Stockwatch Energy today
Energy Summary for April 19, 2022
2022-04-19 20:26 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost $5.65 to $102.56 on the New York Merc, while Brent for June lost $5.91 to $107.25 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.00 to WTI, unchanged. Natural gas for May lost 64 cents to $7.18. The TSX energy index lost 3.47 points to close at 241.17.
Oil prices skidded in the wake of a bearish report from the International Monetary Fund (IMF). The institution has lowered its forecast for global economic growth, citing Russia's invasion of Ukraine and worsening COVID outbreaks in China (which reported its very first COVID deaths in Shanghai, its economic capital, late yesterday). The IMF also issued a warning that inflation is now a "clear and present danger" for many countries. The bleak outlook came on the heels of a similarly gloomy report from the International Energy Agency, which cut its global oil demand forecast last week.
Here in Canada, the first green shoots of the oil patch's first quarter reporting season are starting to sprout. First to go (as usual) was PrairieSky Royalty Ltd. (PSK), down 41 cents to $18.79 on 644,700 shares. While not a direct oil and gas producer, PrairieSky collects royalties from producers across Western Canada, and its numbers provide a useful barometer of industry activity. To hear PrairieSky talk, its corner of the industry is in marvellous health. President and chief executive officer Andrew Phillips boasted about "record Q1 2022 funds from operations" and "record quarterly royalty production revenue."
The actual numbers were more or less as expected. Royalty production of 23,900 barrels a day was a hair above analysts' predictions of 23,800 barrels a day, while cash flow of 44 cents a share was a hair below analysts' predictions of 45 cents a share. Investors were likely hoping for higher cash flow, having sent the stock on a nearly $2 tear since the start of the month, but today's 41-cent drop erased relatively few of those gains. Meanwhile, analysts ratcheted up their cheerleading. Among those pumping out research notes today were RBC's Luke Davis, who hiked his price target to $22 from $21, iA Capital Markets' Matthew Weekes, who hiked his target to $23.50 from $21.50, Stifel's Robert Fitzmaryn, who hiked his target to $23.50 from $21, and TD's Aaron Bilkoski, who reiterated his target of $23.
For most of the oil patch, the quarterly earnings season will kick off next week. Cenovus Energy Inc. (CVE: $22.65) plans to release its results on Wednesday, April 27, followed by companies such as Baytex Energy Corp. (BTE: $6.64) on April 28 and Imperial Oil Ltd. (IMO: $63.79) on April 29.
International producer Vermilion Energy Ltd. (VET), down 88 cents to $28.22 on 2.87 million shares, sought to get a head start on stirring up excitement for its financials, though it will not release them until May 11. It provided an operational update today in which it pegged its first quarter production at 86,200 barrels a day. "[This] exceeded the upper end of our initial 2022 guidance of 83,000 to 85,000 barrels a day," boasted management. It is also within the company's recently revised guidance of 86,000 to 88,000 barrels a day, which it unveiled on March 28 after announcing its planned takeover of Leucrotta Exploration Inc. (LXE: $2.04) in the B.C. Montney. The two of them hope to close the deal this summer.
In a separate announcement today, Vermilion proposed a $400-million (U.S.) note offering, saying it plans to sell eight-year 6.875 per cent notes to unidentified but institutional buyers. The proceeds will go toward its bank debt, with Vermilion ultimately looking to reduce the size of its credit facility to $1.6-billion from $2.1-billion. It did not say why it wants to do this. Fitch Ratings, commenting on the offering, noted that the bankers will agree to extend the lowered credit facility by two years to 2026. Fitch gave the new notes a rating of BB-, which is junk. Moody's Investors Service also gave the notes a junk rating (B3), but kindly added that Vermilion has "good liquidity" and is on track to achieve "significant free cash flow" in 2022.
Back in the world of financials, investors are still waiting on a handful of companies (one of which is the above-mentioned Leucrotta) to file their results for year-end 2021. The wait finally ended this morning for shareholders of Ian Atkinson's Southern Energy Corp. (SOU), down three cents to 73 cents on 270,200 shares. Southern holds gas assets along the U.S. Gulf Coast. Thanks to the low decline rates of its assets, its full-year production averaged 2,100 barrels a day in 2021, barely changed from 2020 despite a complete lack of drilling. Revenue still nearly doubled to $19.9-million (U.S.) from $10.4-million (U.S.) because of rising gas prices. Net income for 2021 was a lofty $10.0-million (U.S.), though this included a $7.8-million (U.S.) impairment reversal.
It also included a $4.5-million (U.S.) gain on debt retirement. Southern completed various financings in 2021 to help whittle down its debt, though in the process it nearly tripled its share count to 616 million. It rolled back 1 for 8 in December and now has 78 million shares outstanding. Happily, and again reflecting higher gas prices, subscribers in the financings have generally made out well. Southern most recently raised $12.6-million at five cents (or 40 cents postrollback) in November. A subscriber who put in $10,000 then would now have $18,250.
The recent rise also reflects Southern's recent return to drilling for the first time in years. In January of this year, Southern spudded three wells at its core Gwinville field in Mississippi. It told investors to expect the first production from the wells in April. Today -- perhaps explaining some of today's drop in the share price -- it informed them that it is slightly behind schedule. It will aim for May instead.
Delay aside, president and CEO Mr. Atkinson is undoubtedly pleased to be drilling. Southern previously had not drilled a well since 2017, which means it had not drilled a well since the time he took charge of the company in December, 2018. That was when he sold Southern his prior promotion, Gulf Pine Energy, which he founded in 2015. Before that, he was a co-founder and senior vice-president of Athabasca Oil Corp. (ATH: $2.40) in the Alberta oil sands. He helped take it public at $18 a share in 2010. One hopes he sold his founder shares quickly, as the following decade was far from kind to Athabasca, whose stock was trading at a mere eight cents by early 2020. Investors who took the plunge then, of course, will be overjoyed by the stock's rally to today's close of $2.40.
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