Energy Summary for Aug. 4, 2022
2022-08-04 20:29 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost $2.12 to $88.54 on the New York Merc, dropping below $90 for the first time since February on rising recession fears, while Brent for October lost $2.66 to $94.12 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.63 to WTI, up from a discount of $19.66. Natural gas for September lost 15 cents to $8.12. The TSX energy index lost 9.99 points to close at 213.68.
Oil sands giant Canadian Natural Resources Ltd. (CNQ) lost $1.49 to $65.41 on 7.42 million shares, as the slump in oil prices undercut its news of a lofty quarterly profit and a special dividend. The company released its second quarter financials this morning, trumpeting net earnings of $3.5-billion. Production of 1.21 million barrels a day and cash flow of $4.66 a share were above analysts' predictions of 1.20 million barrels a day and $4.42 a share, respectively. Canadian Natural patted itself on the back for its "substantial free cash flow generation" as it declared a $1.50-a-share dividend payable on Aug. 31. (It also pays a quarterly dividend of 75 cents, for a yield of 4.6 per cent.)
Management also talked up the plans for "strategic growth." The company originally set a budget of $4.3-billion for 2022, but now plans to spend $4.9-billion, partly because of inflation but also -- as it heavily emphasized, perhaps in light of recent reactions to other companies' inflation-linked budget boosts -- because it wants to do more drilling. This will include drilling at non-oil-sands assets. Several juniors will be taking note of Canadian Natural's rapid push into the emerging Clearwater play, where the company boasted today that it holds nearly one million acres. The Clearwater has rarely featured in Canadian Natural's press releases before, but is a major gear in the hype machines of companies such as Tamarack Valley Energy Ltd. (TVE: $3.71), Headwater Exploration Inc. (HWX: $5.54) and Baytex Energy Corp. (BTE: $5.62).
While all of the above stocks tumbled with oil prices today, this is presumably not scaring off one of Canadian Natural's new institutional investors. In a post on its website, Barry Schwartz's Toronto-based Baskin Wealth Management said it is now long Canadian Natural -- just five months after a separate post entitled, "Why we don't invest in oil stocks." Baskin's position five months ago was that oil prices, and thus oil stocks, are too vulnerable to external factors such as geopolitics. Now Baskin has changed its mind, but only for Canadian Natural. "We think the stock today is attractive under a very wide range of oil prices," it wrote. It added that it expects the company to "remain profitable and continue to raise its already substantial dividend even if oil prices fell by 60 per cent."
Baskin did not disclose its ownership position. Its quarterly EDGAR filings do not list Canadian Natural among its holdings as of June 30, indicating that the purchases came after quarter-end. Curious investors will likely have to wait until Baskin's next quarterly filing in October.
South of the border, U.S. shale producer Ovintiv Inc. (OVV: $58.65) lost $1.55 to $58.65 on 630,500 shares, after it too released its second quarter financials. It touted a net profit of $1.3-billion (U.S.). This was up sharply from a loss of $241-million (U.S.) in the first quarter, when the company had slightly lower revenue but significantly larger hedging losses. Management emphasized during a conference call this morning that its hedges are steadily expiring and paving the way for "a meaningful step change in cash flow as we head into next year."
Beyond that, the results were generally in line with the guidance that Ovintiv provided in May, including average production of 500,000 barrels a day on a budget of $511-million (U.S.). Chief executive officer Brendan McCracken boasted during the call that Ovintiv has such "relentless focus on capital efficiency" that it is able to save about $100-million (U.S.) per quarter. In other words, "if we were performing at the average of our peers," Ovintiv would need to spend an extra $400-million (U.S.) this year to achieve its full-year guidance, he claimed. He added that this works out to more money that Ovintiv can use for debt reduction or dividends. The company's current dividend yield is relatively modest at 1.6 per cent, but Mr. McCracken dropped cheerful hints about big plans for 2023.
Even further south, Wayne Foo's Colombian oil producer, Parex Resources Inc. (PXT), lost $1.85 to $21.22 on 810,000 shares, as it joined the parade of quarterly financials. They held few surprises given that Parex previously released an operational update for the second quarter in July. Production averaged 51,100 barrels a day, supporting "the highest quarterly FFO [funds from operations] in the company's history of $228-million (U.S.)," as well as a net profit of $143.1-million (U.S.), boasted president and CEO Imad Mohsen. He had to save all of his boasts for the press release, as he was not able to host the quarterly conference call. IR man Mike Kruchten explained that Mr. Mohsen headed to Lebanon to visit his parents for the first time since the start of the COVID pandemic.
The rest of management spent the call talking up Parex's busy drilling schedule for the second half of the year, designed to boost production to a year-end record of over 60,000 barrels a day. Management showed no concern about potentially needing to change its plans once the anti-oil president-elect Gustavo Petro takes office on Aug. 7. The election results (and lower oil prices) have sent Parex's stock down to $21 from over $30 since June. As far as Parex is concerned, however, the block contracts are signed and "we're moving forward." Chief financial officer Ken Pinsky was confident enough to dangle the possibility of another near-term dividend hike. (Parex has increased the dividend twice this year and currently has a 25-cent quarterly payout, for a yield of 4.7 per cent.)
Speaking of dividend hikes, back in Canada, George Fink's gassy Pine Cliff Energy Ltd. (PNE) lost nine cents to $1.74 on 2.51 million shares, despite boosting its monthly payout by 20 per cent. The company unveiled the dividend just two months ago and set it at 0.83 cent a month (10 cents annualized). It will now bump it up to a penny a month, for a generous new yield of 6.9 per cent.
The announcement came alongside Pine Cliff's second quarter financials, as well as a letter to shareholders from president and CEO Phil Hodge. "I hope all of Pine Cliff's supporters are enjoying their summer. I sure am," he chortled. He drew attention to the company's all-time record cash flow of $55.8-million and its near-record production of 21,300 barrels a day. Net earnings soared to $50.2-million from a loss of $700,000 a year earlier, while the balance sheet swung to a net cash position of $22.4-million from net debt of $45.2-million.
Mr. Hodge tried to stir up hopes of more excitement to come. He talked of assets that Pine Cliff may see in the market and "covet," and of "manag[ing] our cash and credit resources in contemplation of potential transactions." (Pine Cliff has historically been a fan of acquisitions, its main method of boosting production to over 21,000 barrels a day from just 100 barrels a day since 2012.) As well, Mr. Hodge noted that other companies have been announcing variable dividends, special dividends and share buybacks, all of which he will continue to "closely" evaluate. Despite his best efforts, investors remained aloof.
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