Stockwatch Energy today
Energy Summary for Nov. 4, 2022
2022-11-04 20:11 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery soared $4.44 to $92.61 on the New York Merc, while Brent for January added $3.90 to $98.57 (all figures in this para U.S.). Western Canadian Select traded at a discount of $29.70, unchanged. Natural gas for December added 42 cents to $6.40. The TSX energy index lost a fraction of a point to close at 270.76.
Oil prices romped up to their highest level in two months, as the U.S. dollar weakened and as rumours continued to circulate that China will ease its stringent COVID Zero policies. A better-than-hoped-for jobs report is raising hopes that the U.S. Federal Reserve will relax its stance on interest rate hikes. Meanwhile, according to Reuters, a former Chinese disease control official has predicted that "substantive changes will happen soon" to China's COVID Zero rigidity. The comment (and other market-pleasing headlines) helped whip Chinese stocks into a frenzy, with the Hang Seng China Enterprises Index enjoying its largest weekly gain since 2015.
Here in North America, energy investors closed out the week with another batch of quarterly reports and dividend boosts. U.S. Bakken producer Enerplus Corp. (ERF) added 94 cents to $24.66 on 3.31 million shares, after trumpeting third quarter production of 107,800 barrels a day and cash flow of $1.49 a share. Both figures were better than analysts' predictions of 104,500 barrels a day and $1.45 a share, respectively. Enerplus also announced its third dividend hike of the year. Its quarterly payout will now be 5.5 U.S. cents (up from five U.S. cents previously, and up from 4.3 U.S. cents before that and 3.3 U.S. cents before that), for a yield of 1.2 per cent.
President and chief executive officer Ian Dundas cheered the "strong" and "robust" third quarter numbers, which he said should continue into the fourth quarter as well. Notably, he nudged up Enerplus's full-year production target to just over 100,000 barrels a day (a roughly 500-barrel-a-day increase from the old target), despite its recent Canadian asset sales. The company sold 4,000 barrels a day of production in Alberta to Journey Energy Inc. (JOY: $6.15) last month and plans to close a 3,850-barrel-a-day sale in Alberta and Saskatchewan to Surge Energy Inc. (SGY: $9.60) next month. Mr. Dundas boasted that these sales are more than offset by "continued strong operational performance" at Enerplus's core assets in the United States.
Within Canada, the Montney major ARC Resources Ltd. (ARX) lost 14 cents to $19.62 on 5.84 million shares, garnering a less favourable reaction to its third quarter financials. It did, however, use them as a chance to announce its second dividend hike of the year. The new quarterly payout of 15 cents (up from 12 cents before that and 10 cents before that) represents a yield of 3.1 per cent. Yet this was not enough to please investors. Neither were the financials, although they were right in line with analysts' predictions, showing production of 342,000 barrels a day and cash flow of $1.45 a share.
The flat reaction seemed to stem from the preliminary 2023 guidance that ARC included in the financials. This indicates that ARC will aim for production of 345,000 to 350,000 barrels a day, barely changed from this year's target of 340,000 to 350,000, yet on a sharply higher budget of $1.8-billion, compared with this year's budget of $1.35-billion to $1.45-billion. Management blamed inflation.
The budget could head even higher if ARC is able to sanction its much-hyped Attachie West project in British Columbia. ARC has been talking about this project since 2018 and originally wanted to start production in 2021, but has been beset by delays, most notably the Treaty 8 dispute between the B.C. government and the Blueberry River First Nations. The B.C. Supreme Court ruled in the summer of 2021 that the province had breached its treaty obligations and should freeze permitting for natural resources development (including oil and gas) until the two sides could come to an agreement. They claimed to do so in October of last year, trumpeting an "initial agreement," but more than a year has passed without a formal version. ARC and other B.C. Montney operators remain stuck in licensing limbo. A tactful ARC said today that it "remains prepared to sanction Attachie West ... once the B.C. regulatory environment ... becomes more certain."
Next door in Alberta, Neil Roszell's Headwater Exploration Inc. (HWX) lost eight cents to $7.34 on 3.86 million shares -- another drop that came in spite of a shiny new dividend. In Headwater's case, rather than announcing an increase like ARC, it is launching a dividend for the very first time. It declared an inaugural quarterly payout of 10 cents, starting in January. The implied yield as of today's close is 5.4 per cent.
That is a lofty yield, and Headwater's simultaneous plans for production boosts are no less ambitious, perhaps accounting for some of the leery reaction in the market. Today's financials -- which showed production of 11,600 barrels a day and cash flow 25 cents a share, in line with analysts' predictions -- also included a preliminary 2023 budget. Headwater is aiming for production of 18,000 barrels a day on a budget of $200-million. By comparison, this year's production target is quite a bit lower at 13,000 barrels a day, while the budget is markedly higher at $245-million (although this includes some advance spending in preparation for next year). Management is apparently quite confident that it can do more with less. Investors do not seem so sure.
Ending on a high note, Wolf Regener's Oklahoma oil producer, Kolibri Global Energy Inc. (KEI), set a new multiyear high after adding 37 cents to $3.47 on 322,300 shares. This brings its total gain for the week to 77 cents. Investors are enjoying its updates from its Tishomingo field, where it is working on the final well of a five-well drill program. President and CEO Mr. Regener marvelled earlier this week that this well is showing some of the strongest preliminary oil shows so far. He continued his cheerful commentary in the company's third quarter financials, released today.
The quarter included production from only two of the five new wells. Even so, production rose to 1,700 barrels a day from 960 a year earlier, while revenue rose to $9.8-million (U.S.) from $3.9-million (U.S.). Kolibri also reported a net profit of $9.2-million (U.S.), up from $608,000 (U.S.) a year earlier, although (as is obvious from how close the figure is to revenue) this year's profit included a hefty dose of accounting magic, to the tune of about $4.6-million (U.S.). A "pleased" and "excited" Mr. Regener expressed high hopes for the rest of the year. Among other things, Kolibri expects to tie in the new wells in the coming weeks and end the year producing 2,700 barrels a day.
Investors seem pleased and excited as well, sending the stock to its highest close since 2018. At $3.47, the stock has risen sharply from just 25 cents at the depths of the 2020 downturn. It still has a long climb to get back to its 2008 listing price of $24.90, let alone its all-time 2011 high of $68.60 (all figures adjusted for a 1-for-10 rollback in May, 2022).
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