Stockwatch Energy today
Energy Summary for May 31, 2022
2022-05-31 20:18 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery lost $2.50 to $114.67 on the New York Merc, while Brent for July went the opposite direction and added $1.58 to $122.84 (all figures in this para U.S.). Western Canadian Select traded at a discount of $17.00 to WTI, up from a discount of $18.00. Natural gas for July lost 55 cents to $8.15. The TSX energy index lost 7.67 points to close at 269.32.
Oil prices ended May with another monthly gain, notching their sixth monthly rise in a row, the longest winning streak in about a decade. The European Union has announced a landmark agreement to ban about 90 per cent of Russian oil imports by the end of the year. The embargo, designed to punish Russia for its invasion of Ukraine, has been in the works since last month, but faced resistance from Hungary and other countries that are especially reliant on Russian energy. To secure approval, the EU has granted a partial exemption to a Russian pipeline that serves Hungary, Slovakia and the Czech Republic.
Here in Canada, two Alberta giants made headlines off the East Coast. Cenovus Energy Inc. (CVE), down 46 cents to $29.32 on 27.9 million shares, and Suncor Energy Inc. (SU), down $1.67 to $50.89 on 20.8 million shares, have formally announced the restart of the West White Rose project off the coast of Newfoundland. They hope to resume work next year and achieve production in 2026.
Cenovus is the operator of the project, a role it inherited when it bought the former operator, Husky Energy, in early 2021. Husky had halted work on the 65-per-cent-finished project during the COVID downturn in 2020. Cenovus vowed to make a decision on a restart by mid-2022, but appeared to stretch that timeline last week, when chief executive officer Alex Pourbaix told The Globe and Mail that the decision was "probably a few months away." Happily, it ended up needing only a few more days.
Joint venturer Suncor is particularly delighted. It has long been pushing for a restart, finally getting Cenovus to show some interest last September, when Suncor promised to buy part of Cenovus's interest in West White Rose -- as well as part of Cenovus's interest in the nearby White Rose field, which is already on production -- if only Cenovus would approve a restart. Today's update indicated that Suncor will keep its word. In exchange for a $50-million payment to Cenovus, Suncor will increase its interests in West White Rose to 38.6 per cent (from 26.1 per cent) and in White Rose to 40 per cent (from 27.5 per cent). Cenovus's interests will correspondingly drop to 60 per cent and 56.375 per cent, respectively. (Investors will note that this leaves a roughly 5-per-cent interest in West White Rose still outstanding, which is held by provincial energy company Nalcor.)
"The decision to restart the West White Rose project and increase our interest underscores Suncor's confidence in East Coast Canada's energy future," cheered Shelley Powell, a senior vice-president of Suncor. The government of Newfoundland was similarly ecstatic, with Premier Andrew Furey holding a press conference to trumpet the news. "It's a good day," he cheered. By his calculations, West White Rose will generate almost $20-billion in GDP and create around 1,750 jobs over its 14-year lifespan. No press conference, of course, would be complete without bowing before the net-zero-by-2050 altar, and Mr. Furey made sure to emphasize that West White Rose will produce "responsible, lower-carbon oil" that will actually support the province's environmental goals.
Back in Alberta, oil sands producer MEG Energy Corp. (MEG) lost 58 cents to $22.07 on 25.7 million shares, despite trying to impress investors with the official launch of its share buyback program. It proudly proclaimed this morning that it bought back 3.4 million shares at $21.85. Investors showed little reaction, but the news came as little surprise: MEG had already announced in March that it had secured TSX approval for a buyback of up to 27.2 million shares (or 10 per cent of its public float), which it planned to launch once its net debt hit $1.7-billion (U.S.). It then disclosed earlier this month that its net debt was $1.27-billion (U.S.) (as of March 31), leading investors to expect that share buybacks were all but imminent. The company's next goal is to get to $1.2-billion (U.S.) in net debt in the second half of 2023.
It is still looking for a new chief financial officer to help it do that. Current CFO Eric Toews announced in March that he will retire on Sept. 1. MEG is hoping to hire a successor before then, which would allow the newcomer to complete a transition period with Mr. Toews before his departure. It has hired an executive search firm to help find candidates.
Elsewhere in Alberta -- though that will not be its sole focus for much longer -- Tony Marino's Tenaz Energy Corp. (TNZ) added three cents to $2.75 on 87,400 shares, after releasing its first quarter financials. It swung to a profit of $3.4-million from a loss of $976,000 in the same period last year. While higher oil prices helped, the profit of $3.4-million is a noticeably high figure next to actual oil and gas sales of $6.2-million. The real credit goes to $4.2-million in impairment reversals.
Investors are more interested in the deal that Tenaz announced long after quarter-end. Over the past week, the stock has risen to $2.75 from $2.19, following last Wednesday's announcement that Tenaz will buy an AIM-listed international producer called SDX Energy. The deal will roughly triple Tenaz's production to 4,500 barrels a day and take into its new core region of North Africa (Egypt and Morocco). The above-mentioned Mr. Marino -- who became Tenaz's president and CEO last summer, about a year after his previous promotion, Vermilion Energy Inc. (VET: $27.36), showed him the door -- spent most of the financials hyping this acquisition. He added that Tenaz is looking to launch a share buyback program after the deal closes in July.
If all goes according to plan, Tenaz will join the expanding list of oil and gas juniors closing international acquisitions this year. Jose Francisco Arata's New Stratus Energy Inc. (NSE: $1.11) was the first, closing a long-sought-after deal in Ecuador in January. Then in April, Sean Guest's Valeura Energy Inc. (VLE: $0.62) announced that it will enter Thailand through an acquisition that it expects to close by the end of June. That announcement came more than a year after Valeura first told investors in August, 2020, that it was on the hunt for international assets.
Still patiently awaiting a deal are investors in Abby Badwi's TAG Oil Ltd. (TAO: $0.325), which announced in September, 2020, that it was scouting for assets in the Middle East and North Africa. The 20 months since then have brought not a single acquisition announcement. The most recent update came last month, when TAG acknowledged that its hunt is taking "longer than anticipated," but promised that "we believe [the wait] will be worth it."
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