Stockwatch Energy today
Energy Summary for May 2, 2022
2022-05-02 20:47 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery added 48 cents to $105.17 on the New York Merc, while Brent for July added 44 cents to $107.58 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.38 to WTI, up from a discount of $12.75. Natural gas for June added 24 cents to $7.48. The TSX energy index lost a fraction to close at 240.75.
Oil prices crept higher as the European Union reportedly mulled sanctions on Russian crude over Russia's invasion of Ukraine. The EU has been reluctant to take this step so far, considering Europe's heavy reliance on Russian energy imports. Germany was particularly resistant. Today, however, German Economic Minister Robert Habeck told the press that the country has "managed to reach a situation where Germany is able to bear an oil embargo." Hungary and Slovakia are both still opposed and may be granted an exception or a long phase-in period, according to Reuters. The EU is expected to propose the next round of sanctions -- possibly including the oil embargo -- on Wednesday.
Here in Canada, oil sands producer Cenovus Energy Inc. (CVE) edged down one cent to $23.74 on 16.4 million shares. It is catching its breath after rising from $21 since last Wednesday's announcement of its first quarter financials and a tripling of its dividend. (Its yield is now 1.8 per cent.) Also last week, Cenovus's management went on a marketing road show with RBC Capital to woo institutional investors, leading to a boosterish write-up on Friday from RBC analyst Greg Pardy. Mr. Pardy has a $28 price target on the stock. Cenovus separately won a lovely mention this morning from Goldman Sachs analyst Neil Mehta, who gave his price target a $1 (U.S.) bump up to $21 (U.S.), the equivalent of $27.
Judging from Mr. Pardy's write-up, Cenovus spent the marketing meetings talking up its goal of "building shareholder value ... [through] upstream/downstream debottlenecking initiatives ... [and] margin expansion." In practice, this seems to mean keeping production relatively stable while looking for ways to reduce costs. The company is also working on reducing debt. Net debt was $8.4-billion as of March 31, and once it gets down to $4-billion, management vowed that every penny of free cash flow will go toward buybacks and dividends (including variable dividends).
"Cenovus remains our favourite Canadian integrated producer," cheered Mr. Pardy as he summarized the meetings. He reiterated his bullish stance and noted that Cenovus is on RBC's "Global Energy Best Ideas" list. A different list on RBC's website, involving corporate disclosures, indicates that RBC has recently led financings for Cenovus, receives compensation from Cenovus for various banking and non-banking services, and generally "makes a market" in Cenovus's securities.
Outside the oil sands, Alberta Montney producer Advantage Energy Ltd. (AAV) added 12 cents to $10.85 on 3.2 million shares, regaining the 11 cents it lost on Friday after releasing its first quarter financials. It swung to a profit of $19.4-million from a loss of $425,000 in the same period last year. Production averaged just under 53,000 barrels of oil equivalent a day, surpassing the estimate that Advantage provided in February, when it predicted an average of just 52,000 barrels a day.
Less happily, Advantage is feeling the pinch of inflation. Production may have been higher than expected, but cash flow was not; it matched analysts' predictions of 55 cents a share (meaning that some of the benefits of the higher production were offset by higher costs). As well, although Advantage did not hike its 2022 budget of $170-million to $200-million, it said it expects to be "towards the top of [the] range." It reassured investors that it still expects to generate more than enough cash flow to cover the budget as well as some extra goodies. Notably, Advantage has already bought back 4.1 million shares under its up-to-18-million-share buyback program, which it announced less than a month ago. It has also started dangling the possibility of "synergistic acquisitions."
Further afield, Jose Francisco Arata's New Stratus Energy Inc. (NSE) shot up 19 cents to 91 cents on 762,700 shares, pleasing investors with a preliminary look at its fiscal fourth quarter ended March 31. This is also known as its first quarter with any production or revenue. In mid-January, after much delay, it finally closed its acquisition of a 35-per-cent interest in blocks 16 and 67 in Ecuador. This interest contributed net production of 5,338 barrels a day in the fiscal fourth quarter.
Shareholders had to wait a long time for New Stratus to join the ranks of producers. The company got its start as a junior uranium explorer roughly 15 years ago. That did not go anywhere, so in 2011 it picked up some B.C. oil and gas rights, which did not go anywhere either. In 2017, it reorganized and got new management, including the above-mentioned Mr. Arata as a director (now chairman and chief executive officer). In 2018, Mr. Arata tried to turn New Stratus into a Colombian producer via the takeover of Vetra Energy. That deal fell apart in early 2020. Mr. Arata set his sights on Ecuador instead, arranging the first version of the above acquisition (the interest in blocks 16 and 67) in late 2020. That deal failed to secure approval from the Ecadorean regulators. Undaunted, he tried again with a restructured deal, and this time, it went through.
Mr. Arata is used to the sometimes slow wheels of South American dealmaking. Before coming to New Stratus, he was the president of Pacific Exploration, a once high-flying Colombian oil producer that spiralled into bankruptcy in 2016 (although Mr. Arata had left by then, announcing his retirement in 2015). It has since re-emerged as Frontera Energy Corp. (FEC: $13.69), under different management.
While Mr. Arata's New Stratus pumps oil in Ecuador, two other former Pacific executives are hard at work at their post-Pacific promotion. Ron Pantin and Serafino Iacono's Colombian gas explorer, NG Energy International Corp. (GASX), today lost 11 cents to $1.09 on 337,900 shares. Investors seemed perturbed by last Friday afternoon's announcement of a $20-million debt financing. The company wants to sell five-year convertible debentures (plus warrant sweeteners) carrying a conversion price of $1.70 a share.
The offering raised investors' eyebrows because NG Energy previously proposed a convertible debenture financing in March, seeking to raise more money ($45-million) and using a higher conversion price ($2.25 a share). It said it would close the financing on April 19, a date that came and went with no mention of any closing. Apparently the company is sweeping that under the rug and trying again for a less ambitious financing.
NG Energy wants the money to help it achieve its goal of becoming a Colombian gas producer. This is another milestone that has apparently been just around the corner for several months now, even helping the stock hit a high of $2.33 in January. It has since more than halved to today's close of $1.09. The prospectus for the new financing does its best to reassure investors that production has a very, very good chance of happening at some point before the end of the year.
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