Stockwatch Energy today
Energy Summary for Feb. 11, 2022
2022-02-11 19:55 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery shot up $3.22 to $93.10 on the New York Merc, while Brent for April added $3.03 to $94.44 (all figures in this para U.S.). Having steadily lost ground since Monday, both benchmarks were headed for their first weekly decline in two months, but rallied sharply today after the U.S. government gave warning of an "imminent" Russian invasion of Ukraine and the International Energy Agency noted that oil markets remain tight. Western Canadian Select traded at a discount of $13.69 to WTI, unchanged. Natural gas for March lost two cents to $3.94. The TSX energy index added 7.13 points to close at 203.41.
Canada's largest condensate producer, ARC Resources Corp. (ARX), added 33 cents to $14.88 on 8.32 million shares, after releasing its year-end financials. The stock has been trading lately near four-year highs, suggesting high expectations among investors. ARC obliged. Its cash flow in the fourth quarter came to $1.19 a share, exceeding analysts' predictions of $1.11 a share. Production of 348,800 barrels of oil equivalent a day was in line with analysts' predictions of 343,000 barrels a day.
Compared with the same quarter last year, ARC's production more than doubled from about 169,000 barrels a day, reflecting the "transformative" takeover of Seven Generations last April. Thanks to the takeover and higher commodity prices, ARC nearly tripled its net profit to 96 cents a share (from 34 cents a share) and enjoyed "the highest free funds flow per share in its 25-year history," boasted management.
Speaking of management, ARC had some changes to announce. It has promoted four employees to new roles, with Armin Jahangiri becoming chief operating officer, Lara Conrad becoming chief development officer, Ryan Berrett becoming senior vice-president of marketing, and Lisa Olsen becoming senior vice-president of people and corporate. Mr. Jahangari's appointment is the most eye-catching. ARC's last two COOs both went on to become its CEO: Former COO Myron Stadnyk took over from founding CEO John Dielwart in 2013, followed by former COO Terry Anderson becoming the current CEO when Mr. Stadnyk retired in 2020.
Both Mr. Stadnyk and Mr. Anderson spent about 20 years working for ARC before getting the top job, so if eyes are on Mr. Jahangari as a successor, they will not want to start redesigning the corner office just yet. Mr. Jahangari has been with ARC for the last seven years, starting out as a manager of technical operations and most recently serving as senior vice-president of capital operations. Before coming to ARC, he spent five years at EnCana Corp. (now Ovintiv Inc. (OVV: $54.32) and nine years at Schlumberger.
If today's lengthy announcement was missing one thing that investors had been hoping to see, it was an update on ARC's dividend. ARC last hiked its quarterly dividend to 10 cents from 6.6 cents in November, for a yield of 2.7 per cent. It emphasized that "a growing dividend remains ARC's primary long-term mechanism of returning capital." Investors were hoping for some more growing today, but had to make do with a discussion of share buybacks (ARC has bought back nearly 5 per cent of its shares since September). TD analyst Aaron Bilkoski remained upbeat. Reiterating his price target of $20 on ARC's $14.88 stock, the analyst speculated this morning that ARC could "repurchase 10 per cent of its shares and [still] retain the option to increase the base dividend by 150 per cent." (Investors may wish to note that Mr. Bilkoski's employer, TD Securities, is a "market maker" for ARC and receives compensation for investment banking services.)
Another Alberta producer, Jeff Tonken's Montney-focused Birchcliff Energy Ltd. (BIR) added six cents to $6.51 on 4.14 million shares. The stock lost 18 cents yesterday after the release of mixed year-end financials. Fourth quarter production came to 78,700 barrels of oil equivalent a day, below analysts' predictions of 81,000, while cash flow of 70 cents a share fell just short of analysts' predictions of 71 cents a share. Birchcliff did, however, match analysts' predictions of a net profit of 40 cents a share.
The market may have shrugged off the results, but CEO Mr. Tonken found plenty to like. "[We had] a record year ... [with] record annual adjusted funds flow ... record annual free funds flow ... and record annual net income," he cheered (at the risk of sounding like a broken record). He also noted that Birchcliff's debt fell to $499-million at the end of the year from $761-million at the start. By the end of this year, Mr. Tonken sees the debt falling below $200-million.
Debt reduction is one of "a number of initiatives" that can be used to "generate shareholder returns," in Mr. Tonken's view. He also mentioned acquisitions and dividend boosts. Birchcliff doubled its quarterly dividend in November, but really this meant increasing the nominal half-a-penny payout to one penny, for an uncompetitive yield of 0.6 per cent. Like any ARC investors hoping for a boost today, any Birchcliff investors in the same boat were to be disappointed.
Over in the Alberta Cardium, George Fink's Bonterra Energy Corp. (BNE) added 36 cents to $8.62 on 226,400 shares. This company gets an even greater share of dividend speculation, having previously been a dividend stalwart -- it got its start as a trust in 2002 -- until it abruptly suspended its payout in early 2020. In May, 2021, founder, chairman and CEO Mr. Fink acknowledged that "our shareholders just want to go back to getting a cheque every month, or at least every quarter." He indicated that Bonterra's near-term goal was to make that happen. If near term means within a year, the target is coming up fast. (He would doubtless be thrilled to see Bonterra achieve it. Of Bonterra's 35 million shares, Mr. Fink personally owns over 4.3 million.)
Today's announcement brought no mention of a dividend, but pleased investors nonetheless, as Bonterra unveiled its year-end reserve report and an update on operations. The company increased its proved and probable reserves to 97.4 million barrels as of year-end 2021 from 93.9 million a year earlier. As well, the company pegged its full-year 2021 production at 12,750 barrels a day, which it viewed as close enough to its guidance of 12,800 to 13,200.
Mr. Fink noted that this year's guidance is even more ambitious at 13,300 to 13,700 barrels a day. He added that Bonterra is expecting to reduce its debt by at least one-third this year. (Its estimated date was $275-million at the end of 2021.) This may explain some of today's enthusiasm, as Mr. Fink has made clear that Bonterra wants to reduce debt significantly before reinstating the dividend. It is still unclear what debt load in particular he is targeting.
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