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Energy Summary for Nov. 12, 2021
2021-11-12 20:54 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery lost 80 cents to $80.79 on the New York Merc, while Brent for January lost 70 cents to $82.17 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.16 to WTI, unchanged. Natural gas for December lost 36 cents to $4.79. The TSX energy index lost a fraction to close at 164.70.
The COP26 climate chinwag headed into its final hours today, and then into overtime, as negotiators scrambled to reach an agreement to reduce global carbon emissions. A draft agreement circulated earlier today drew criticism for being insufficiently ambitious. Among the (many) points of contention was one of Canada's original calls to action, namely an end to "inefficient fossil fuel subsidies." One Canadian delegate took issue with the adjective: Catherine Abreu (head of the green group Destination Zero) bristled at a press conference that such text is "water[ed] down with weasel words. ... 'Inefficient fossil fuel subsidies' -- it means nothing."
She is perfectly right. Of course, the meaning of "inefficient" is less important than the meaning of "subsidy," which in Canada exists in an imprecise vacuum into which skeptics and supporters alike pour all sorts of questionable math. Earlier this year, Environmental Defence made the headline-grabbing claim that Canada's oil and gas industry received no less than $18-billion in subsidies in 2020. Its definition included everything from pandemic wage support to environmental credits to "investments made into policing indigenous land defenders." In the opposite corner is the Canadian Association of Petroleum Producers (CAPP), which for years has insisted that the industry receives no subsidies whatsoever. It simply uses legitimate tax incentives available to any business, without bias, and more than pays for itself through GDP contributions and employment.
In any case, Canada has been promising to end fossil fuel subsidies since 2009, and at no point has it specified what it means. The COP26 conference did not change that. There is simply a new word for bamboozling boondogglers to fixate on -- appropriately, "inefficient."
Within the sector, oil sands giant Imperial Oil Ltd. (IMO) added $1.17 to $43.85 on 2.19 million shares. It is planning to speed up its share buybacks. Imperial previously announced in June that it would buy up to 35 million of its 711 million shares over a 12-month period. Today, it declared that it has already finished about one-third of this program (repurchasing 11.9 million shares) and plans to finish the rest by the end of January.
Investors seemed pleased. Two weeks ago, when Imperial released its third quarter financials, it flaunted its $1.6-billion in quarterly free cash flow, of which it used $313-million for buybacks and $195-million for dividends. The company pays a 27-cent quarterly dividend that represents a yield of 2.5 per cent. Some of its competitors offer higher yields, such as Canadian Natural Resources Ltd. (CNQ: $52.00) (yielding 4.5 per cent) and Suncor Energy Inc. (SU: $32.33) (yielding 5.2 per cent). Perhaps for this reason, Imperial is drawing extra attention to its own buybacks. Chairman and chief executive officer Brad Corson calculated today that the accelerated program should result in an extra $1-billion returned to shareholders over the next 2-1/2 months. He added that Imperial will have plenty of money left over, and is "actively evaluating" options for more buybacks or possibly a special dividend.
Lower down, Sue Riddell Rose's Alberta-focused Perpetual Energy Inc. (PMT) lost eight cents to 75 cents on 140,600 shares. The drop came in spite of one of the largest quarterly profits in Perpetual's history: It released its third quarter financials today and reported net earnings of $51.1-million. Of course, with revenue being a mere $14.6-million, there was more to the story. A good chunk of the earnings came from a gain on its Clearwater asset sale to Rubellite Energy Inc. (RBY: $2.59), which Perpetual spun out in September. The transaction sharply reduced Perpetual's debt (which fell to $56-million as of Sept. 30 from $102-million a year earlier) and narrowed its focus to its remaining core assets.
Investors have generally rewarded the deal, with Perpetual's stock nearly tripling from about 30 cents since the Rubellite arrangement closed in mid-September. Today's drop to 75 cents will still leave many investors in a cheerful mood. Yet they likely would have appreciated some sort of guidance for 2022 (which Rubellite has released, but Perpetual has not). Perpetual was too busy basking in what its CEO, Ms. Riddell Rose, called the "full capital solution" provided by the Rubellite spinout. She did mention that Perpetual is planning a busy fourth quarter program and is hoping to get its production up to 6,000 barrels a day by year-end (compared with 4,900 in the third quarter).
Another Alberta producer, Alfred Sorensen's gassy Pieridae Energy Ltd. (PEA) added one cent to 43 cents on 88,400 shares. This was on top of the one cent it added yesterday after releasing its third quarter financials (while clinging stubbornly to a long-term dream). The quarter was roughly as expected, even if hedges prevented Pieridae from reaping the full benefits of rising gas prices. It emphasized its operating cash flow of $6.9-million, but still turned a net loss of $14.8-million.
Pieridae's real dreams lie far from Alberta. It has long viewed its gas assets as a support beam for its bigger promotion: the Goldboro LNG (liquefied natural gas) project in Nova Scotia. Goldboro has been in the works since 2012. It came a long way, securing environmental permits, regulatory approvals and even a long-term agreement with a major European customer. Yet Pieridae was unable to nail down enough money to cover the $10-billion (U.S.) price tag. On June 30, 2021, Pieridae missed the deadline to make a final investment decision, and in early July it announced "strategic alternatives" reviews of both Goldboro and the company as a whole (code for both going up for sale). Pieridae has yet to attract any sort of buyer.
This has not dampened the spirits of Mr. Sorensen, the company's long-time CEO (and an even longer-time LNG advocate -- he previously sold a B.C. LNG project for $300-million in 2010, though this project was later scuppered). "We remain hopeful [that our strategic review] will result in a successful conclusion," he declared yesterday. He also remains hopeful about Goldboro, noting that Pieridae is "analyz[ing] options that could make a reconfigured LNG initiative more compatible with the current environment." One option that he dangled is to make Goldboro a floating LNG (FLNG) project instead of an onshore one. He did not say why, but other proponents of FLNG projects say they are generally smaller, greener and faster to build (though they face a jigsaw of technical challenges and can be difficult to scale).
The main issue -- cost -- went unaddressed by Mr. Sorensen. As of Sept. 30, Pieridae had a working capital deficit of $47-million, over $230-million in separate term debt and a prominent "going concern" red flag in its new financials. Without outside help, its odds of financing even a "reconfigured" Goldboro look slim.
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