Energy Summary for Dec. 4, 2020
2020-12-04 20:09 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added 62 cents to $46.26 on the New York Merc, while Brent for February added 54 cents to $49.25 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.58 to WTI, down from a discount of $11.39. Natural gas for January added seven cents to $2.58. The TSX energy index added 5.00 points to close at 92.84.
This week has brought many things -- budget announcements, an OPEC+ meeting and Brent oil prices trying to breach $50 (U.S.) for the first time in nine months -- and in Alberta, it brought an end to the worst year of oil and gas land sales in provincial history. The province held its final land sale of 2020 on Wednesday and collected $1.61-million. That brings the 2020 total to a paltry $29.4-million. For context, 2019 was previously the worst year for land sales in Alberta's history, bringing in $119-million (while the all-time best year was 2011 at $3.5-billion). The year 2020 saw the normally twice-a-month land sales paused from April to mid-November because of COVID-19. Alas, though they have restarted again, the trend is hardly favourable: The average price came to $89 per hectare in Wednesday's sale, down from $130 at the start of 2020 and $166 at the start of 2019. The first sale of 2021 has been scheduled for Jan. 3.
Within the oil patch, Saskatchewan-focused Crescent Point Energy Corp. (CPG) added 24 cents to $2.67 on 13.1 million shares, pleasing investors with its 2021 guidance. It adopted what it called a "defensive" stance, forecasting production of 108,000 to 112,000 barrels of oil equivalent a day on a budget of $475-million to $525-million. These numbers are noticeably lower than 2020's forecast of 121,000 barrels a day on a budget of $665-million. Analysts were expecting lower, however, and thus approved of the guidance, with compliments ranging from "reasonable" (courtesy of CIBC) to "positive" (courtesy of Scotia Capital).
In general, the guidance fits in with Crescent Point's shift away from trying to boost production to trying to improve the balance sheet. Since early 2019, the company's production has fallen from about 180,000 barrels a day to around 110,000, but its net debt has been reduced to about $2.1-billion from $4-billion. Crescent Point boasted today that it should be able to wipe out another $600-million of net debt by the end of 2021. Moreover, it hinted that the debt is becoming manageable enough that the company could start to think about other uses for its cash flow. It specifically mentioned budget boosts and "returning capital to shareholders." Crescent Point used to pay a generous dividend that was as high as 23 cents a month. It currently pays a quarterly dividend of 0.25 cent (or one penny annualized) for a yield of 0.4 per cent.
Crescent Point was not the only one trimming its budget for 2021. Oil sands producer Athabasca Oil Corp. (ATH) edged up one cent to 16 cents on 2.43 million shares, after remaining unchanged at 15 cents yesterday on news that it will spend just $75-million next year. That is down from $85-million this year. Despite the budget cut, Athabasca hopes to hold production flat at 31,000 to 33,000 barrels of oil equivalent a day, relative to this year's forecast of 32,250 barrels a day. Most of the production comes from (and virtually all of the budget will go to) Athabasca's Leismer and Hangingstone thermal oil projects. The company also has some light oil assets in the Alberta Montney and Duvernay shale plays, which are not forecast to receive any drilling activity in 2021, although Athabasca said this forecast will be "flexible to adjust to commodity prices."
Where Athabasca could really use some flexibility is in its balance sheet. This is buckling under the weight of $584-million in long-term debt, including $450-million (U.S.) worth of notes due in February, 2022, a short 14 months away. Athabasca has been trying to refinance these notes all year. While it has had no progress to announce as of yet, it says the refinancing will remain "a key 2021 priority."
Elsewhere in Alberta, Darren Gee's gassy Peyto Exploration & Development Corp. (PEY) added nine cents to $2.92 on 1.14 million shares. President and CEO Mr. Gee has published his latest monthly letter to shareholders on Peyto's website. A chart in the letter showed that Peyto's production averaged 83,000 barrels of oil equivalent a day in November, same as the October level, even though Mr. Gee had boasted in last month's letter that Peyto's production was rising. He explained in the new letter that Peyto tweaked its production on purpose because of weak propane prices. By his estimates, overall production in November was lower by about 750 barrels a day. Mr. Gee defended this as the best way to maximize revenue, and indeed claimed that Peyto has "perfected [its] ability to quickly respond to changes in the relative gas-to-propane price relationship."
(For the curious, propane is one of the hydrocarbon liquids that can be extracted from gas and sold for what is usually a premium price. When liquids prices are not especially alluring, a company may choose to leave the liquids in the gas stream, in which the gas will sell for a higher price due to having a higher heat content -- but this will also reduce the amount of production that a company can claim to be pumping. For example, if it produced 1,000 barrels a day of gas and extracted 150 barrels a day of liquids, it can claim overall output of 1,150 barrels a day. Leaving the liquids in the gas keeps the number at 1,000.)
One last Alberta producer is worth a mention, namely little i3 Energy PLC (ITE), unchanged at nine cents on a somewhat heavy 119,600 shares. As suggested by the PLC designation, i3 is a U.K. company by birth, but it listed in Toronto last month through the takeover of Toscana Energy. It also acquired a private company called Gain Energy at around the same time. The deals meant that i3 went from a North Sea explorer to a 9,000-barrel-a-day Alberta producer. Yet it has been a thin trader since its Toronto debut on Nov. 5. In London, however, the stock is more active and has more analyst coverage, including from Canaccord U.K. analyst Charlie Sharp, who put out a lovely research note on the stock this morning.
Mr. Sharp cheered the "dramatically upgraded investment proposition" resulting from i3's Canadian acquisitions. He expects the company to keep scooping up undervalued Canadian assets. Even more interestingly, he expects the company to keep its promise and introduce a dividend in early 2021. Management of i3 speculated last month that the company could pay out up to 30 per cent of its free cash flow as dividends. By Mr. Sharp's estimates, that would work out to $3.8-million (U.S.) to $4.6-million (U.S.) in annual dividend payments, with the implied yield being 7.6 per cent to 9.2 per cent. Investors do not seem at all confident that a dividend is on the way (or even advisable). Mr. Sharp nonetheless hiked his price target on i3's stock to 12 pence from 11 pence. In Canadian currency, the new target of 19 cents is more than double today's close of nine cents.
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