Stockwatch Energy today
Energy Summary for June 7, 2022
2022-06-07 20:13 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery added 91 cents to $119.41 on the New York Merc, while Brent for August added $1.06 to $120.57, closing above $120 for the first time since March (all figures in this para U.S.). Western Canadian Select traded at a discount of $18.81 to WTI, down from a discount of $18.54. Natural gas for July added 80 cents to $9.32. The TSX energy index added 6.47 points to close at 283.25.
Oil prices headed higher as headlines around the world brought fears of ever-tightening supplies. In Norway, over 800 offshore oil and gas workers (or nearly one in 10) are threatening to launch a strike on Sunday if state-brokered mediation fails. Meanwhile, Libya's largest oil field, El Sharara, has had its production halted (again) after reportedly being stormed by gunmen. In more diplomatic channels, the U.S. government is complaining that Iran's demands on lifting sanctions are hindering progress on an updated nuclear deal. (Such a deal, according to analysts, would allow Iran to increase its oil exports and add around one million barrels a day to global supplies.)
Amid the kerfuffle, several banking behemoths and trading titans revised their oil price forecasts. Barclays now expects Brent to average $111 a barrel in both 2022 and 2023, up from its prior forecasts of $100 and $88, respectively (all figures in this para U.S.). Citi took a more piecemeal approach, raising its next three quarterly forecasts to $113 in the second quarter (up from $99), $99 in the third quarter (up from $87) and $85 in the fourth quarter (up from $73). Meanwhile, Goldman proclaimed that prices could hit $140 as early as this summer. Trafigura reckoned $150.
Here in Canada, oil producers rose with oil prices. Several of them also took the opportunity to try to woo investors at the RBC Capital Markets Global Energy, Power & Infrastructure Conference, taking place today and tomorrow in New York. RBC analysts Michael Harvey, Luke Davis and their colleagues fired off one boosterish research note after another to recap presentations. Some of their more intriguing tidbits on four companies are summarized below.
Oil sands giant Suncor Energy Inc. (SU), up 58 cents to $52.52 on 12.2 million shares, continues to hack away at its net debt, which it hopes to reduce to $9-billion by late 2023 or early 2024. (It was $15.4-billion as of March 31, 2022.) It then plans to devote every penny of its free cash flow to dividends and buybacks. The company is "maintaining constructive dialogue" (as the analysts phrased it) with activist investor Elliott Investment Management, but remained tight-lipped on the details.
Mike Rose's Tourmaline Oil Corp. (TOU), up eight cents to $78.39 on 1.39 million shares, talked up its rising quarterly dividend and its frequent special dividends. (In other words, it rehashed a lot of what it said during a dividend-hiking press release last week.) As well, Tourmaline unveiled its next big expansion effort, the Conroy project in the B.C. Montney. Management reckoned that Conroy could add 100,000 barrels a day by 2025 or 2026. For context, Tourmaline's production in the first quarter of 2022 averaged about 500,000 barrels a day.
Fellow Montney player Kelt Exploration Ltd. (KEL), up 14 cents to $7.99 on 1.08 million shares, is eagerly considering jumping on the dividend bandwagon. Vice-president and chief financial officer Sadiq Lalani clarified that Kelt is unlikely to launch a regular quarterly or monthly dividend. It is instead considering selling some of its assets and handing out the proceeds as a special distribution.
Crescent Point Energy Corp. (CPG), up 67 cents to $13.01 on 14.9 million shares, is the last in this roundup and talked up its continued efforts to reduce debt. It expects to achieve its net debt target of $1.3-billion by year-end. Some time before that, it will release an updated "return-of-capital framework," with more details on share buybacks and its dividend. (The current quarterly dividend is 6.5 cents, for a yield of 2.0 per cent.) As well, Crescent Point wants to reduce its reliance on hedging to about 20 to 30 per cent of production rather than 50 per cent. (Hedging losses have been taking a big bite out of Crescent Point's earnings lately, though it remains profitable.
Moving on from the conference, Don Simmons and Charlie O'Sullivan's Hemisphere Energy Corp. (HME) added eight cents to $1.85 on 347,300 shares, after unveiling its "return-to-shareholder plan." The company has been hinting for weeks that it wants to pursue some kind of dividend arrangement. Now it has settled on a variable, quarterly dividend policy, with the annualized amount intended to represent about 30 per cent of free cash flow. The inaugural dividend of 2.5 cents will be payable on June 30. It represents a yield (at this stage) of about 5 per cent.
Hemisphere is the second company in just a month to launch this kind of dividend. Most companies with a variable dividend also have an underlying base dividend, such as the above-mentioned Tourmaline Oil. Yet last month, Gear Energy Ltd. (GXE: $1.58) trumpeted what it called its "unique and superior" model of having a variable dividend only. Hemisphere has now ensured that Gear is no longer unique; whether investors find their models superior will be a matter of debate. Many yield investors still prefer the predictability of regular payouts.
Further afield, Dr. Art Halleran's Turkish gas explorer, Trillion Energy International Inc. (TCF), stayed unchanged at 33.5 cents on 1.14 million shares. It lost seven cents yesterday after arranging a dilutive equity offering. This will see it issue $12-million worth of units (each comprising a share and a warrant) at 31 cents. Trillion plans to use the proceeds in part for the exploration of its gas assets in Turkey, including a planned summer drill program at its SASB gas field in the Black Sea.
Investors were unimpressed. This financing comes just three months after Trillion separately closed a $17.9-million private placement at 16.5 cents per unit (again including a half-warrant sweetener) on March 29. Then as now, the company's CEO, Dr. Halleran, said the company needed the money for drilling. "With the recent influx of funding, we will be able to convert our gas reserves into revenue," he cheered in March. The drill program has not even started yet and Trillion apparently needs more money. In the meantime, its share count -- which already went up to 296 million from 185 million in March -- will now rise to 335 million.
Even with yesterday's drop in the share price, participants in the March financing at 16.5 cents have roughly doubled their investment on paper. Dr. Halleran seems optimistic that the new financing will meet with similar success. Trillion is hoping to spud the first well of a five-well program in August, with each well taking about five to six weeks to drill. If all goes according to plan, the company could be enjoying its first revenue from the SASB gas field as early as the fourth quarter.
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