Energy Summary for Aug. 5, 2021
2021-08-05 19:53 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added 94 cents to $69.09 on the New York Merc, while Brent for October added 91 cents to $71.29, regaining some ground after three days of heavy losses (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.25 to WTI, up from a discount of $14.41. Natural gas for September lost two cents to $4.14. The TSX energy index added 1.36 points to close at 121.56.
Canadian energy stocks wobbled with oil prices. Oil sands giant Canadian Natural Resources Ltd. (CNQ) added 26 cents to $40.72 on 6.01 million shares, a muted reaction to second quarter financials that were better than analysts were expecting. On an adjusted basis, Canadian Natural turned a profit of $1.4-billion or $1.25 a share, well above analysts' predictions of 92 cents a share. Cash flow of $2.56 a share also exceeded predictions of $2.14 a share. President Tim McKay marvelled that Canadian Natural generated $1.5-billion in free cash flow during the quarter, after accounting for capital spending and dividends. The company already announced a quarterly dividend increase in May to 47 cents from 42.5 cents, for a yield of 4.6 per cent. Today the carrot being dangled for investors had to do with share buybacks.
Investors remained subdued. The $40 stock has fallen from $45 since the start of the month, sliding with oil prices, and some investors may have felt a tinge of unease today as the company hiked its budget by $275-million (to $3.48-billion). Mr. McKay noted that Canadian Natural has already received the money for this boost and then some. It got a $400-million payout a few weeks ago from its investment in the North West Redwater Partnership (as discussed in the Energy Summary for July 5). A different payout could follow shortly, added Mr. McKay, pointing to Canadian Natural's ownership of 6.4 million shares of Inter Pipeline. Inter Pipeline is currently recommending acceptance of a takeover offer from Brookfield Infrastructure. Should the takeover go through, Mr. McKay pegged the value of Canadian Natural's position at $130-million.
Further afield, Colombian oil producer Parex Resources Inc. (PXT) lost 14 cents to $19.35 on 1.46 million shares, after it too released its second quarter financials. The quarter was operationally rocky. Anti-government protests forced the temporary shut-in of some of Parex's production, resulting in average output of just 43,900 barrels of oil equivalent a day, below the original (and subsequently withdrawn) guidance of 47,000 to 48,000 barrels a day. Parex nonetheless turned a profit of $91.7-million (U.S.). It already signalled a month ago that it felt confident despite the short-term operational setbacks. On July 7, Parex introduced a 12.5-cent quarterly dividend, for a yield of 2.6 per cent.
Another international company, Craig Steinke's wildcatting Reconnaissance Energy Africa Ltd. (RECO), plunged $1.34 to $9.34 on 3.13 million shares. Investors were decidedly unimpressed by today's announcement of "more comprehensive data confirming a working conventional petroleum system." The data come from Reconnaissance's two test wells in the Kavango basin in Namibia, which it started drilling at the beginning of this year. A steady stream of fuzzy hype has pushed the stock up from around $2 since the program began. This caught the attention of U.S. short-seller Viceroy Research, which began pointing out in June that Renaissance has not released anything beyond the barest preliminary data on its wells. Analysis takes time, of course, but four months have passed since the first well reached total depth, and the data that Reconnaissance put out today are from mud logging (basically the earliest kind). The company had previously promised to have complete core analyses done on both wells by the end of July. Today's update fell far short.
Apparently, so did the depth on both wells. Reconnaissance had given both wells a target depth of 12,500 feet. When subsequent announcements indicated that the company had finished drilling the wells, no depths were provided, and investors could be forgiven for assuming that everything went according to plan. Today, Reconnaissance said the wells were drilled to respective depths of just 7,500 feet and 9,100 feet, with no explanation provided.
Naturally, the disappointing update was gleefully welcomed by the short-selling Viceroy Research. It had a field day on Twitter as it highlighted the discrepancies and accused Reconnaissance of playing "geofantasy" with "thin intervals, no source rock and cherry-picked interpretations." The short-seller's onslaught has had less effect than it likely hoped. Since Viceroy took aim on June 25, Reconnaissance's stock has fallen to $9.45 from $13.35 -- a noticeable drop, to be sure, but suggestive of plenty of faithful cheerleaders who are happy to wait for further data.
Back in Canada, the flood of financials continued. Two Montney producers garnered markedly different reactions to theirs. David Wilson's Kelt Exploration Ltd. (KEL) added seven cents to $3.18 on 872,700 shares, after reporting a second quarter profit of $54-million. This happened to be nearly equal to its revenue of $60-million, a sign of some accounting wizardry at work, in this case a large impairment reversal. Investors just seemed pleased that Kelt avoided the sizable hedging losses that have dragged several of its competitors into the red. The company also announced a nice chunk of change coming in from a $9-million asset sale, which will eliminate a mere 400 barrels a day of production. Despite the sale, Kelt has hiked its full-year production guidance to 21,500 barrels a day from 21,000. It also hiked its budget to $175-million from $150-million, but (unlike at Canadian Natural) investors did not seem to mind.
Alas, a fellow Montney player, Dale Shwed's Crew Energy Inc. (CR), tumbled 24 cents to $1.87 on 4.34 million shares, after releasing its second quarter financials. It turned a loss of $23.1-million. Poor Crew was hit hard by hedging losses, with no impairment reversals to pick up the slack. Its cash flow also fell to 16 cents a share in the second quarter from 22 cents a share in the first quarter, reflecting a pullback in gas prices.
Crew's investors were understandably more nervous than Kelt's to see that Crew has joined the budget-boosting club, hiking this year's spending by $30-million (to a range of $150-million to $170-million). The new range is outside Crew's expected cash flow and will therefore add to its debt, which is already a lofty $375-million. Mr. Shwed, Crew's president and CEO, breezily explained that Crew is being "steadfast in the advancement of our two-year plan." (This involves boosting production to 32,000 barrels a day in late 2022 from 21,500 as of late 2020.) Yet Mr. Shwed tacitly acknowledged the growing concerns about Crew's debt. He hinted that the company is already considering a refinancing of its $300-million notes, though they are not due until 2024.
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