Stockwatch Energy today
Energy Summary for March 17, 2022
2022-03-17 20:07 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery added $7.94 to $102.98 on the New York Merc, while Brent for May added $8.62 to $106.64, climbing back into the triple digits as hopes for a Russian-Ukrainian ceasefire faded (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.25 to WTI, up from a discount of $12.55. Natural gas for April added 24 cents to $4.99. The TSX energy index added 7.34 points to close at 214.50.
In the battle over Enbridge Inc.'s (ENB: $56.47) Line 5, Michigan risks causing "tremendous negative consequences," say business chambers in both the United States and Canada. They are once again wading into a dispute that has forced Line 5 into a bizarre limbo since 2020. In a new joint amicus brief, the Canadian Chamber of Commerce, the U.S. Chamber of Commerce and chambers in Michigan, Ohio and Pennsylvania say Michigan's attempt to shut down the pipeline is causing "real harm to Enbridge and to businesses that depend on [it] to function smoothly."
The dispute goes back to November, 2020, when Michigan Governor Gretchen Whitmer ordered Line 5 to be shut down, claiming that it is unsafe to operate in the Great Lakes (despite a seven-decade history of doing just that). Critics of the order immediately pointed out that Line 5 supplies more than half of the heating needs of Ms. Whitmer's own state and is an important supply source to neighbouring states and some Canadian provinces. Happily for residents of those states and provinces, Enbridge defied Ms. Whitmer's order, saying pipelines are a federal matter. (The Canadian government has since added that it is an international matter too. Last year, Ottawa invoked a treaty providing for the unimpeded flow of cross-border pipelines. Treaty talks remain in progress.)
The matter is before the courts. More accurately, it is back before a court. If the above news of the chambers filing an amicus brief triggered some deja view, that is because all of those chambers (except the Pennsylvania one) previously filed a joint amicus brief supporting Line 5 in May, 2021. That was in federal court. Michigan wanted the case heard in state court, but Enbridge succeeded in transferring it. When Michigan lost its final no-federal-court argument in late 2021, it simply abandoned that lawsuit and took up a separate but identical state-level one. Interested parties have thus had to refile their briefs. (Some of them have made some changes, such as the above chambers, which among other things criticized Michigan for court-hopping.) Enbridge is once again trying to get the case moved to federal court.
Here in Canada, oil sands producer MEG Energy Corp. (MEG) added 96 cents to $18.01 on 4.74 million shares. The rise largely reflects the jump in oil prices, but MEG did put out an announcement last night, in which it made sure to give investors plenty of notice that chief financial officer Eric Toews will be retiring on Sept. 1. MEG will hire a search firm to look for his successor.
Mr. Toews has been MEG's CFO since 2013. Before that, he spent 17 years in investment banking, plus six years in public accounting. When he arrived at MEG in 2013, it was to replace retiring CFO Dale Hohm, who had been with the company since its start-up stage nine years earlier. MEG does a good job selecting loyal CFOs. Mr. Toews's loyalty held strong even as global oil prices crashed in 2014 and MEG, weighed down by over $4.2-billion in debt, saw its share price crater to less than $5 from over $40 in just two years. It subsequently sank to a COVID-induced low of just $1.13 in 2020. Now, two years later, the stock is above $18, the debt is nearly cut in half and MEG is even starting to mull a dividend. Mr. Toews is ready for retirement.
Elsewhere in Alberta, Jeff Tonken's Montney-focused Birchcliff Energy Ltd. (BIR) added 38 cents to $6.97 on 3.28 million shares, after releasing its year-end financials. They held few surprises, as Birchcliff already released an unaudited version last month. Its chief executive officer, Mr. Tonken, used the update largely as a chance to boast some more about the "record" numbers, including full-year net income of $310-million.
Mr. Tonken added that 2022 is off to a "strong start," with production and spending "on target." Birchcliff previously set a full-year budget of about $250-million to support average production of 78,000 to 80,000 barrels a day. Its other big goal is to get its debt, which was $499-million at the end of 2021, down to $185-million by the end of 2022. "Significantly reducing our indebtedness will ... create optionality when considering sustainable increases to our common share dividend and common share buybacks over the next five years," said Mr. Tonken last month. Birchcliff currently pays a one-cent quarterly dividend, for a yield of just 0.6 per cent. Investors eager for more generous returns will have to make do with buybacks. In the past nine days alone, Birchcliff has bought back 1.07 million of its own shares, spending a total of $8.24-million.
A fellow Montney producer, Rob Zakresky's Leucrotta Exploration Inc. (LXE), added 23 cents to $1.21 on 1.58 million shares. It has secured $55-million in infrastructure financing that it says will help with the goal it set last year of septupling production to 30,000 barrels a day within five years. This goal was discussed in yesterday's summary, after Leucrotta released its year-end reserve report. Today president and CEO Mr. Zakresky provided "greater clarity on [the] funding and timeline."
The clarity is largely thanks to NorthRiver Midstream, a Brookfield Infrastructure portfolio company led by Brandon Anderson (a former executive of TC Energy Corp. (TRP: $68.90)). NorthRiver has agreed to provide $55-million in infrastructure financing at Leucrotta's core Mica Montney project. The terms of the financing were largely undisclosed, but Leucrotta did agree to use NorthRiver's services at a nearby gas processing plant for a period of 10 years, once construction of the Mica infrastructure begins. The immediate advantage to Leucrotta is that it can use its existing cash of about $30-million (plus cash flow and credit facilities) to drill, drill, drill. It has secured a rig and plans to start this year's program at Mica and the surrounding area by early April.
Mr. Zakresky is looking forward to bringing on "a ton of production," as he described it in a friendly interview today with The Market Herald (a PR firm that charges an unspecified price for its flattering attentions). He noted that Leucrotta plans to spend at least $250-million over the next two years. Cash on hand and the new financing will not fully cover that, but Mr. Zakresky says Leucrotta has it all figured out. By his estimate, the debt burden will peak at $85-million at the end of this year (compared with no debt now) and then ease as Leucrotta improves cash flow. That will happen in conjunction with the "large growth plan." Specifically, Mr. Zaskresky predicted that Leucrotta will double its 4,200-barrel-a-day production by this fall, add another 10,000 barrels a day in early to mid-2023, and ultimately achieve its goal of 30,000 barrels a day shortly after that.
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