Stockwatch Energy today
Energy Summary for Sept. 7, 2022
2022-09-07 20:48 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery lost $4.94 to $81.94 on the New York Merc, while Brent for November lost $4.83 to $88.00 (all figures in this para U.S.). Western Canadian Select traded at a discount of $20.38 to WTI, down from a discount of $20.50. Natural gas for October lost 31 cents to $7.84. The TSX energy index lost 7.21 points to close at 226.15.
Oil prices took another tumble, with Brent falling below $90 (U.S.) for the first time in seven months, on rising recession fears. The president of the European Commission, Ursula von der Leyen, told reporters today that the European Union plans to propose a price cap on Russian gas, in an effort to "cut Russia's revenues which [Russian President Vladimir] Putin uses to finance this atrocious war in Ukraine." Mr. Putin threatened to respond to any caps by cutting off oil and gas supplies altogether and leaving Western Europe to face a long, cold winter. "As in the famous Russian fairy tale," he told a Russian economic forum today in Vladivostok, "we would sentence the wolf's tail to be frozen."
While the prospect of a supply shortage can often have a bolstering effect on prices, this was far from the case today. Europe is already grappling with last week's decision by Russia's Gazprom to suspend all gas flows through the Nord Stream 1 pipeline to Germany, with Gazprom claiming (and German politicians doubting) that it found an engine oil leak during maintenance. Credit ratings agency Fitch opined yesterday that the pipeline halt has increased the likelihood of a recession in the eurozone. Adding to the gloom is the prospect of lower demand in China, where the government is continuing to hand out lockdown orders in response to COVID outbreaks.
Oil stocks fell with oil prices. U.S. shale producer Ovintiv Inc. (OVV) lost $2.69 to $65.70 on 416,600 shares, despite rolling out the red carpet for a new director. The company is appointing Ralph Izzo to its board. He will fill a spot soon to be vacated by Bruce Waterman, who is retiring in December after 12 years on the board.
Chairman Peter Dea hailed Mr. Izzo as a "well-known leader within the utility industry as well as the national energy policy arena." The 64-year-old Mr. Izzo, a nuclear physicist by background, is the executive chairman and retired CEO of Public Service Enterprise Group, the century-old provider of electric and gas services in New Jersey and Long Island. He is also the former chairman of the New Jersey Chamber of Commerce, the former chairman of the Nuclear Energy Institute and a current member of the U.S. Department of Energy's advisory committee on fusion energy services. Mr. Dea took delight in rattling off Mr. Izzo's many qualifications, lauding his "significant senior leadership experience in operations, strategic planning, finance, risk management, environmental stewardship and diversity leadership."
Ovintiv took the opportunity to pat itself on the back for its "ongoing board refreshment," claiming that Mr. Izzo will be its third new director in 18 months. He will in fact be the fourth. Three others have joined since March, 2021, namely Katherine Minyard, George Pita and Brendan McCracken. In some of those cases, Ovintiv had reasons on its mind beyond "refreshment." Ms. Minyard, notably, was a nominee of a then-dissident shareholder that began hectoring Ovintiv in 2020, only for the two sides to become the best of pals once Ms. Minyard joined the board in 2021. Meanwhile, Mr. McCracken succeeded Doug Suttles as president and CEO a little over a year ago, joining the board in the process.
Here in Canada, oil sands giant Cenovus Energy Inc. (CVE) lost 89 cents to $23.09 on 13.8 million shares. The drop came in spite of a lovely mention in a new research note by RBC analyst Greg Pardy. Mr. Pardy was a willing participant in a PR push by Kam Sandhar, Cenovus's executive vice-president of strategy and corporate development, who spoke with the analyst about the company's plans. (Incidentally, Mr. Sandhar himself was an analyst -- though at Peters & Co. -- before joining Cenovus in 2013.) Mr. Pardy provided an obligingly boosterish write-up and reiteration of his "constructive stance towards Cenovus ... [because of its] stern capital discipline, favourable operating momentum and rising shareholder returns."
In terms of specifics, Mr. Sandhar kept things vague, although he indicated that Cenovus plans to be producing at least 800,000 barrels a day by the end of the year (up from its second quarter average of 762,000 barrels a day). It is still putting together its plans for 2023 but expects "moderately higher" spending because of both "inflationary forces and targeted investment." In addition, by the end of this year, Mr. Sandhar expects Cenovus to achieve its near-term net debt target of $4-billion, which Mr. Pardy speculates will lead to "enhanced" dividends and/or buybacks. (The company's current 10.5-cent quarterly dividend represents a relatively modest yield of 1.8 per cent.)
The note concluded with an "outperform" rating on Cenovus's stock and a price target of $32, well above today's close of $23.09. As ever, investors may wish to note the chummy relationship between Mr. Sandhar's employer, Cenovus, and Mr. Pardy's employer, RBC. The bank is obliged to note on its website that it managed financings for the company, makes a market in its securities, and receives compensation for various investment banking and non-securities services.
Elsewhere in Canada, John Jeffrey's Saskatchewan-focused Saturn Oil & Gas Inc. (SOIL) lost 13 cents to $2.57 on 240,000 shares, despite cheering "successful progress in its 2022 drilling program." The progress lies mostly in the number of wells drilled than any particular results. Saturn is now nearly halfway through its 50-well program for the second half of the year. Although engineering vice-president Jordan Meyer dubbed himself "pleased" with the "encouraging" initial results, he deferred a more detailed operational update until mid-September, by which point the wells will have a longer production history.
Saturn also launched a vote-for-us campaign on behalf of two new directors who are hoping to join the board in mid-September, at the company's next annual meeting on Sept. 15. The new nominees are Dr. Thomas Gutschlag and Grant McKenzie. Dr. Gutschlag is the co-founder, former CEO and current chairman of Deutsche Rohstoff, a German oil and gas company with production in Colorado and Wyoming. Mr. McKenzie is likely the more familiar name to Canadian investors; he is a partner at the law firm Dentons Canada LLP and co-leads its Calgary office. He has also been Saturn's corporate secretary since last February.
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