Stockwatch Energy today
Energy Summary for April 27, 2022
2022-04-27 20:01 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery added 32 cents to $102.02 on the New York Merc, while Brent for June added 33 cents to $105.32 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.80 to WTI, unchanged. Natural gas for May added 42 cents to $7.27. The TSX energy index added 7.64 points to close at 233.46.
Oil prices wobbled but held steady, as fresh supply fears battled with lingering demand fears. Russia has halted gas supplies to Bulgaria and Poland, citing "absence of payments in rubles" (having previously decreed that gas payments must come in rubles now, in an attempt to cushion its currency against sanctions related to its invasion of Ukraine). The European Union denounced the shut-offs as "blackmail." While European tensions simmered, Chinese COVID outbreaks continued to rage, fuelling demand concerns and keeping a lid on prices.
Here in Canada, oil sands producer Cenovus Energy Inc. (CVE) added $2.18 to $23.27 on 26.9 million shares, getting the upstream quarterly earnings season off to a rollicking start. The company released its first quarter financials this morning and trumpeted a net profit of $1.6-billion on revenue of $16.2-billion. It also announced a tripling of its quarterly dividend to 10.5 cents (from 3.5 cents), for a yield of 1.8 per cent.
Investors were gleeful. At 79 cents a share, Cenovus's net profit was much higher than the 46 cents a share that analysts were predicting, easily batting away $970-million in hedging losses that it warned investors about earlier this month. A surprisingly good performance from the downstream refining division helped offset the poor hedges. Other bits and pieces in the financials included a $242-million gain on asset sales. Cenovus recently sold its Tucker oil sands project for $800-million (to the private Strathcona Resources), as well as its Wembley conventional oil assets for about $220-million (to an unspecified buyer). To adjust for the asset sales, Cenovus released new production guidance today, setting a full-year target of 760,000 to 820,000 barrels a day (down from 780,000 to 820,000).
Cenovus also announced a budget boost, though for a very different reason. The Superior refinery in Wisconsin is posing another headache. Almost exactly four years have passed -- the anniversary was yesterday, in fact -- since the refinery suffered an explosion that caused dozens of injuries and forced thousands of evacuations. The refinery was then owned by Husky Energy. Husky estimated at the time that it would cost $400-million (U.S.) to rebuild Superior. In 2020, it nearly doubled that estimate to $750-million (U.S.), and then hiked it again to $950-million (U.S.) in 2021 -- except by then it was Cenovus's problem, as it had bought Husky earlier that year. Today, the cost went up yet again to $1.2-billion (U.S.), or triple the original estimate. Cenovus cited the higher rebuilding costs as its reason for boosting its overall 2022 budget by $300-million (to a range of $2.9-billion to $3.3-billion).
Despite the continuing cost overruns at Superior, the financials held more than enough to please investors, and president and chief executive officer Alex Pourbaix was understandably upbeat during a conference call this morning. "We've laid out a clear path for how we will continue growing shareholder returns while positioning the balance sheet to support that returns-growth profile for years to come," he declared. He added that this is no mere "word salad." Among other goals, he wants to reduce Cenovus's net debt to $4-billion by year-end (down from $8.4-billion as of March 31), and he said he has a "line of sight" to "reasonably grow" the dividend over the next five years
International oil and gas producer Vermilion Energy Inc. (VET) added 27 cents to $25.41 on 3.1 million shares. It has closed its previously announced $400-million (U.S.) note offering. The notes mature in eight years and bear interest at 6.875 per cent. Vermilion is using the proceeds to pay off other debt, namely borrowings under its credit facility, which its bankers -- ostensibly at Vermilion's request -- have "reduced to Vermilion's targeted level of $1.6-billion (from $2.1-billion)." Vermilion did not say why it targeted such a reduction, but it did mention that the bankers simultaneously agreed to extend the facility by two years to mid-2026.
Meanwhile, Vermilion continues to work on acquisitions on not one but two continents. It made a $477-million offer last month for Leucrotta Exploration Inc. (LXE: $2.03) in the B.C. Montney, a deal it hopes to close by the end of May. Separately, at some point in the second half of the year, Vermilion plans to nearly triple its interest in the Corrib gas project in Ireland to 56.5 per cent from 20 per cent (having agreed in December to buy a 36.5-per-cent interest from Norway's Equinor). The Corrib project has come under increasing attention from investors in the wake of the European gas crisis. Today, after Russia suspended gas sales to Poland and Bulgaria, wholesale European gas prices -- which are already about six times higher than this time last year -- rocketed by as much as 20 per cent.
Back in North America, Arthur Millholland's Canadian Overseas Petroleum Ltd. (XOP) -- which despite its name is primarily active in Wyoming, not Canada or overseas -- added half a cent to 33.5 cents on 31,500 shares. It has appointed Robert Chenery to its board of directors. He is the Chenery in Chenery Dobson Resource Management, a consulting firm where he has served as president for the last 41 years (he is 75). Before that, he worked in the Canadian arm of the Elf Aquitaine Group, a controversial predecessor of France's TotalEnergies.
(The controversy is worth an aside. In the 1990s and 2000s -- long after Mr. Chenery left to found Chenery Dobson in 1981 -- Elf found itself at the centre of a headline-grabbing corruption scandal, amid allegations that executives used it as a private bank with which to buy everything from villas to political favours to mistresses. The Guardian dubbed it "probably the biggest political and corporate sleaze scandal to hit a western democracy since the Second World War." Over three dozen executives and intermediaries were put on trial in the early 2000s, with most of them being found guilty and hit with jail sentences and fines, though there are rumours that some of the biggest fish managed to swim free.)
Naturally, Canadian Overseas did not get into any of that, barely mentioning the name Elf before diving quickly into Mr. Chenery's other qualifications. "Robert is a great addition to our board, as he has such relevant in-depth sector expertise ... [and] significant executive management experience," declared president and CEO Mr. Millholland. He is looking forward to drawing on Mr. Chenery's "diverse skill set and perspective" as the company works to expand in Wyoming. It made a light oil discovery in the state in January and is currently trying to snap up the assets of Cuda Oil, a Wyoming-focused junior that used to trade on the TSX until falling into bankruptcy late last year.
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