year-earlier level of 769,200 barrels a day.
President and chief executive officer Mark Little kept his focus on the better-looking numbers. Cash flow of $2.17 a share was the highest quarterly level in Suncor's history, and the company is also repaying debt at the fastest level in its history, he pointed out. He reminded investors that Suncor doubled its quarterly dividend to 42 cents in October (for a current yield of 4.5 per cent) and bought back $2.3-billion worth of shares during the year. It has just renewed its buyback program, which will take effect Feb. 8 and cover up to 5 per cent of the company's 1.4 billion shares.
Investors were unimpressed. Many were likely hoping for another dividend boost or a more ambitious buyback program in light of the record cash flow. In addition, a general pall was cast by the recent death at one of Suncor's oil projects, where a truck driver died in a collision on Jan. 6. This was the third fatal accident at a Suncor project in 13 months. "I know that many are questioning our focus on this, given the recent fatality and the operational challenges ... We must do better," said Mr. Little during a conference call this morning. He talked of implementing "collision avoidance mitigation and fatigue management." Beyond that, the plan is to keep chugging along and shoring up the balance sheet. "The faster we go on our debt metrics, the better chance we have at achieving further increases in dividends [and buybacks]," said Mr. Little. He did not estimate timing. Investors remained subdued.
Elsewhere in the oil sands, Athabasca Oil Corp. (ATH) added 14 cents to $1.44 on 26.9 million shares, garnering a cheerier reaction to its year-end results. It acknowledged that these are preliminary results and the audited ones will not arrive for another month. Athabasca does not typically release preliminary financials (most energy companies do not), but apparently it wanted an early chance to boast about its full-year production of 34,600 barrels a day, which exceeded its guidance of 31,000 to 33,000 barrels a day. It of course did not discuss such distasteful matters as costs or losses.
In addition, Athabasca patted itself on the back for a recent debt repayment of $32-million, even though the debt was not due until May. "[This] demonstrates the company's commitment to its balance sheet targets," claimed president and CEO Rob Broen. He added that Athabasca "intends to direct a portion of free cash flow to its shareholders" once it feels more comfortable with its debt, potentially as soon as mid-2023. The portion could be in the form of "a dividend, share buybacks, further debt reduction of a combination thereof."
Even after dangling all those carrots, the nimble Mr. Broen managed to dangle one more, if only implicitly. He did so by mentioning Athabasca's $3.2-billion in tax pools. This is the kind of information that is of interest to potential suitors, leading to speculation that the unusual press release was an exercise in getting Athabasca all gussied up.
Speaking of shopping, the North Dakota Bakken-focused Enerplus Corp. (ERF) edged down 12 cents to $15.36 on 3.22 million shares, after announcing that it has put its Canadian oil assets up for sale. The assets are producing 9,100 barrels of oil equivalent a day, or about 7 per cent of Enerplus's total production. All of the rest comes from the United States.
The steady southward shift of Enerplus's affections has been in progress for years. There was a time, in 2004, when all of Enerplus's production came from Canada. It made its first move into the U.S. in 2005, buying a private company with intriguing light oil assets in the North Dakota Bakken. Then in 2009, it entered another U.S. play, the Pennsylvania Marcellus, which produces gas. By 2014, the U.S. plays contributed half of Enerplus's production. By late 2014, Enerplus was solidifying its preference for the Bakken, and began selling one Canadian asset after another. President and CEO Ian Dundas has spent the last seven years explaining that the regulatory environment is simply better on the U.S. side of the border. With oil prices at an eight-year high, Mr. Dundas sees now as a good time to unload the last of the Canadian assets.
If the announcement sparked surprise, it was mainly because investors were expecting Enerplus to announce a sale of its Marcellus gas assets first. The company previously marketed these in 2016 (again displaying its preference for the Bakken) and Mr. Dundas said as recently as November, 2021, that he is open to selling them "if we could get an attractive price." He did not discuss selling the Canadian assets. (Given the above trend, of course, he would not need to.)
The questions now are the timing and the price tag. Mr. Dundas said he hopes to announce a sale by midyear. He did not mention a desired price, but in a research note this morning, TD analyst Aaron Bilkoski pegged the value of the assets at $330-million. He also drew attention to the other part of Enerplus's update, specifically the announcement of its fourth quarter production. This came to 128,000 barrels a day, exceeding analysts' predictions of 126,000. Mr. Bilkoski called Enerplus "a top pick" and hiked his price target on the stock to $19 from $17. Attentive investors will recall that Mr. Bilkoski's employer, TD, has worked with Enerplus on numerous deals and financings in the past, most recently helping it sell some non-core acreage in Montana last September.
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