Stockwatch Energy today
Energy Summary for Aug. 5, 2022
2022-08-05 19:44 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added 47 cents to $89.01 on the New York Merc, while Brent for October added 80 cents to $94.92 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.67 to WTI, down from a discount of $19.63. Natural gas for September lost six cents to $8.06. The TSX energy index added 4.02 points to close at 217.70.
Oil sands giant Suncor Energy Inc. (SU) lost 27 cents to $39.19 on 18.2 million shares, after releasing its second quarter financials. The headline-grabbing number was its net profit of $3.99-billion, quadruple its earnings of $868-million in the same period last year. This year's figure included a $715-million asset impairment reversal.
Lofty profit aside, the numbers bore some scars of Suncor's recent operational woes. Production of 720,000 barrels a day was a tad below analysts' predictions of 729,000 barrels a day (although cash flow of $3.80 a share was still above analysts' predictions of $3.72 a share). Moreover, Suncor decreased its full-year production target while increasing its budget, the exact opposite of what investors prefer. The company originally wanted to produce up to 790,000 barrels a day on a budget of $4.7-billion. Now it is aiming for a maximum of 760,000 barrels a day on a budget of up to $5.2-billion. The hike reflects inflation as well as extra spending "to improve safety and reliability."
"Safety" got heavy emphasis in the press release, at one point appearing 13 times in four paragraphs. A poor safety record is what cost former chief executive officer Mark Little his job last month, after another worker died at one of Suncor's oil sands assets. This was the fifth workplace fatality in 19 months and the 13th since 2014. No other oil sands company comes close, as activist investor Elliott Investment Management pointed out in April, when it disclosed itself as a shareholder of Suncor and published a scathing open letter to demand top-level changes. The first of these changes appeared about two weeks ago. Suncor appointed three Elliott nominees to its board, two of whom are now on the search committee for a new CEO. Interim CEO Kris Smith is in charge in the meantime.
"We must acknowledge where we have fallen short and recognize the critical need to drive our safety improvement work with focus and vigour," said Mr. Smith today. He added that Suncor is "fully committed" to improving its record. In time, Suncor must hope, its dented reputation will improve as well.
Mr. Smith kept the mood lighter elsewhere in the press release, patting Suncor on the back for achieving record quarterly cash flow and returning $3.2-billion to shareholders in the form of dividends and buybacks. (Its 47-cent quarterly dividend represents a yield of 4.8 per cent.) Suncor is also on track to achieve its debt reduction target by year-end, well in advance of its original target of 2025. The timeline may get a boost from a new asset sale: Mr. Smith announced that Suncor is selling its non-core Norwegian North Sea assets for $410-million. He did not disclose the buyer, but Norway's Sval Energi stepped forward. It said the deal will add 4,000 barrels a day and 19 million barrels of reserves once it closes later in the year.
On the U.S. side of the border, North Dakota Bakken producer Enerplus Corp. (ERF) added $1.33 to $16.96 on 4.08 million shares, after it too released its second quarter financials. These got a much warmer reception from investors, particularly because they included another dividend hike. Enerplus already increased its quarterly dividend to 4.3 U.S. cents from 3.3 U.S. cents in May. Now it is bumping the payout to five U.S. cents, for a yield of 1.5 per cent. (That is on the low side relative to many competitors, but long-term investors will be used to Enerplus's habit of caution, which it credited with allowing the dividend to stay intact throughout the 2020 downturn. The last time Enerplus lowered its dividend was in 2016.)
The rest of the numbers were mostly in line with analysts' predictions, including production of 94,100 barrels a day and cash flow of $1.20 (U.S.) a share. President and CEO Ian Dundas cheered Enerplus's "strong operating momentum" and "compelling free cash flow profile." Although he trimmed Enerplus's full-year production guidance, he emphasized that this is merely to account for a planned 3,400-barrel-a-day asset sale to Journey Energy Inc. (JOY: $5.25), as announced last week. The budget is staying unchanged at $400-million (U.S.) to $440-million (U.S.). (Here, too, a cautious streak bleeds through. The preliminary budget last year was a simpler $400-million (U.S.). When Enerplus settled on a final version, it gave itself some inflationary wiggle room.)
Another North Dakota producer, Brett Herman's Lucero Energy Corp. (LOU), stayed unchanged at 60 cents on 594,000 shares. It too released relatively unsurprising second quarter financials, including production of 10,900 barrels a day and cash flow of five cents a share. Full-year guidance remained unchanged.
Lucero also announced its first acquisition -- if only a small one -- since it recapitalized and got new management earlier this year. Mr. Herman and his people, who sold their previous promotion, TORC Oil & Gas, to Whitecap Resources Inc. (WCP: $8.66) last year, headed over to what was formerly PetroShale in January. They took over as management and rebranded the company as Lucero. The dropping of "Shale," as well as a past acquisitive history at TORC and other promotions, stirred rumours that Lucero planned to shop around and expand beyond the Bakken. It has now done a bit of shopping, but stuck to an $8.7-million expansion of existing assets.
Back in Canada, Neil Roszell's Headwater Exploration Inc. (HWX) added 18 cents to $5.72 on 1.47 million shares, after releasing its second quarter financials and an update from its core Alberta Clearwater play. It produced a quarterly average of 11,700 barrels a day and took in cash flow of 34 cents a share. Both were mildly above analysts' predictions of 11,600 barrels a day and 32 cents a share. Headwater made no changes to its budget or production guidance, reiterating its ambitious plan to boost output to 16,500 barrels a day by year-end. It toasted itself for the "extensive" work it has done in the Clearwater so far and will continue to do over the rest of the year.
Management also once again dangled the possibility of hopping aboard the shareholder-returns bandwagon. It currently likes keeping its money for its "significant growth" plans. Yet as the business "continues to evolve," intoned management, "there will be an increased focus on returning excess free cash flow to shareholders." Investors are taking that to mean buybacks or dividends. They have been taking it that way since Headwater first began mentioning it, using the same vague phrasing, six months ago. Management said today that it "looks forward to providing clarity on these elements over the next six months."
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