Stockwatch Energy today
Energy Summary for April 28, 2022
2022-04-28 19:57 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery added $3.34 to $105.36 on the New York Merc, while Brent for June added $2.27 to $107.59 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.65 to WTI, up from a discount of $12.80. Natural gas for May lost 45 cents to $6.89. The TSX energy index added 11.80 points to close at 245.26.
Oil sands producer Suncor Energy Inc. (SU) rose $5.07 to $47.22 on 39.7 million shares, as a famously aggressive activist investor snagged the market's attention. Paul Singer's Elliott Investment Management, which today revealed a 3.4-per-cent interest in Suncor -- making it one of the company's largest shareholders -- has begun pushing for a board shake-up and other changes. The hedge fund has previously won battles with companies such as Twitter, AT&T and Samsung.
In taking aim at Suncor, Elliott noted that the company's share performance has severely lagged other oil sands companies such as Canadian Natural Resources Ltd. (CNQ: $80.15) and Imperial Oil Ltd. (IMO: $64.12). "[Suncor] has seen a decline in the exceptional performance that was formerly its hallmark," wrote Elliott portfolio manager Mike Tomkins and partner John Pike in a letter to Suncor's board. They ran down a list of problems such as "missed production targets, delayed timelines and repeated safety failures," many of which they blamed on a "slow-moving, overly bureaucratic corporate culture that appears to have lost [its] dynamism."
The ambitious goal of the Elliott executives is "restore Suncor to what it once was: the leader of the Canadian energy industry." They urged Suncor to add five new (and as yet unidentified) directors, review its management, boost its dividend and share buybacks, and "explore opportunities to unlock the value of high-multiple assets." They specifically suggested that Suncor sell its retail network (referring to its chain of 1,800 Petro-Can gas stations, once of the largest gas station networks in the country). In their view, following all of their advice could "unlock more than $30-billion in value for shareholders" and potentially "lead to a Suncor share price of $60 or higher."
The mere prospect of a proxy fight was enough to send the stock up to today's close of $47, a 12-per-cent jump in a single day. After the close, Suncor released a brief and carefully bland statement acknowledging the letter. "Suncor appreciates the views of its shareholders and will take the time to carefully assess the recommendations and materials provided," said the board. It added that it "looks forward to engaging with Elliott in due course to better understand their perspective."
Outside the oil sands, Grant Fagerheim's Alberta- and Saskatchewan-focused Whitecap Resources Inc. (WCP) added 21 cents to $10.86 on 10.8 million shares, after releasing its first quarter financials. It toasted its "excellent start to 2022." The adjective is appropriate enough, but given the high bar set yesterday by Cenovus Energy Inc. (CVE: $24.83) -- which used its financials as an opportunity to triple its dividend -- investors found Whitecap's numbers ho-hum. Production of 132,700 barrels a day and cash flow of 80 cents a share were right in line with analysts' predictions. The monthly dividend, which Whitecap already hiked in February, stayed today at three cents a share, for a yield of 3.3 per cent. (That is higher than Cenovus's yield of 1.7 per cent, but Cenovus stirred up better hype.)
Whitecap also announced some changes to its board of directors. Heather Culbert, a director since 2017, will retire at the annual shareholder meeting on May 18. (She is perhaps too busy with her many other board commitments, including as vice-chairman of Export Development Canada, chairman of the United Way World Leadership Council, and board member of the Fraser Institute and She Leads Economic Council of Alberta.) Taking her seat will be Chandra Henry, the former long-time CFO of FirstEnergy/GMP Capital and the current CFO of Longbow Capital (an energy-focused private equity firm). Ms. Henry also sits on the boards of Headwater Exploration Inc. (HWX: $6.68) and the private Bonavista Energy.
Whitecap was not the only company releasing its first quarter financials and welcoming a new face. Jim Evaskevich's Alberta Cardium-focused Yangarra Resources Ltd. (YGR) added 25 cents to $2.97 on 1.23 million shares, after putting out its latest quarterly report and appointing a new president. The report was largely as expected. Cash flow came to 43 cents a share, slightly higher than analysts' predictions of 42 cents a share, even though production of 10,000 barrels a day was slightly lower than analysts' predictions of 10,400 barrels a day. Yangarra patted itself on the back for keeping its cash flow up by keeping its costs low.
As well, Yangarra promoted Gurdeep Gill to the role of president (with Mr. Evaskevich remaining chief executive officer). Mr. Gill is Yangarra's vice-president of business development. He joined Yangarra in 2018, and before that spent about 18 years in investment banking, including a long stint as head of investment banking at AltaCorp Capital (now ATB Capital Markets).
Further afield, Sean Guest's Valeura Energy Inc. (VLE) added 3.5 cents to 48.5 cents, after announcing a long-awaited international acquisition. It plans to buy KrisEnergy International, the operator of two shallow-water oil and gas licences off the coast of Thailand, one of which offers a "near-term production reactivation opportunity." Valeura will also buy a mobile offshore production unit (MOPU) to help with the reactivation and (it hopes) to get the first licence on production in as little as six months. The combined deals will cost $12.3-million (U.S.) upfront and up to $7-million (U.S.) in milestone payments.
Investors have been waiting for Valeura to announce a deal like this for more than a year. It first announced back in August, 2020, that it was "actively seeking opportunities to grow its business through the [international] mergers and acquisitions market." At the time, its sole producing assets were conventional gas fields in Turkey, which it subsequently sold in 2021 to raise money for its search for new assets. It also owns unconventional deep gas assets in Turkey, but cannot develop them on its own and lost its previous joint venturer, Norway's Equinor, more than two years ago (with Equinor being the one to walk away). Valeura has said repeatedly that it would welcome the chance to develop the deep gas assets if a deep-pocketed partner would take an interest. No one has.
Today's deal will finally give Valeura a new promotional focus, in Thailand. President and CEO Mr. Guest called himself "delighted to announce the first transaction in our new growth strategy." It can easily afford the transaction, given that it had $40.8-million (U.S.) cash and no debt as of Dec. 31. Mr. Guest said Valeura will look for "opportunities for further growth in Southeast Asia" -- and oh, by the way, the Turkish gas project is still around too, offering "substantial potential upside value."
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