Stockwatch Energy today
Energy Summary for July 7, 2022
2022-07-07 20:02 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for August delivery added $4.20 to $102.73 on the New York Merc, while Brent for September added $3.96 to $104.65 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.80 to WTI, unchanged. Natural gas for August added 79 cents to $6.30. The TSX energy index added 9.49 points to close at 220.06.
Oil prices climbed back into the triple digits, rallying after two days of steep losses, as the tug-of-war continued between fears of tight oil markets and fears of a global recession. Meanwhile, international oil major Shell was in a bullish mood as it released a preview of its second quarter financials. It has increased its long-term oil and gas price forecasts and thus expects to reverse up to $4.5-billion (U.S.) in past impairment charges. As well, it boasted that higher refining margins could add more than $1-billion (U.S.) to its profits. Shell will release the full financials on July 28.
Here in Canada, Craig Steinke's Saskatchewan- and Alberta-focused Crescent Point Energy Corp. (CPG) added $1.09 to $9.43 on 16.6 million shares, after announcing its fourth dividend increase in less than a year. It also talked up an asset sale and the achievement of a debt reduction target ahead of schedule.
The new dividend took top billing. Prior to last September, Crescent Point was paying a nominal dividend of just one-quarter of a penny every quarter (or one cent annualized). It boosted this to a three-cent quarterly dividend last fall, then to 4.5 cents last winter and then to six cents in the spring. Now the payout is getting another hike to eight cents, for a yield of 3.4 per cent. (Long-term investors may remember the good old days of 2008 to 2015, when the dividend was a generous 23 cents a month, but those days are long past.)
Crescent Point also announced that it has closed a non-core Saskatchewan asset sale for $260-million. The assets were producing about 4,000 barrels a day, but had "limited scalability," according to management. Further details were scarce, including the identity of the buyer (but investors did not fail to notice a near-simultaneous announcement from John Jeffrey's Saturn Oil & Gas Inc. (SOIL), up 15 cents to $240 on 153,400 shares, about a similar-sounding asset acquisition). Crescent Point credited the asset sale with helping it achieve a net debt target "earlier than anticipated." Again, it did not go into specifics, but was likely referring to its goal to reduce net debt to $1.3-billion before the end of the third quarter. This compares with $1.8-billion as of March 31.
Crescent Point was not the only one with asset sales on its mind. South of the border, U.S. shale producer Ovintiv Inc. (OVV) added $5.08 to $56.09 on 1.15 million shares, more than regaining the $1.11 it lost yesterday after announcing two asset sales to two unidentified buyers for a total of $250-million (U.S.). The assets are in Utah's Uinta basin and a section of the Bakken in Montana. They are producing a combined 5,000 barrels a day.
Although Ovintiv did not split up the proceeds by region, the Uinta assets likely form the bulk of the price tag. Rumours began swirling in February that Ovintiv was looking to offload all of its Uinta assets, which analysts reckoned could be worth up to $1-billion (U.S.), assuming that the buyer took on all of the assets and their production of about 13,000 barrels a day. The buyer in this case is taking on an unspecified but minority chunk of production. As for the Montana Bakken assets, they are on the other side of a state border from Ovintiv's core Bakken assets, which are in North Dakota. Ovintiv would only say that the sold assets comprised 88 wells. For context, Ovintiv previously sold 93 wells in this area to Empire Petroleum in early 2020 for $8.5-million (U.S.).
If Ovintiv was vague on the specifics of the sales, it was eager to hype the planned uses of the proceeds. "Ovintiv to Accelerate Doubling of Shareholder Returns," blared its headline. The company was previously earmarking 25 per cent of its free cash flow for dividends and share buybacks. This was to go up to 50 per cent in October, but now Ovintiv says it will instead do so immediately. Unlike Crescent Point, it is opting for more buybacks over a higher dividend, for now. (Ovintiv does pay a dividend, a quarterly one of 25 U.S. cents, for a yield of 2.3 per cent.)
Back in Canada, Andy Mah's Montney-focused Advantage Energy Ltd. (AAV) added $1.02 to $8.66 on 1.79 million shares, after cheering its "outperformance" during the second quarter. It pegged its average production for the quarter at 60,000 barrels a day. This is a new record, surpassing the prior record of 53,000 barrels a day that Advantage set in the first quarter. Management attributed the increase to "several new wells being delivered ahead of schedule and new well productivity exceeding forecasts." As well, Advantage plans to "extend [its] runway for production growth" by adding more capacity at its core Glacier gas plant.
The update won a round of applause from Raymond James analyst Jeremy McCrea, who upgraded his rating on Advantage today to "strong buy" from "outperform." In his view, Advantage has "one of the most attractive fundamental set-ups for the balance of 2022." The analyst drew attention to the company's focus on production and its balance sheet. It does not pay a dividend, and it only recently (in April) launched a share buyback program. Its focus on operations means that its "growth is supersized," opined Mr. McCrea. Despite his best efforts -- including his price target of $13.50, which he boosted from $13 just two days ago -- the stock remained well below last month's high of $12, closing today at $8.66.
Another Montney producer enjoying analyst attention today was Rob Zakresky's Coelacanth Energy Inc. (CEI), up one cent to 58 cents on 544,500 shares. Coelacanth (pronounced "see-la-kanth") is the spinout resulting from last month's takeover of Mr. Zakresky's Leucrotta Exploration by Vermilion Energy Inc. (VET: $23.36). Now, less than three weeks after going public on June 20, Coelacanth has attracted its first analyst coverage. The analyst is Trevor Reynolds of Acumen Capital, which just so happens to have served as an underwriter for Leucrotta in the past and would undoubtedly like a crack at Coelacanth's business too. (Coelacanth did a financing last month, but it was non-brokered.)
Mr. Reynolds opined that Coelacanth is "well positioned out of the gates." He likes its management, which is Leucrotta's old management and has sold a total of six companies (including Leucrotta) since the 1990s. The analyst seems to be assuming that Coelacanth will eventually follow this path, as it is "surrounded by numerous companies [in the Montney] that will compete for their acreage when it comes time to sell." In the meantime, Coelacanth has an additional "strategic advantage" in its relationship with Vermilion, which owns 12.5 per cent of its shares. Mr. Reynolds gave the stock a "buy" rating and a price target of $1. That is nearly double today's close of 58 cents.
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