Energy Summary for Nov. 4, 2021
2021-11-04 19:51 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery lost $2.05 to $78.81 on the New York Merc, while Brent for January lost $1.45 to $80.54 (all figures in this para U.S.). Western Canadian Select traded at a discount of $16.85 to WTI, down from a discount of $15.62. Natural gas for December added five cents to $5.72. The TSX energy index added 1.51 points to close at 163.14.
OPEC+ stuck to its current production pact at today's meeting, rebuffing U.S. demands for speedier output hikes. In response, the White House vowed to "use every tool at our disposal" to protect the economy. Oil traders took this as a hint the government might tap the U.S. Strategic Petroleum Reserve, the largest supply of emergency crude in the world.
Here in Canada, quarterly reporting season was in full swing. Today brought the third quarter financials -- and another dividend boost -- from oil sands giant Canadian Natural Resources Ltd. (CNQ), up three cents to $52.61 on 9.1 million shares. The financials were largely as expected, showing cash flow of $3.07 a share and production of 1.23 million barrels a day (relative to analysts' predictions of $2.97 a share and 1.24 million barrels a day, respectively). Canadian Natural used them as an opportunity for another dividend hike. The company has never cut its dividend, keeping it intact during the 2020 downturn, and already hiked the quarterly payout to 47 cents from 42.5 cents earlier this year. Now it is increasing it again to 58.75 cents, for a yield of 4.5 per cent.
"The company's dividend growth arrived a quarter sooner and in greater magnitude than we had expected," cheered RBC analyst Greg Pardy in a research note this morning. He also heaped advance praise on Canadian Natural's "imminent" achievement of its debt target of sub-$15-billion. (Debt as of Sept. 30 was $15.9-billion, down from $21.3-billion at the start of the year. For context, $15-billion would be roughly equal to the company's annual forecast EBITDA at current commodity prices.)
The financials also brought a hint of a change of tone, or a testing of waters. The trend among senior producers lately is to emphasize debt reduction, dividends and share buybacks, while downplaying big budget boosts or splashy acquisitions. Canadian Natural has certainly gone along with this; in addition to today's dividend and debt update, the press release boasted of nearly $1-billion in share repurchases since the start of the year. "Our commitment to returns to shareholders has been significant," proclaimed chief financial officer Mark Stainthorpe. He carried on in this vein for three lengthy paragraphs. Right at the end, he dropped a clue that Canadian Natural is becoming interested in "strategic growth/acquisition opportunities" -- with the caveat, of course, that the company must first reach its debt target.
Canadian Natural was not the only dividend-booster today. Fellow Alberta player Paramount Resources Ltd. (POU), up $1.52 to $23.00 on 728,400 shares, has announced a tripling of its monthly dividend to six cents from two cents. On the U.S. side of the border, the North Dakota-focused Enerplus Corp. (ERF) added 12 cents to $11.85 on 3.36 million shares, after hiking its quarterly dividend to 4.1 cents from 3.8 cents. Their respective yields are now 3.1 per cent and 1.4 per cent.
Paramount also used the financials as a chance to boost its 2022 guidance, and to mirror Canadian Natural and the potentially acquisitive gleam in its eye. The preliminary 2022 guidance set by Paramount over the summer called for average production of about 86,000 barrels a day on a budget of about $355-million. Today, Paramount said it instead wants to spend roughly $520-million and produce around 92,000 barrels a day. Even with this higher budget and its higher dividend, Paramount is forecasting $455-million in free cash flow next year. It went down a list of potential uses for this cash, going first with the usual cobblers of debt repayments, more dividends and share buybacks. Dashed off quickly at the bottom of the list was "organic growth or strategic acquisitions."
As for Enerplus, it stuck largely to the dividend theme, boasting that today's increase is its third of the year. (Enerplus spent most of the last five years paying a monthly dividend of one penny, and thus had more room than some to raise the bar.) Worth noting is that Enerplus took the opposite approach to the above companies: It already completed about $770-million (U.S.) worth of acquisitions earlier this year, and only after that did it start to boost its dividend and share buybacks. Today's update signalled no interest in further acquisitions.
Back in Alberta, juniors continued the flood of financials. Jim Evaskevich's Yangarra Resources Ltd. (YGR) lost 23 cents to $1.72 on 1.47 million shares, failing to impress investors with its third quarter report. Average production of 8,700 barrels a day fell well below analysts' predictions of 9,400 barrels a day. Yangarra said its results were "negatively impacted by below-type-curve initial flush performance" from some of its new Cardium wells. It hastened to add that the wells are "levelling out at a lower decline rate" -- hardly surprising when the flush production misses the mark -- but this did not mitigate investors' concerns about its inventory. They were not even soothed by Yangarra's seemingly inevitable promise that once it pays down its debt to a targeted level, it will look to "return a portion of [its] free cash flow to shareholders via a dividend policy."
Speaking of debt, that remains the main theme at Athabasca Oil Corp. (ATH), up five cents to $1.09 on 1.6 million shares. It used its third quarter financials as a chance to remind investors of the debt refinancing that it completed last month. This removed the overhang of a $400-million (U.S.) batch of notes that were due to mature just three months from now. Instead, Athabasca now has $350-million (U.S.) in notes that do not mature for five years, and it has a $110-million credit facility. President and CEO Rob Broen proclaimed in the new update that "net zero leverage" remains a priority. He would like to achieve this goal in 2023, by devoting the majority of Athabasca's free cash flow to debt reduction over this period.
Much of the rest of the press release was dedicated to Athabasca's rising production. The company has just hiked its 2021 guidance to 34,250 barrels a day, compared with the prior range of 32,000 to 34,000. Yet even Athabasca could not resist dangling a bit of a trendy carrot. In a new presentation on its website, it vaguely referenced a goal of "returning free cash flow to stakeholders."
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