Energy Summary for Oct. 14, 2021
2021-10-14 20:09 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery added 87 cents to $81.31 on the New York Merc, while Brent for December added 82 cents to $84.00 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.20 to WTI, down from a discount of $12.79. Natural gas for November added 16 cents to $5.69. The TSX energy index added 3.45 points to close at 157.79.
High fuel prices are stoking a crisis that could jeopardize the global economic recovery, according to the International Energy Agency (IEA). The Paris-based agency has released the latest version of its monthly Short-Term Energy Outlook. Amid "heightened levels of uncertainty," one thing that seems certain to the IEA is that many consumers are facing a painful winter. High heating bills and rolling blackouts are creating "inflationary pressures that ... could lead to lower industrial activity and a slowdown in the economic recovery," wrote the IEA. It predicted that demand will continue to outpace supply until at least the end of 2021. As a result, for the fourth quarter, it hiked its Brent oil price forecast to $81 (U.S.) (a $10 (U.S.) or 14-per-cent increase from last month's report) and boosted its U.S. gas price forecast to $5.80 (U.S.) (a $1.80 (U.S.) or 45-per-cent increase).
On the oil side, the IEA noted that the adherence of OPEC+ to its policy of gradual production boosts is partly behind the rising prices. OPEC+ has come under pressure -- though not from the IEA -- to accelerate production and stabilize prices. At an unrelated industry conference today, Saudi Energy Minister Prince Abdulaziz bin Salman dismissed those demands and said stabilization is already happening. He pointed out that prices for gas, coal and NGLs (natural gas liquids) are up anywhere from 200 to 500 per cent this year, whereas oil is up only 29 per cent. This proves to him that OPEC+ is doing a "remarkable" job and that other markets should "copy and paste what OPEC+ has done and what it has achieved."
Here in Canada, a cheerful energy sector was buoyed by a raft of analyst upgrades. "The market remains in the early innings of a strong, multiyear cycle," predicted RBC analyst Helima Croft, hiking her near-term oil price forecasts. Fellow analysts at CIBC, Scotia Capital and TD Bank echoed the sentiment and upgraded their price targets on dozens of stocks. Some of the noteworthy calls included MEG Energy Corp. (MEG: $10.75), which Scotia analyst Jason Bouvier upgraded to "outperform" from "sector perform" while boosting his price target to $13 from $10. Some of his gassier picks were Birchcliff Energy Ltd. (BIR: $6.90), which got a target boost to $11 from $8, and Tourmaline Oil Corp. (TOU: $44.68), which got a boost to $76 from $59. Over at CIBC, virtually all the 28 energy stocks under coverage got a target boost, with just one exception. Poor Suncor Energy Inc. (SU) was left with its target untouched at $44 (though this is still well above today's close of $29.10).
Within the sector, Grant Fagerheim's Alberta- and Saskatchewan-focused Whitecap Resources Inc. (WCP) added 26 cents to $7.71 on 10.1 million shares, impressing investors with new guidance and a dividend hike. This is Whitecap's third dividend hike of the year. It entered the year paying a monthly dividend of 1.425 cents. This rose to 1.508 cents in March, then 1.625 cents in June and is now heading to 2.25 cents, for a yield of 3.5 per cent.
Mr. Fagerheim, Whitecap's president and chief executive officer, emphasized that the new dividend is highly affordable. He unveiled Whitecap's proposed 2022 budget of $470-million to $490-million (intended to support production of 121,000 to 123,000 barrels of oil equivalent a day). Even after this budget, plus $171-million in expected dividend payments, the company expects to have $740-million in free cash flow left over, calculated Mr. Fagerheim. He mused that the money could go toward acquisitions, share buybacks, unspecified "new energy initiatives" and (naturally) even more dividends.
He then headed to BNN to hammer home Whitecap's theme of "financial discipline." As noted above, Whitecap plans to spend about $480-million next year; this figure is about $80-million lower than analysts were predicting(as they were expecting Whitecap to take advantage of higher oil prices to boost production). Mr. Fagerheim said that Whitecap really likes improving its balance sheet and giving money back to shareholders. "We're excited about the level of cash flow that is coming to us," he declared. Moreover, he added, Whitecap wants to make sure it can pass the "stress test." He claimed that the company will be just fine even if oil prices retreat all the way to $45 (U.S.).
Over in the oil sands, Cenovus Energy Inc. (CVE) added 54 cents to $14.55 on 13.7 million shares. It has closed a $227.5-million secondary offering of shares of Headwater Exploration Inc. (HWX), up 21 cents to $4.64 on five million shares. Cenovus sold all 50 million of its Headwater shares at $4.55. It previously received the shares through an asset sale in late 2020, when they had a deemed value of just $1.10. Cenovus was originally planning to sell just half of the shares. The offering saw such strong demand that it decided to sell all of the shares instead, crystallizing a sizable profit. It continues to hold 15 million warrants that have a strike price of just $2, well in the money.
Headwater, while it did not receive any proceeds from the offering, declared today that it expects to benefit from "enhanced trading liquidity." It added that it "continues to progress its exploration program" on Cenovus's old assets. The assets are in the Clearwater oil play (an appropriate name for Headwater, whose management has always liked its water themes. The group's past promotions include Wild River, Wild Stream and Raging River, all sold from 2009 to 2018). Headwater is currently working on a plan to boost production to over 10,000 barrels a day in the fourth quarter. That compares with production of around 4,000 barrels a day when it first bought the Cenovus assets last December.
Headwater also announced a change to its board of directors. After Cenovus became a sizable shareholder in late 2020, Cenovus received the right to nominate two directors to Headwater's board, and now that it is no longer a shareholder, those nomination rights have expired. Sarah Walters (Cenovus's executive vice-president of corporate services) is thus stepping down from Headwater's board. Interestingly, Headwater said it plans to keep Kam Sandhar on its board, even though he was also a Cenovus nominee. Presumably he has impressed Headwater over the last 10 months. Mr. Sandhar is currently the executive vice-president of strategy and corporate development of Cenovus, which he joined in 2013. Before that, he spent nine years as an energy analyst at Peters & Co. He is an accountant by training and started his career in the oil and gas audit and tax division of Deloitte.
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