Stockwatch Energy today
Energy Summary for July 28, 2022
2022-07-28 20:06 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added 84 cents to $96.42 on the New York Merc, while Brent for September added $2.22 to $106.62 (all figures in this para U.S.). Western Canadian Select traded at a discount of $21.00 to WTI, unchanged. Natural gas for September lost 55 cents to $8.13. The TSX energy index added 4.89 points to close at 231.56.
Energy investors waded through a flood of quarterly reports. Fortunately, there was plenty to keep their spirits up. For example, Mike Rose's Tourmaline Oil Corp. (TOU) added $4.50 to $77.93 on 4.19 million shares, after trumpeting "record" second quarter numbers and declaring itself so awash in cash that it has decided to pay a $2-a-share special dividend. It also resumed a shopping spree.
The second quarter numbers themselves were generally unsurprising. Production of 503,000 barrels a day and cash flow of $3.95 a share were both in line with analysts' predictions. Free cash flow was a record $3.25 a share, which -- as TD analyst Aaron Bilkoski pointed out in a near-worshipful research note -- is a single-quarter figure that is roughly equal to the average full-year cash flow over the past five years. Mr. Rose, chairman, president and chief executive officer, said the lofty free cash flow is what led Tourmaline to declare the $2 special dividend.
As the company also declared special dividends in the last three quarters, shareholders were expecting an announcement today, but likely in the range of 75 cents to $1.50, like the others. They were quite pleased with the bump up to $2. Mr. Rose also revealed that Tourmaline is stepping back into acquisitions. It previously undertook what he called a "two-year consolidation initiative," which ended last summer, by which point it had splashed out around $2-billion. It then took a break for digestion (or "synergies," in Mr. Rose's corporate-speak). Now it is once again ready to open its wallet. Interestingly, the $194.3-million acquisition announced today will see Tourmaline cover part of the price tag using shares -- but not shares of itself, rather shares of its royalty and infrastructure spinout, Topaz Energy Corp. (TPZ: $22.19). This limits both the cash draw and the dilution.
The acquisition target is Steve Sugianto's Rising Star Resources, a private company in Alberta's Peace River Arch. Rising Star flickered to life in 2016, a year after its president and CEO, Mr. Sugianto, sold New Star Energy to China's Sinoenergy. He and Rising Star's chairman, Paul Colborne, like their star themes: Mr. Colborne previously led Startech from 1993 to 2001 and StarPoint from 2003 to 2005. There was also a non-starry promotion called Galleon Energy, which Mr. Sugianto took public in 2003 but then left in 2011, saying he did not actually like running a public company. Galleon later became Long Run Exploration and was bought, as it happens, by New Star's suitor, Sinoenergy, in 2016. Now Rising Star has found a suitor of its own in Tourmaline.
Mr. Colborne does not share Mr. Sugianto's distaste for running public companies. While Mr. Sugianto kept New Star and Rising Star resolutely private, Mr. Colborne has been in charge since 2013 of the Saskatchewan- and Alberta-focused Surge Energy Inc. (SGY), down 42 cents to $9.24 on 1.67 million shares. Surge was in the news today after joining the parade of second quarter financials. Production of 21,000 barrels a day matched analysts' predictions, as did cash flow of 91 cents a share. The quarter also saw Surge launch a 3.5-cent monthly dividend -- its first dividend since 2020 and its highest since 2015 -- for a yield of 4.5 per cent.
Investors were subdued. The update included a significant boost to Surge's full-year budget, partly because of inflation. As well, Surge unveiled its new "return-of-capital framework" (its ideas on how to spend free cash flow), which used a stretchier definition of returns than shareholders seemed to be hoping. While there was talk of direct returns such as dividends and buybacks, there was also talk of "strategic acquisitions," "modest growth" and other indirect ambitions muddying the waters.
Tourmaline and Surge were far from the only ones hyping their second quarter results. Oil sands producer Cenovus Energy Inc. (CVE) added 93 cents to $24.56 on 18.8 million shares, garnering a cheerful reaction to some fairly mixed numbers. Analysts were expecting Cenovus to produce an average of 757,000 barrels a day and enjoy cash flow of $1.63 a share. It actually produced a slightly higher-than-predicted 762,000 barrels a day, yet its cash flow was well below predictions at $7.53 a share, reflecting a painful tax bite. Management shrugged this off and said higher taxes are a function of higher commodity prices and better profits -- hardly the worst problems to have. Net earnings soared to $2.4-billion from $224-million a year earlier.
In addition, although Cenovus hiked its full-year budget, it also hiked its production guidance, as only one-quarter of the budget boost is because of inflation. The rest is for spending at projects such as Sunrise, the oil sands mine where Cenovus recently agreed to buy out joint venturer, BP. This deal was announced last month and will see BP fully back out of the Canadian oil sands. Yet BP is not actually leaving Canada (unlike other foreign giants in recent years), merely shifting its focus eastward. Part of the consideration for Sunrise involves Cenovus's 35-per-cent interest in Bay du Nord, a $16-billion undeveloped oil field off the coast of Newfoundland. Cenovus reiterated today that the companies hope to close their asset swap later this quarter.
While quite a few other companies also spent today talking up their second quarter financials -- including Whitecap Resources Inc. (WCP: $9.50), Athabasca Oil Corp. (ATH: $2.29) and Gear Energy Ltd. (GXE: $1.30) -- we will end today's roundup with just one more. The Saskatchewan- and Texas-focused Baytex Energy Corp. (BTE) lost eight cents to $6.69 on 13.6 million shares, after releasing somewhat mixed numbers. More notably, it announced that it is on the hunt for a new CEO.
The second quarter financials showed that Baytex produced an average 83,000 barrels a day, slightly below analysts' predictions of 84,000 barrels a day, yet cash flow of 61 cents a share was still better than analysts' predictions of 59 cents a share. The full-year budget and production guidance are remaining unchanged. After patting itself on the back for repurchasing a total of 9.1 million shares since launching a share buyback program in May, Baytex talked coyly of "consider[ing] steps to further enhance shareholder returns" -- a potential reference to a dividend, something Baytex has not paid since 2015 -- once net debt reaches $400-million. As net debt was $1.1-billion as of June 30, management does not expect to achieve this target until late 2023 or early 2024.
By then, someone new will be in charge of the company. The current president and CEO, Ed LaFehr, has announced that he plans to retire in January, 2023. Mr. LaFehr has been with Baytex since 2016. He previously spent most of his career -- about three decades -- at BP/Amoco, along with stints at Talisman Energy and Abu Dhabi National Energy (TAQA). "I am ready to move to the next stage of my career," he declared. Chairman Mark Bly thanked Mr. LaFehr for leaving Baytex "well positioned for the future." The company has hired a search firm to help look for a successor.
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