Stockwatch Energy today
Energy Summary for June 2, 2022
2022-06-02 20:14 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery added $1.61 to $116.87 on the New York Merc, while Brent for August added $1.32 to $117.61 (all figures in this para U.S.). Western Canadian Select traded at a discount of $18.01 to WTI, down from a discount of $17.40. Natural gas for July lost 21 cents to $8.49. The TSX energy index lost a fraction to close at 273.65.
OPEC+ will offer relief to tightened oil markets, if only modest relief. At its closely watched monthly meeting today, the group -- which comprises OPEC countries, such as Saudi Arabia, and non-OPEC countries, such as Russia -- agreed to boost production by 648,000 barrels a day in both July and August. These are increases over the previously planned output boosts of 432,000 barrels a day.
The meeting fell short of some traders' hopes. In particular, the days leading up to the meeting had brought speculation (published in The Wall Street Journal and elsewhere) that OPEC+ was exploring the idea of suspending Russia's participation in the group, in reaction to the European Union's partial ban on Russian energy imports. This could allow the group's other members to boost production significantly to fill the gap. While the United States and Europe would be pleased with such a move, it could jeopardize the group's relations with Moscow once Russian production eventually bounces back.
For now, OPEC+ is staying officially silent on the issue. Its press release after the meeting made no mention of Russia or its potentially flagging output. While it disclosed the plans for higher production in July and August, it also seemed to try to temper any expectations for an extension: It pointed to "recent reopening from lockdowns in major global economic centres" (referring to China) and its view that "global refinery intake is expected to increase after seasonal maintenance." The group concluded by scheduling its next meeting for June 30.
Here in Canada, the country's largest gas producer, Mike Rose's Tourmaline Oil Corp. (TOU), added 79 cents to $79.53 on 1.94 million shares. It mildly pleased investors with another increase to its quarterly dividend last night. Some investors may have seen this coming: As Stockwatch noted on May 5, after Tourmaline released its first quarter financials, these financials did not include its usual dividend declaration. This absence stoked confusion -- mainly because Tourmaline did announce a separate, special dividend of $1.50 -- as well as speculation that another increase to the regular dividend was on the way.
The increase announced last night will be the ninth since Tourmaline launched a quarterly dividend in 2018. It was then eight cents. Now it will be 22.5 cents, for a yield of 1.1 per cent.
"The free cash flow generation outlook continues to improve ... [and] Tourmaline remains committed to returning the majority of free cash flow to its shareholders," declared its chairman, president and chief executive officer, Mr. Rose. He has made clear for months how keen he is to shovel gobs of money at shareholders. These of course include himself; he controls 16.3 million of Tourmaline's 334 million shares, and can now look forward to $3.6-million in quarterly dividend payments. The new dividend will cost about $300-million a year. For context, in the first quarter, Tourmaline turned a profit of $261-million and reported free cash flow of $618-million.
International oil and gas producer Vermilion Energy Inc. (VET) lost four cents to $28.67 on 2.94 million shares, after expanding its board of directors. It has added Myron Stadnyk to the board. Management went over his resume with gusto, trumpeting his "over 35 years of business and industry knowledge, with extensive experience in senior leadership, cost management, operational effectiveness, governance, health, safety and environment."
Mr. Stadnyk is best known for his long career at the Montney giant ARC Resources Ltd. (ARX: $19.63). He was ARC's first operations employee after it went public in 1996, then became its chief operating officer in 2009, followed by promotions to president in 2009 and CEO in 2013. He retired from ARC in 2020. These days he is a director of Crescent Point Energy Corp. (CPG: $11.82), PrairieSky Royalty Ltd. (PSK: $19.01) and now Vermilion.
The appointment is a timely one for Vermilion, which has just established a sizable position in the Montney through the $485-million takeover of Leucrotta Exploration. The deal closed yesterday. According to Vermilion, the new assets will provide "an expected two decades or more of low-risk, self-financing, high-deliverability drilling inventory with strong rates of return." The company has ambitious plans to boost the assets' current production of 4,000 barrels a day to 13,000 next year and 28,000 "within a few years."
Vermilion also has an 18-per-cent interest in the spinout company resulting from the transaction, called Coelacanth Energy ("see-la-canth"), led by the former Leucrotta management. This management has ambitious production plans too: A presentation on Coelacanth's new website says its production can go from the current level of 400 barrels a day to 25,000 barrels a day within just four years. Coelacanth is aiming to list as soon as possible on the TSX-V, under the proposed symbol CEI.
In Alberta, Stephen Loukas's Obsidian Energy Ltd. (OBE) edged up one cent to $13.66 on 829,600 shares. During intraday trading, it got as high as $14.10, its first time above $14 since 2017. It shot up $1.41 yesterday after giving investors an update on its Viking assets and its credit facility. Coincidentally, the last time Obsidian did any work in the Viking was also 2017 (its priority since then has been the Cardium). It now plans to "revitalize" the Viking with an eight-well drill program. The great thing about the Viking, it emphasized, is that it has "favourable ground conditions" that allow for drilling even during the seasonal slow period known as spring breakup. While other drillers hunker down in the melting snow and mud, Obsidian will be keeping the drill rigs turning.
As well, management said Obsidian's bankers have agreed to extend a review date for its credit facility to July 15 from May 31. A six-week extension might not normally perk investors' ears up, but in Obsidian's case, they are taking it as a clue that a long-hyped debt refinancing is just about ready. Interim president and CEO Mr. Loukas (still with the "interim" tag, despite taking charge nearly three years ago) has been claiming since January that Obsidian will refinance its debt around midyear. He confirmed in the latest update that the facility review extension to July 15 is indeed "to accommodate timing associated with the company's refinancing."
While Mr. Loukas has provided relatively few details about how he wants to refinance the debt, he said in the latest update that the revised debt structure should be "stable" and provide "appropriate operational liquidity and a longer-term maturity profile." The last item in that list is particularly important. As of March 31, Obsidian had over $368-million in debt coming due within 12 months, next to a cash balance of just $5.6-million.
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