Stockwatch Energy today
Energy Summary for Jan. 19, 2023
2023-01-19 20:14 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for February delivery added 85 cents to $80.33 on the New York Merc, while Brent for March added $1.18 to $86.16 (all figures in this para U.S.). Western Canadian Select traded at a discount of $23.50 to WTI, unchanged. Natural gas for February lost three cents to $3.28. The TSX energy index added 3.65 points to close at 248.08.
B.C. Montney producers were in a watchful mood as the province and an indigenous group touted a "historic" agreement on land development. Premier David Eby and Chief Judy Desjarlais of the Blueberry River First Nations announced the agreement late yesterday, vowing to promote "responsible resource development" while "healing and restoring the land." Among other things, the agreement includes over $280-million in compensation and reparations, various land and wildlife protections, and a commitment to "sit together to discuss, design and agree to [oil and gas] development plans."
The agreement comes about a year and a half after the B.C. Supreme Court ruled in June, 2021, that the province had breached its treaty obligations to Blueberry and "may not continue to authorize activities ... that unjustifiably infringe Blueberry's treaty rights." Considering that the Blueberry land claims span a massive 38,000-kilometre swath of the northern part of the province, including its oil and gas heartland, the effect of the ruling was a lengthy permitting freeze on oil and gas development. Numerous Montney producers found themselves stuck in licensing limbo. Today's announcement, they hope, will begin to lift the fog.
Full details are still pending. As noted above, the province and Blueberry plan to collaborate on a new development framework for the oil and gas industry, and there does not appear to be a timeline. Their announcement claims that they will be "introducing operational and strategic planning expectations for the sector, applicable to all new proposed activities." They will also establish as-yet-unspecified areas for "permanent protection from new development." Where development remains permissible, they will figure out some sort of "limit on overall new disturbance."
In other words, the fog is still fairly thick. After more than 18 months of waiting, however, industry representatives were ready to slap on bright smiles. "I am pleased with this new framework ... [which] will create significant prosperity," stated Mike Rose, chief executive officer of Tourmaline Oil Corp. (TOU: $67.82). Izwan Ismail, CEO of Petronas Energy Canada, said he is "encouraged" by the agreement and its implications for the nascent B.C. LNG (liquefied natural gas) industry. (Petronas is one of five companies behind the $40-billion LNG Canada project that is under construction in Kitimat.) Lisa Baiton, CEO of the Canadian Association of Petroleum Producers (CAPP), lauded the "positive step forward," though she added that CAPP is quite keen on "gaining an understanding of the details within the agreement to chart a path forward."
On the Alberta side of the Montney, Jeff Tonken's Birchcliff Energy Ltd. (BIR) added 28 cents to $8.97 on 6.43 million shares, as it went ahead with a promised tenfold hike to its dividend. Its quarterly payout will now be 20 cents instead of two cents, for a generous yield of 8.9 per cent. Birchcliff also released its 2023 guidance and a five-year plan covering 2023 to 2027.
The dividend increase keeps a commitment that Birchcliff made last May, when CEO Mr. Tonken said he was "targeting increasing our annual common share dividend in 2023 to at least 80 cents per share [annualized]." His expectation at the time was that Birchcliff's balance sheet would easily handle such an ambitious boost. In the past, the balance sheet had been too burdened by debt, but higher gas prices were taking care of that problem. Mr. Tonken predicted in May that Birchcliff would achieve "zero total debt" by the end of 2022 and would have a net surplus of $575-million by the end of 2023. Those particular predictions have since changed dramatically -- as discussed below -- but the dividend hike is going ahead nonetheless.
The fact that Birchcliff is sticking with its higher dividend underscores its confidence in its finances, despite what Mr. Tonken lamented vaguely today as "a lower-than-anticipated commodity price forecast." Others would call it an outright collapse. Amid unusually mild weather, AECO gas prices (the Alberta gas benchmark) have plunged to around $3.50 from nearly $7.50 over the past month, while the 2023 AECO strip (the industry term for the 12-month forward price) has deteriorated by about one-third. Birchcliff thus no longer expects to pay down its debt as fast as previously hoped. Mr. Tonken said today that Birchcliff will likely end 2023 with a debt load of $50-million to $70-million -- not a huge amount, but a huge change from last May's prediction of a half-a-billion-dollar surplus.
As for the rest of the guidance, it is in line with a preliminary version that Birchcliff put out in October. The company is aiming for production of about 82,000 barrels a day on a budget of about $270-million. Over the following years, as laid out in its newly released five-year plan, it hopes to boost production to 90,000 barrels a day while generating nearly $2-billion in combined free cash flow -- more than enough to take care of its spending, its dividends and that pesky debt.
Elsewhere in Alberta, Alex Verge's Journey Energy Inc. (JOY) lost one cent to $5.49 on 463,400 shares, as it too unveiled some updated guidance in the wake of weaker commodity prices. It is effectively taking the opposite approach to Birchcliff. Rather than keeping its spending intact and slowing down its debt repayments, Journey is prioritizing its debt and adopting a "prudent approach of deferring its exploration and development capital expenditures over the near term."
As investors will recall, Journey was originally hoping to be almost debt-free by the end of 2022. In July, however, it agreed to a $140-million asset acquisition from Enerplus Corp. (ERF: $23.95), at which point it changed its year-end debt target to a range of $96-million to $103-million. CEO Mr. Verge patted the company on the back today for achieving this goal and ending the year with net debt of $100-million. He implied, however, that Journey would have failed to achieve this goal if it had stuck to its planned winter budget. Commodity prices were not high enough to allow Journey to do so and still live within its means. It opted to defer its drilling activity until prices recover.
With a good chunk of debt coming due in 2023 (including a $23.8-million term loan due in just 10 weeks), Mr. Verge evidently feels compelled to continue the belt-tightening. He said today that Journey is scrapping its full-year guidance and postponing its entire drill program for the first half of the year until the second half, "or later." He remains hopeful that Journey could "significantly ramp up capital expenditures in the second half of 2023, should commodity prices recover to previously forecast levels."
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