Stockwatch Energy today
Energy Summary for Nov. 1, 2022
2022-11-01 20:53 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added $1.84 to $88.37 on the New York Merc, while Brent for January added $1.85 to $94.65, both benchmarks rising on unverified rumours that China is preparing to phase out its stringent "Covid Zero" policies (all figures in this para U.S.). Western Canadian Select traded at a discount of $30.10 to WTI, down from a discount of $28.25. Natural gas for December lost 65 cents to $5.71. The TSX energy index added 3.38 points to close at 265.75.
U.S. President Joe Biden wants oil and gas companies to "stop war profiteering" and to "give the American people a break." In a speech at the White House yesterday (mere days ahead of next week's midterms), Mr. Biden criticized energy companies for using record profits to reward shareholders rather than reduce fuel prices for consumers. In his view, the profits are "not because of doing something new or innovative ... [but] are a windfall of war" (the Russian invasion of Ukraine, which sent oil and gas prices soaring earlier this year). "It's time for these companies to stop war profiteering [and] meet their responsibilities in this country," said Mr. Biden. He floated the idea of a windfall tax and vowed to "work with Congress to look at these options that are available to us."
The remarks drew condemnation from industry groups. "Oil companies do not set prices -- global commodities markets do. Increasing taxes on American energy companies discourages investment in new production, which is the exact opposite of what is needed," said Mike Sommers, chief executive officer of the American Petroleum Institute, in a statement. He urged the White House to "get serious" about addressing supply-demand imbalances and to focus on "solutions, not campaign rhetoric." Similarly, CEO Anne Bradbury of the American Exploration & Production Council stated that a windfall tax "would likely backfire" and that the government should instead "support domestic production" by encouraging investment in pipelines and other infrastructure.
The consensus among political pundits is that Mr. Sommers and Ms. Bradbury need have no fear. Mr. Biden knows he is unlikely to rustle up enough support in Congress to impose a windfall tax or other desired penalties on energy companies. More likely, he is simply continuing to use energy companies as a scapegoat to try to manage the political fallout from high fuel prices, which are seen as hurtful to his party's election odds next week.
Unfazed by the politicking, one company has continued to narrow its focus on its U.S. operations. Enerplus Corp. (ERF), down four cents to $23.58 on 1.38 million shares, has closed a previously announced asset sale in Alberta for $140-million in cash and shares. The assets are producing about 4,000 barrels a day. Enerplus launched a sales process for all of its Western Canadian assets, collectively producing about 9,100 barrels a day, last February and found a buyer for the first batch in July. It is still looking for buyers for the remainder.
The buyer of the first batch is Alex Verge's Journey Energy Inc. (JOY), up 19 cents to $6.24 on 547,900 shares. It cheered today that the "transformational" deal has given it an immediate production boost to 13,500 barrels a day. The deal also boosted its net debt to $110-million (from under $20-million), but management is counting on high oil prices to help it pay this down quickly. The non-cash portion of the price tag included three million shares issued by Journey to Enerplus. These shares had an original deemed value of $14-million; today they are worth $18.7-million.
Although the acquisition got top billing in the headline, today's update also included Journey's third quarter financials. They were generally as the market expected, with production of 9,500 barrels a day, cash flow of 38 cents a share and net earnings of 26 cents a share. Journey patted itself on the back for continuing its streak of having "achieved or exceeded all of its internal targets" over the past two years, in turn "creat[ing] significant value for all stakeholders." Presumably it meant stakeholders who invested (or at least averaged down) in the past two years, during which the stock soared to over $6 from just 14 cents. Longer-term investors may still be smarting from the stock's fall from its all-time 2014 high of $12.25.
Elsewhere in Alberta, Jim Evaskevich's Cardium-focused Yangarra Resources Inc. (YGR) edged up three cents to $3.01 on 790,800 shares, after it too released its third quarter financials. The mixed numbers drew a lukewarm reaction. Production in the third quarter averaged 11,750 barrels a day, a noticeable increase from 10,600 barrels a day in the second quarter, but cash flow and net income both fell on weaker prices and higher spending. Yangarra was able to reduce its net debt by only $8-million during the third quarter, compared with $23-million in the second quarter. It also nudged down its full-year production target to a range of 11,000 to 11,500 barrels a day (from 12,000), while increasing its budget by $5-million (to $110-million)
As if to offset any disappointment in the numbers, Yangarra's management chose this moment to hop aboard a popular bandwagon, declaring its interest in launching a "return-of-capital strategy." It said this could potentially take the form of share buybacks or special dividends. Tempted investors should take note: Yangarra does not intend to start the program until its bank debt gets below $100-million, and management did not estimate when that might happen. As of Sept. 30, the company's bank debt was $153-million, down from $199-million a year earlier.
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