Stockwatch Energy today
Energy Summary for June 9, 2022
2022-06-09 20:41 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery lost 60 cents to $121.51 on the New York Merc, while Brent for August lost 51 cents to $123.07 (all figures in this para U.S.). Western Canadian Select traded at a discount of $18.90 to WTI, down from a discount of $18.87. Natural gas for July added 26 cents to $8.96. The TSX energy index lost 2.94 points to close at 282.27.
Oil sands producer Cenovus Energy Inc. (CVE) lost nine cents to $30.70 on 15.7 million shares. Its name has been repeatedly in the headlines this week thanks to chief executive officer Alex Pourbaix, who appeared at the Global Energy Show in Calgary and whose sound bites appeared in outlets such as Reuters, The Globe and Mail and the Financial Post. He aired his thoughts on everything from pipelines to greenhouse gas emissions to global oil supply and demand.
Among other things, Mr. Pourbaix expressed concern that if oil prices rise much further -- say, to $150 (U.S.) a barrel -- the result will be "demand destruction." Higher supplies would help calm prices, but "it takes tens or hundreds of billions of dollars" to increase production substantially, "so I'm a little bit worried that it is going to take a while for the industry to respond," he said. (An industry-wide shortage of rigs and workers is not helping.) For Cenovus's part, Mr. Pourbaix noted that the company (and joint venturer Suncor Energy Inc. (SU: $53.05)) recently decided to go ahead with the West White Rose "megaproject" off the coast of Newfoundland (as announced May 31). West White Rose will provide "among the lowest-GHG [greenhouse gas] barrels of oil worldwide," he boasted.
Mr. Pourbaix then noted that the Canadian energy sector as a whole is making strides in reducing emissions. With that in mind, he was "absolutely flabbergasted" to see that Canada's closest ally, the United States, has been trying to encourage supplies from Venezuela, a country that not only has a poor environmental record but is "one of the world's worst dictatorships." He cannot wait for the day -- if it should ever come -- when the world understands that Canadian oil "knocks just about every other source of oil out of the park in terms of our ESG [environmental, social and governance]."
While Mr. Pourbaix advertised Canadian oil, executive vice-president and chief operating officer Jon McKenzie focused on Cenovus itself, presenting yesterday at the RBC Global Energy and Power Conference in New York. He talked up the company's continuing efforts to reduce its debt. Cenovus previously set what it called an "ultimate net debt target" of $4-billion, compared with its actual net debt of $8.4-billion as of March 31. Investors generally expected that 2023 would be the earliest that the company might achieve this target. Mr. McKenzie told the conference that Cenovus thinks it can hit the target before the end of this year instead. The company will then dedicate all of its free cash flow to share buybacks and variable dividends. (It pays a regular quarterly dividend of 10.5 cents, for a yield of 1.4 per cent.)
South of the border, Ian Atkinson's U.S. Gulf Coast producer, Southern Energy Corp. (SOU), added 19 cents to $1.33 on 9.91 million shares -- by far the heaviest volume in its 3-1/2-year history. The excitement reflected the initial results of a new well in Mississippi. Southern started a three-well program at its Gwinville gas field in January, its first drilling activity since 2017. Now the first well has started flowing at 7.7 million cubic feet a day, the equivalent of about 1,280 barrels equivalent a day. This is enough to boost Southern's production by nearly two-thirds almost overnight. (Its average production in the first quarter was 1,900 barrels a day.)
President and CEO Mr. Atkinson dubbed himself "extremely excited" about the new well, which represents "a transformational moment for our company ... adding material production, reserves and cash flow at a time when gas prices are near 14-year highs." He added that these results are "far superior" to other wells in this region. (They should be, as the overwhelming number of regional wells are older vertical ones drilled decades ago, whereas Southern is using modern techniques and drilling horizontally. Even so, investors would have been happy with a rate of 800 to 1,000 barrels a day, so today's result of nearly 1,300 is more than satisfying.)
The entire three-well program -- which should have the results of the next two wells coming out "shortly," according to Mr. Atkinson -- is budgeted at about $10-million (U.S.). Southern raised $10-million (U.S.) at 32 U.S. cents last November. (Given today's close of $1.33 (Canadian), an investor who put in $10,000 in November would now be sitting on $32,700.) Now some more money is coming in, courtesy of the exercise of warrants issued more than a year ago. The holders paid a total of $1.7-million to exercise 5.3 million warrants. The resulting 5.3 million shares have a value of $7.0-million.
Back in Alberta, Sue Riddell Rose's gassy Perpetual Energy Inc. (PMT) lost 14 cents to $1.81 on 614,900 shares. It is getting access to more money too, though in the form of an expanded credit facility. Its bankers have agreed to increase the facility to $30-million from $17-million.
The new amount of $30-million is in theory enough to cover Perpetual's 2022 budget of $28-million to $30-million, although management has said that this is already covered by forecast cash flow. The company plans to drill 13 wells this year and aims for average production of 6,500 to 6,750 barrels a day, up from 5,400 barrels a day in 2021. It wants to "reignite exploration to grow production, reserves, adjusted funds flow and value," as management told investors at the annual meeting last month.
Perpetual's share price has certainly ignited recently, more than doubling to $1.81 from 80 cents in the last six weeks. Some of the excitement may reflect the imminent resumption of drilling at the company's East Edson gas asset, a 50-50 joint venture with Tourmaline Oil Corp. (TOU: $77.33). Tourmaline said it would begin a seven-well (3.5 net) drill program in June. The two companies have close ties, and not just because they are joint venturers. The above-mentioned Ms. Riddell Rose, Perpetual's chairman, president and CEO, is married to Mike Rose, the chairman, president and CEO of Tourmaline.
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