Stockwatch Energy today
Energy Summary for April 21, 2022
2022-04-21 20:57 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery added $1.60 to $103.79 on the New York Merc, while Brent for June added $1.53 to $108.33 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.20 to WTI, up from a discount of $13.00. Natural gas for May added two cents to $6.96. The TSX energy index lost 8.74 points to close at 235.81.
Oil prices rose, but oil stocks were caught up in a multisector bloodbath, with the TSX posting its worst day in three months. The drop reflected hawkish comments from the U.S. Federal Reserve as it mulls steep increases in interest rates to battle inflation. "I would say that 50 basis points will be on the table for the May meeting," Federal Reserve chairman Jerome Powell told a panel in Washington. Another member, St. Louis Fed president James Bullard, indicated that he would even consider an increase of 75 basis points. Concerns about tightening financial conditions sent all major sectors on the TSX, including energy, into freefall.
It was not all doom and gloom. Oil sands giant Canadian Natural Resources Ltd. (CNQ), though it lost $2.86 to $83.09 on 6.82 million shares, was in the headlines today after becoming the first Toronto-listed oil and gas producer to crack a $100-billion market cap -- if only briefly. The golden moment occurred yesterday, when the stock hit an intraday high of $86.42. Yesterday's close of $85.95 put it just short of the mark at $99.7-billion. Today it lost more ground, closing at $83.09, but the happy headlines will live forever.
One who likely especially enjoyed the articles -- he was mentioned in nearly all of them -- is N. Murray Edwards, Canadian Natural's billionaire co-founder and executive chairman. His 21.5 million shares are worth $1.7-billion and provide him with over $16-million in quarterly dividend payments. (Canadian Natural pays a 75-cent quarterly dividend, for a yield of 3.6 per cent.) Mr. Edwards recently took an interest in a much smaller oil company. In December, 2020, he disclosed himself as a sizable shareholder of Scott Ratushny's Cardinal Energy Ltd. (CJ), a company that was trading at the time at around 50 cents. Cardinal closed today at $7.17. Mr. Edwards owns 17.2 million of its 151 million shares, as well as 8.2 million in-the-money warrants.
Canadian Natural separately won a nod of approval today from Moody's Investors Service. The credit rating agency upgraded the company's rating to Baa1 from Baa2 (both safely in investment-grade territory). This is the first time that Canadian Natural has received an upgrade from Moody's since 2018. Before that, from 2016 to 2018, it had a rather worrisome rating of Baa3, which was only one step above junk. Its prior rating had long been Baa1 until Moody's took the unusual step in 2016 of downgrading it by not one but two notches. After six years, the company has finally clawed them both back.
Elsewhere in Alberta, Brian Schmidt's Tamarack Valley Energy Ltd. (TVE) lost one cent to $5.12 on 17.5 million shares, as it continued its Clearwater shopping spree. It also hiked its dividend. Its president and chief executive officer, Mr. Schmidt -- who is an honorary chief of Alberta's Blood tribe and often includes his other name, Aakaikkitstaki, in press releases -- said the update underscores Tamarack's focus on "long-term sustainable free funds flow growth and shareholder returns."
The acquisition target is Doug Chrumka's Rolling Hills Energy, an eight-year-old private company producing about 2,000 barrels a day in the Alberta Clearwater play, where Tamarack has been steadily expanding since 2020. When Tamarack first began expanding there, it could (and did) buy about 2,000 barrels a day for just $74-million. The price it will pay for Rolling Hills is $93-million. Several public companies have poured into the Clearwater over the last 18 months, including Tamarack, Headwater Exploration Inc. (HWX: $7.13), Baytex Energy Corp. (BTE: $6.70) and more. Mr. Chrumka evidently chose now as his time to sell. This is his first time selling a company where he is president and CEO. He was previously a vice-president at Home Quarter Resources, an Andrew Phillips promotion bought by Whitecap Resources Inc. (WCP: $10.75) in 2014.
Meanwhile, Tamarack's dividend is getting its first hike. The dividend is only about three months old; Tamarack started paying it in January, at a rate of 0.83 cent a month (or 10 cents annualized) Now Tamarack will boost the monthly payout to an even penny. The implied yield is 2.3 per cent. Neither the higher dividend nor the acquisition was quite enough to offset the broader market gloom, but of all the TSX energy stocks that fell today -- virtually all of them -- Tamarack's fell the least.
Another not-too-bad energy stock today was Dale Shwed's Crew Energy Inc. (CR), which lost eight cents to $5.14 on 1.99 million shares, after releasing a first quarter operational update from its assets in the B.C. Montney. It pegged its quarterly production at 33,300 barrels a day. This is already above its full-year guidance of 31,000 to 33,000 barrels a day. Assuming that Crew can stay around this level for the full year, it will achieve the goal it set in 2020, when it vowed to pursue a nearly 50-per-cent production increase over two years.
"Our team is excited with the progress made on the company's two-year plan," declared president and CEO Mr. Shwed today. He added that the higher production will generate higher cash flow that Crew can use to reduce its debt. Unusually for an energy company, Crew's debt increased in 2021 to $405-million from $357-million, reflecting the choice to pursue production increases while competitors largely kept production flat. (Also unusually -- but unsurprisingly given the context -- Crew has stayed away from the fashionable trend of announcing dividends and buybacks.) Investors will get the next update on the debt when Crew releases its first quarter financials on May 5.
Over in Saskatchewan, John Jeffrey's Saturn Oil & Gas Inc. (SOIL) lost two cents to $3.26 on 391,700 shares. Its dip came in spite of a boosterish mention from Echelon analyst Michael Mueller, who published a research note this morning calling Saturn a "top-tier free cash flow machine." He likes the company's light oil assets in Saskatchewan and its "impressive" cash flow. In his view, Saturn has a whole galaxy of options available to reward shareholders, "be it through aggressive debt repayment (we forecast Saturn to be debt free in [the third quarter of 2023]), future dividends, share buybacks and/or accretive acquisitions." He gave it a "buy" rating and a price target of $7.50.
This was Mr. Mueller's very first research note on Saturn. It is not, however, the first time that investors have seen Saturn's name linked to Mr. Mueller's employer, Echelon. Just last month -- what a happy coincidence -- Echelon was the lead underwriter in Saturn's $18.4-million bought deal at $3. Mr. Mueller's new price target of $7.50 is more than double the offering price and more than double today's close of $3.26.
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