Energy Summary for Feb. 26, 2021
2021-02-26 20:07 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery lost $1.95 to $61.58 on the New York Merc, while Brent for May lost 75 cents to $66.13 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.05 to WTI, unchanged. Natural gas for April lost one cent to $2.77. The TSX energy index lost 2.03 points to close at 110.38.
The oil patch offered a cautious reaction to a cautious provincial budget. The Alberta government tabled its 2021/2022 budget yesterday afternoon, forecasting that as the economy recovers from COVID-19, the provincial deficit will shrink to $18.2-billion -- still massive, but better than the 2020/2021 deficit of $20.2-billion. The government also introduced new ESG (environmental, social and governance) initiatives that are clearly aimed at stemming the tide of divestment from the energy sector. Unusually, it devoted several pages to outlining the steps that the sector has already taken to improve its ESG record. Most notably of all, the budget is based on a WTI forecast of $46 (U.S.) a barrel, well below the average forecast of $51 (U.S.) in the private sector. Alberta Finance Minister Travis Toews told the media that the government is taking a "prudent, responsible approach" to leaving room in the budget for volatility, given that the threat of COVID-19 is not yet over.
The industry squinted to find nuggets of optimism. "It is reassuring to hear that the Alberta government is looking to economic recovery," offered Elizabeth Aquin, interim president and chief executive officer of the Petroleum Services Association of Canada (PSAC). She noted that the oil and gas sector represents one-third of all economic activity in Alberta. PSAC chairman January McKee added that the government's "focus on competitiveness, along with advocating for federal policies that will restore investor confidence, is crucial for capital investment."
Within the sector, Keith MacPhail and Ronald Poelzer's Alberta Montney-focused NuVista Energy Ltd. (NVA) reached an intraday high of $2.04 -- its first time above $2 in a year -- before settling at $1.98, up 19 cents, on 5.73 million shares. It has arranged a $94-million asset sale. This money will go entirely toward debt repayment. The assets comprise non-core, non-Montney, mostly undeveloped land in the Wembley area, as well as some Montney water infrastructure in the Pipestone area.
NuVista did not specify which parts of the $94-million price tag are for which assets. Given that it said the infrastructure deal has already closed, this may have been the $24-million deal that Topaz Energy Corp. (TPZ: $14.44) announced last month, when it talked about a "strategic water infrastructure acquisition in the Alberta Montney." This speculation was shared by Scotia Capital analyst Cameron Bean in a research note this morning. If true, then the purchase price that NuVista fetched for its non-core Wembley assets would be $70-million. Mr. Bean said he would have pegged the value of these assets at $40-million to $55-million, so to him the price tag shows that NuVista will "realize more value from the assets through the disposition than it would have been able to crystallize through the drill bit" -- in other words, well done. The analyst hiked his price target on NuVista to $2.20 from $1.50. The stock closed today at $1.98.
Elsewhere in the Alberta Montney, Andy Mah's Advantage Oil & Gas Ltd. (AAV) stayed unchanged at $2.60 on 1.91 million shares, after releasing its year-end financials, a reserve report and a budget update. The financials were generally as expected. Advantage already told investors in January that it produced 43,500 barrels of oil equivalent a day in the fourth quarter, in line with analysts' predictions. The company was likely hoping to gain some points with its reserve report. Despite a difficult 2020 in which many oil and gas producers reported declining or flat reserves, Advantage increased its 1P (proved) reserves by 10 per cent and its 2P (proved and probable) reserves by 14 per cent year over year. On top of all that, Advantage announced that in 2021, it expects to produce more and spend less. It hiked this year's production guidance to a range of 48,000 to 51,000 barrels a day (from 47,000 to 49,000) while lowering its budget to a range of $115-million to $135-million (from $125-million to $150-million).
Investors were not as impressed as Advantage likely hoped. For one thing, its net debt was $251-million as at Dec. 31, 2020 -- barely a $50-million reduction from $303-million a year earlier, even though Advantage closed a $100-million asset sale during the year. The benefits of the sale were partially offset by the fact that Advantage outspent its cash flow by around $50-million in the year, while other companies were trying to cut their budgets and live within their means. In addition, Advantage has hedged about 40 per cent of its gas production for the first half of 2021, meaning it is not getting the full benefits of the recent surge in gas prices. It now looks to be mulling a different tactic to lure investors. In its financials, it made a teasingly vague reference to wanting to "potentially return capital to shareholders." Whether it was talking about a dividend, a share buyback or another option was left a mystery.
Way down south, in geography and share price, David Tawil's Argentina-focused Centaurus Energy Inc. (CTA) lost half a cent to five cents on two million shares. Its erstwhile suitor, Crown Point Energy Inc. (CWV), lost eight cents to 23.5 cents on 20,200 shares, after announcing last night that it has terminated the companies' merger talks. It did not provide a reason. Interestingly, it did not even make the usual diplomatic attempt to describe the decision as a mutual one, tersely saying that it has "determined that it will not be proceeding" with the merger and has "terminated all discussions and negotiations with Centaurus and its representatives."
Centaurus did not put out a press release of its own. As originally announced on Jan. 7, the merger was billed as a way to combine Centaurus's "world-class" shale assets with Crown Point's "exemplary" operating skills -- quotations courtesy of the original announcement, when the companies were still eager to shower each other with compliments. They promised to provide further details of the merger once the conditions in the initial term sheet were satisfied. Presumably one side has fallen short, or Crown Point has found a different opportunity. The original announcement did not mention a break fee.
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