Energy Summary for March 3, 2021
2021-03-03 20:29 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery added $1.26 to $61.01 on the New York Merc, while Brent for May added $1.12 to $63.82 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.08 to WTI, unchanged. Natural gas for April lost four cents to $2.80. The TSX energy index added 2.43 points to close at 114.97.
Oil prices rose in spite of a record surge in U.S. crude stockpiles. The cold snap that took hold of Texas in mid-February reared its head in this morning's inventory report released by the U.S. Energy Information Administration, covering the week ended Feb. 26. Although the cold weather temporarily shut in up to one-fifth of total U.S. production, it also caused wide-scale refinery shutdowns, leading to all-time utilization lows along the Gulf Coast. The region also saw a big jump in crude imports. All in all, crude inventories jumped by 21.6 million barrels, the largest one-week increase ever. Traders shrugged it off in light of the proportionately massive drop in gasoline and distillate inventories.
Here in Canada, Keith MacPhail and Ronald Poelzer's Alberta Montney-focused NuVista Energy Ltd. (NVA) added 20 cents to $2.26 (a 52-week high) on 4.32 million shares. Investors liked its year-end 2020 financials and its 2021 budget update. NuVista had already said in February that its fourth quarter production averaged 49,300 barrels of oil equivalent a day. Based on that, analysts were predicting cash flow of 20 cents a share, but the actual figure came in at 22 cents a share, thanks to lower royalties and operating costs. Free cash flow of $25-million went toward debt reduction.
NuVista reminded investors that in February, it announced a $94-million asset sale, with those proceeds going toward the debt as well. It pegged its postsale net debt at $505-million. That is still on the high side -- NuVista's current market cap is $510-million -- but in the company's view, its debt to cash flow ratio of 2.6 times is quite manageable. The long-term goal is to get that figure down to 1.0 times. Instead of counting on future asset sales to hack away at the debt side of things, NuVista is now betting on rising commodity prices in hopes that they will sufficiently boost the cash flow side.
To benefit from rising prices, NuVista wants rising production, and has unveiled a new five-year outlook on its website. The outlook claims that NuVista can generate over $450-million in free cash flow over five years, while increasing production by about 15 per cent annually. For the most part, however, it does not expect to see the benefits of this until at least next year. This year, NuVista is aiming for production of 50,000 to 52,000 barrels a day -- barely any increase over the 2020 level of 50,800. NuVista set that target months ago and kept it today, even as it sharply hiked this year's budget by $50-million (to around $240-million). While investors generally do not like to see higher budgets and flat production guidance, NuVista strove to reassure them that the higher 2021 budget will have a "significant positive impact" in 2022. It even claimed to be on the path to achieving its longer-term production goal -- 80,000 to 90,000 barrels a day -- as early as 2023.
Investors seemed intrigued. Depending on how long they have been around, however, they could be forgiven a sense of deja vu. Some may remember a similar announcement from NuVista in late 2016, when it boosted its 2017 budget because it said this would help it reach 60,000 barrels a day in 2021. As the above guidance shows, 2021's actual production will fall short of that long-ago goal.
One recent investor in NuVista will be quite pleased with the stock's recent performance. Jim Riddell's Paramount Resources Ltd. (POU), down six cents to $10.94 on 693,200 shares, acquired 17.3 million shares of NuVista through a block trade last September, paying 61 cents a share. These boosted Paramount's holdings to 39.7 million of NuVista's 225 million shares. While the exact amount that it paid for all these shares is not clear, the 17.3 million shares for which it paid $10.5-million in September would, as of today, be worth $39.1-million. The September acquisition triggered takeover rumours because both companies are active in the Alberta Montney. Paramount was clearly not averse to the idea -- its press release explicitly mentioned the possibility of a "corporate transaction such as an amalgamation" -- but so far it has not pursued anything (at least, not publicly).
In any case, Paramount had its own news today, specifically its year-end financials. These were generally as expected, with the company having already announced in February that it produced 73,000 barrels a day in the fourth quarter. That included 78,000 barrels a day for the month of December. Today, showing confidence that higher production is here to stay, Paramount set a 2021 production target of 77,000 to 80,000 barrels a day. The proposed budget is $230-million to $260-million. That is tighter than the preliminary budget of $225-million to $275-million that Paramount was considering last November.
Elsewhere in Alberta, Scott Ratushny's Cardinal Energy Ltd. (CJ) -- whose major shareholders also include the billionaire Murray Edwards, executive chairman of Canadian Natural Resources Ltd. (CNQ: $37.65) -- added eight cents to $1.65 on 3.1 million shares. It released its year-end reserve report late last night. As this timing might indicate, the reserve report was not one of the better ones seen this season. Cardinal's 1P (proved) reserves fell to 75.0 million barrels as of Dec. 31, 2020, from 85.8 million barrels a year earlier, while 2P (proved and probable reserves) fell to 99.2 million barrels from 108.0 million. The decrease reflected low oil prices (which knocked out a sizable chunk of Cardinal's low-margin heavy oil reserves into a lower, non-reserve-quality category), as well as reduced spending in response to the downturn.
Cardinal emphasized that despite its reduced spending, its production held "relatively flat." The word "relatively" was doing some heavy lifting in this sentence. Looking at Cardinal's production on a full-year basis, and based on its newly estimated output of 18,600 barrels a day in the fourth quarter, its overall average was 18,400 barrels a day in 2020, down nearly 10 per cent from 20,200 barrels a day in 2019. Production in 2021 will be lower still, according to the guidance that Cardinal released in January, when it said it would drill no wells in 2021 and would try to hold production at 17,500 to 18,000 barrels a day.
In spite of its fairly lacklustre plans, Cardinal's stock has been one of the brightest performers in the sector lately, more than quadrupling to $1.65 from just 40 cents since November. It has the above-noted Mr. Edwards to thank for that. In December, Cardinal conducted a $20-million debt-and-equity financing, with Mr. Edwards as the main participant. He currently holds 17.2 million of Cardinal's 122 million shares.
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