Stockwatch Energy today
Energy Summary for Dec. 20, 2022
2022-12-20 20:43 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added 90 cents to $76.09 on the New York Merc, while Brent for February added 19 cents to $79.99 (all figures in this para U.S.). Western Canadian Select traded at a discount of $28.00 to WTI, unchanged. Natural gas for January lost 52 cents to $5.33. The TSX energy index added 2.83 points to close at 234.91.
Oil prices had a rocky day, as traders weighed global recession concerns against the prospects of higher fuel demand in China, where the government continues to relax its formerly stringent anti-COVID policies. Supply disruptions were also in the headlines, with North Dakota seeing an estimated 300,000-barrel-a-day drop in production in the wake of a winter blizzard last week. Meanwhile, Canada's TC Energy Corp. (TRP: $54.05) has reportedly filed a plan with U.S. pipeline regulators to restart its Keystone line, following a spill two weeks ago in Kansas. It has not confirmed a timeline, but sources told Bloomberg that it is aiming for Dec. 28 or 29.
Oil sands producer Imperial Oil Ltd. (IMO) lost five cents to $63.94 on 3.85 million shares, after unveiling its guidance for 2023. It will aim for production of 410,000 to 430,000 barrels a day on a budget of $1.7-billion. While the production guidance was in line with analysts' predictions, the budget came in higher than predictions of $1.5-billion. Imperial noted that the budget includes about $200-million to "accelerat[e] the start-up for the first phase of Cold Lake Grand Rapids by about one year to year-end 2023." (If achieved, any acceleration would be a pleasing change of pace for a stalled expansion proposal that Imperial started pitching nearly seven years ago.) Investors mostly yawned. Chairman and chief executive officer Brad Corson, who offered a sunny if fuzzy assessment of Imperial's "aggressive pursuit of attractive opportunities," vowed to provide a more detailed outlook at the company's next investor day on April 19.
Fellow oil sands producer Cenovus Energy Inc. (CVE) added 63 cents to $24.99 on 11 million shares. It has won a lovely mention from credit rating agency DBRS, which upgraded the company's rating from an investment-grade BBB to an even better BBB (high). "Stronger commodity prices, non-core asset sales and a focus on reducing debt have allowed Cenovus to deleverage materially and well ahead of [our] expectation," wrote DBRS's analysts approvingly. The company claimed earlier this month to be "on our way to reaching our net debt floor of $4-billion around year-end 2022" (down from $13-billion in early 2021). The DBRS analysts do not see this goal reached until early 2023, but are nonetheless optimistic about Cenovus's progress and its ability to keep liquidity "strong."
Elsewhere in Western Canada, Grant Fagerheim's Whitecap Resources Inc. (WCP) added 16 cents to $9.84 on 5.37 million shares, while Paul Colborne's Surge Energy Inc. (SGY) added 16 cents to $8.36 on 1.14 million shares. Both have been looking to impress investors with their dealmaking prowess and proposed dividend bumps. Starting with Surge, it announced late yesterday that it has closed a previously announced asset acquisition from Enerplus Corp. (ERF: $22.70), adding 3,850 barrels a day for a net price tag of $202-million. It also reiterated its plan to hike its monthly dividend to four cents from 3.5 cents. The original announcement had not set a timeline for this hike, but yesterday's update indicated that Surge "anticipates" making it effective in February. The implied yield based on today's close is 5.7 per cent.
As for Whitecap, it announced yesterday that it is selling $419-million worth of "non-strategic" assets to unspecified buyers, and that it too hopes to boost its dividend in the new year. The assets are producing 11,000 barrels a day and were set to receive only "minimal" spending in 2023. Exactly when they became "non-strategic" and designated for "minimal" spending is not clear, but likely reflects the timing of Whitecap's recent major expansion in the Alberta Montney and Duvernay, achieved in August through the $1.9-billion takeover of XTO Canada. The deal understandably raised concerns about the toll on Whitecap's balance sheet. In yesterday's announcement, Whitecap said it will use the proceeds to reduce its debt -- and in a further show of confidence, it said it will hike its monthly dividend to 4.83 cents from 3.67 cents, starting in January. The implied yield is 5.8 per cent.
Further afield, Tony Marino's Tenaz Energy Corp. (TNZ) shot up 41 cents to $2.00 on 289,400 shares, as it took its second stab at securing international assets. Indeed, this time it held off on making any noise until the deal was done and dusted. The company announced today that it is now the proud owner of a collection of offshore gas interests in the Dutch North Sea.
As noted above, this is Tenaz's second attempt at an international acquisition. Investors have been waiting for it to land a deal since August, 2021, when Mr. Marino and his people recapitalized the company and touted a "vision ... [of] executing an acquire-and-exploit strategy targeting international assets." (The newcomers previously worked for international producer Vermilion Energy Inc. (VET: $23.55), which incidentally has had operations in the Netherlands since 2004.) Mr. Marino went on to announce the takeover of an AIM-listed North African junior, SDX Energy, last May. Unfortunately, the deal collapsed in July amid opposition from SDX's shareholders. The bruising experience seems to have led Mr. Marino to keep the Dutch deal under wraps until closing.
Investors took it as a pleasant surprise. Tenaz is opting (for now) to wade cautiously into the North Sea, acquiring non-operated minority interests in a mix of producing and non-producing licences. The producing ones are pumping out the equivalent of 750 barrels a day (net to Tenaz). Among the non-producing ones, the most promotable is the Wintershall-operated F17A Deep licence, home to the undeveloped Rembrandt and Vermeer oil discoveries. Wintershall has claimed that these discoveries could produce up to 20,000 barrels a day (1,000 net to Tenaz). It has not set a timeline.
The acquisition also requires "minimal upfront outlay of capital" and is thus "highly accretive," boasted Mr. Marino. There is, of course, a reason for the minimal upfront expense: the potentially sizable decommissioning costs lurking in the wings. Under the existing decommissioning security agreements (DSAs) for the assets, the security that Tenaz must pledge for its interests is nearly $60-million. Mr. Marino hastened to note that this amount should fall to just $16.9-million in 2023 because of "several factors that go into DSA determination," including the recent skyrocketing of European gas prices. He was even faster to note that these high prices support Tenaz's forecast of $23-million in funds flow from operations from the assets in 2023. For context, as of yesterday's close, Tenaz's entire market cap was $44-million.
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