Stockwatch Energy for yesterday
Energy Summary for Aug. 9, 2022
2022-08-09 20:40 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost 26 cents to $90.50 on the New York Merc, while Brent for October lost 34 cents to $96.31 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.67 to WTI, unchanged. Natural gas for September added 24 cents to $7.83. The TSX energy index added 1.34 points to close at 220.43.
As oil prices whipsawed amid headlines of Russian pipeline halts and Iranian nuclear talks, here in Canada, quarterly reporting season marched steadily on. The B.C. Montney-focused Crew Energy Inc. (CR) added 26 cents to $5.55 on 2.91 million shares, as chief executive officer Dale Shwed trumpeted another quarter of "standout performance." Production of 35,000 barrels a day and cash flow of 76 cents a share were well above analysts' predictions of 32,100 barrels a day and 53 cents a share. Thanks to sharply higher gas and liquids prices, Crew swung to net earnings of $88.6-million from a loss of $23.1-million a year earlier.
Mr. Shwed basked in what he called "the success of our two-year asset development plan." This time roughly two years ago, Crew was producing 21,500 barrels a day, a figure that Mr. Shwed wanted to boost all the way to 32,000 barrels a day by late 2022. This was in stark contrast to the plans of many of its competitors, which were focusing on balance sheet tidy-up rather than ambitious output boosts. Crew ended up achieving its production goal well ahead of schedule, in the first quarter of 2022, and only then did it turn its attention to the balance sheet. It now reckons that its higher production (and higher commodity prices) is allowing it to pay down debt all the faster. Net debt as of June 30 was $288-million, down from $405-million at the start of the year.
"Our 'Crew' remains eager to continue advancing our momentum and strategic direction," chortled Mr. Shwed. He gave no clues as to what direction it plans to take. He did, however, promise that the company is hard at work on its next "strategic plan," an updated version of the two-year one, with details to be released in the fourth quarter.
In Colombia, Gary Guidry's Gran Tierra Energy Inc. (GTE) lost 11 cents to $1.51 on 5.38 million shares, garnering a more muted reaction to its second quarter financials. These held few surprises given that the company already released a quarterly operational update just last month. Production averaged 30,600 barrels a day -- not an all-time record, but the best since late 2019 -- which helped push cash flow to 28 U.S. cents a share, the highest since 2013. Net earnings swung to $52.9-million (U.S.) from a loss of $17.6-million (U.S.) a year earlier. CEO Mr. Guidry toasted "another strong quarter" at "our high-quality asset base."
Investors, it seems, had their eyes on different Colombian headlines -- ones that went entirely unmentioned by Gran Tierra. Yesterday, the country's leftist new president, Gustavo Petro (wasting no time after his formal swearing in on Sunday), unveiled a series of proposed tax reforms. Notably for energy producers, these include a 10-per-cent tax on oil if prices exceed just $48 (U.S.) a barrel, and royalties paid by oil companies will no longer be deductible from income tax payments. Mr. Petro has made no secret of his dislike for fossil fuels (despite oil and coal being the country's top exports and source of royalties) and has separately vowed to ban future oil development. His election triumph in June was, unsurprisingly, not welcome news for the sector.
One of the hardest hit has been Colombian oil producer Parex Resources Inc. (PXT), which was worth over $30 in early June, but today lost $2.30 to $19.28 on 3.48 million shares. This is its heaviest volume in nearly two years. It presumably reflects the unpleasant tax proposal, which was certainly the reason for Parex's unpleasant mention in a research note this morning by Scotia analyst Kevin Fisk. He downgraded the stock over fears of a "meaningful negative impact" on Parex's cash flow.
"[The] proposed tax reform includes a tax on oil exports on the elimination of royalty deductibility in the calculation of taxable income," pointed out Mr. Fisk. By his estimate, this "could have a 10- to 20-per-cent impact on NAV [net asset value]." He cut his rating on Parex to "sector perform" from "sector outperform" (the equivalent of a downgrade to "hold" from "buy"). Perhaps mindful of the fact that his employer, Scotia, seeks to do business with companies under its analysts' coverage -- and therefore, like most banks in this ticklish position, might not like analysts to speak too harshly about the companies -- Mr. Fisk reiterated his price target of $34, well above today's close of $19.28.
Yet another Colombian oil producer, Gabriel de Alba's Frontera Energy Corp. (FEC), lost 53 cents to $10.88 on 351,000 shares. It too is likely less than thrilled about the tax reforms, but kept its chin up today and hyped the preliminary results of its special buyback program. Management had announced on June 20 -- which just so happened to be the day after Mr. Petro's election triumph -- that Frontera would buy back $65-million of its shares at a price to be set through a modified Dutch auction. Today it announced that participants set the price at $12 and Frontera will therefore buy back 5.4 million shares.
The company will then have 87.2 million shares outstanding. "I am very pleased with the preliminary results of Frontera's oversubscribed offer," said chairman Mr. de Alba. He marvelled at the level of "commitment to return value to shareholders." Shareholders can expect plenty of additional cheerful musings from Mr. de Alba when Frontera releases its second quarter financials tomorrow morning.
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