Stockwatch Energy today
Energy Summary for April 29, 2022
2022-04-29 20:08 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery lost 67 cents to $104.69 on the New York Merc, while Brent for June added $1.75 to $109.34 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.75 to WTI, down from a discount of $12.65. Natural gas for June added 35 cents to $7.24. The TSX energy index lost 3.54 points to close at 241.72.
The big headline grabber in the Canadian oil patch continued to be Suncor Energy Inc. (SU), which lost $1.04 to $46.18 on 17.9 million shares, giving back some of the $5.07 it added yesterday after catching the eye of the activist hedge fund Elliott Investment Management. As discussed yesterday, Elliott wants Suncor to overhaul its board and conduct a "strategic review" of some non-oil-sands assets (otherwise known as putting them up for sale). Suncor responded non-committally that it "appreciates the views of its shareholders and will take the time to carefully assess [Elliott's] recommendations."
At this stage, the discourse has avoided some of the more adversarial techniques used (or rumoured to be used) by Elliott in the past. A one-time signature Elliott move was to release a letter harshly criticizing a target's chief executive officer. (Rumours have also swirled around seedier tactics, such as threatening to leak unwelcome information about a target's directors, but Elliott has denied such allegations.) Suncor CEO Mark Little emerged relatively unscathed from yesterday's letter, with Elliott merely recommending an "objective review" -- but not necessarily a replacement -- "of Suncor's executive leadership." While unusual for Elliott, this is in keeping with a broader trend among activist investors, which have started emphasizing co-operation over condemnation -- at least to start.
Also unusual for Elliott is Suncor's location and business. Elliott has tended to focus more on U.S. companies, and has never shown much interest in the oil and gas sector. Activists in general tend to show little interest in oil and gas. There are some exceptions. For example, the hedge fund FrontFour Capital began investing in 2013 in Alberta Cardium producer Obsidian Energy Ltd. (OBE: $10.56), which since 2019 has been led by FrontFour co-founder Stephen Loukas. A more traditional coup-like experience occurred at Colombian oil producer Gran Tierra Energy Inc. (GTE: $2.07), where West Face Capital succeeded in overhauling the board and installing a new CEO, Gary Guidry, in 2015. There was also another Alberta producer, RMP Energy, which more or less surrendered itself gladly in 2017 to Josh Young's Bison Interests, which sold it in 2018.
As it happens, Mr. Young appeared today on BNN to give his take on Elliott's interest in Suncor. He too noted that activists generally stay out of oil and gas, which in his view is because "there are a lot of complexities ... and activists tend to be generalists." The fact that Elliott is now willing to wade into these complexities is a "promising" sign to him. "Hopefully," said Mr. Young, "this is the start of institutions feeling more comfortable with allocating investment dollars to the space" -- perhaps not necessarily warship-seizing activist hedge funds, but also pensions, endowments and so on.
Meanwhile, quarterly earnings season marched on. Oil sands producer Imperial Oil Ltd. (IMO) added 56 cents to $64.68 on 3.99 million shares, after releasing its first quarter financials and announcing another massive share buyback program. Net earnings tripled to $1.17-billion in the first quarter from $392-million in the same period last year. On a per-share basis, earnings were $1.75 a share, just edging out analysts' predictions of $1.74 a share. This was the case even though production of 380,000 barrels a day was below analysts' predictions of 394,000 barrels a day. Imperial said its production would have been higher if not for "extreme cold weather and unplanned downtime."
Imperial also said it plans to buy back up to $2.5-billion of its own shares in just two months. It is launching a special buyback program, having run out of room under the regular 12-month program that it launched last June (and which it already completed in January). At today's close, $2.5-billion would buy 38.6 million shares, or about 5 per cent of the current share count of 678 million. Imperial promised to figure out the terms of the buyback by mid-May and complete it by the end of June.
Financials and buybacks were also a theme today at Baytex Energy Corp. (BTE), down 54 cents to $6.57 on 18.5 million shares. It too released its first quarter financials and firmed up the details of a buyback program. In Baytex's case, this is the first buyback program it has announced since 2003.
Starting with the financials, they showed first quarter production of 80,900 barrels a day and cash flow of 49 cents a share, in line with analysts' predictions. Also in line with analysts' predictions, Baytex used the financials as an opportunity to hype its assets in the up-and-coming Clearwater play. The Clearwater was virtually unheard of five years ago. Now, it has "emerged as one of the most profitable plays in North America," declared president and chief executive officer Ed LaFehr. Baytex's Clearwater production has risen to 8,000 barrels a day from nothing in about a year. Mr. LaFehr lauded this "exceptional" performance as he hiked Baytex's full-year production guidance . He also hiked the budget, although only about half of the increase had to do with an expanded Clearwater program; the rest reflected the less pleasant reason of inflation.
Mr. LaFehr also patted Baytex on the back for reducing its net debt to $1.28-billion as of March 31. It is fast approaching the magic number of $1.2-billion that he has been talking about for nearly a year. Since last July, Mr. LaFehr has been promising that Baytex would hit that target and then consider "shareholder returns." He clarified in February that those returns would take the form of a share buyback program (the first in nearly two decades). In the new financials, he dubbed himself "excited" to confirm that Baytex plans to buy back up to 56 million shares, or 10 per cent of its public float, starting next month.
Ending overseas, Dr. Art Halleran's Trillion Energy International Inc. (TCF) added five cents to 41.5 cents on 2.52 million shares, as it chatted about "improved economics" at a gassy Bulgarian exploration project. Investors are getting used to these rather bloodless promotions of Trillion's European gas assets, located in both Bulgaria and Turkey. Turkey has been the main focus so far (and Trillion is planning its first drilling there this summer). This week, however, Russia's Gazprom cut off gas supplies to Bulgaria -- which has historically relied on Russia for 90 per cent of its gas -- and Trillion's Dr. Halleran leaped into action. Today he dredged up an eight-year-old prospective resource report on the company's Vranino project, a source of "significant natural gas potential to supply domestic gas to Bulgaria."
Bulgaria "urgently needs domestic supply of natural gas for its energy security and survival," declared Dr. Halleran. He added that he has been in meetings with Bulgarian authorities about the early-stage environmental reports necessary to start work on Vranino. Any potential outcome of the meetings -- such as a fast-tracking of the reports -- went undisclosed, but Dr. Halleran hinted that Trillion is keen to pursue a five-well exploration program. He did not discuss when such a program might start or how Trillion might pay for it.
© 2022 Canjex Publishing Ltd. All rights reserved.