Energy Summary for Aug. 12, 2022
2022-08-12 20:20 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost $2.25 to $92.09 on the New York Merc, while Brent for October added $1.45 to $98.15 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.66 to WTI, up from a discount of $19.67. Natural gas for September lost 10 cents to $8.77. The TSX energy index added 1.97 points to close at 233.31.
Earnings season in the oil patch is drawing to a close, but investors still had plenty of numbers to sift through today. Vermilion Energy Inc. (VET) lost 96 cents to $32.52 on 3.39 million shares, despite trying to impress investors with its second quarter financials and a dividend hike. It trumpeted a net profit of $368-million and boosted its quarterly dividend to eight cents from six cents, for a yield of 1.0 per cent. Production of 84,900 barrels a day and cash flow of $2.68 a share were both in line with analysts' predictions.
Investors frowned. A 33-per-cent dividend hike might typically spark more cheering, but in Vermilion's case, the 1-per-cent yield pales next to several of the companies that it considers to be its main competitors (or "peers," as its website prefers to call them). These include Whitecap Resources Inc. (WCP: $9.26), Crescent Point Energy Corp. (CPG: $9.80), Peyto Exploration & Development Corp. (PEY: $13.19) and Paramount Resources Ltd. (POU: $28.84), whose average yield is four times higher (Crescent Point has the lowest at 3.3 per cent and Whitecap the highest at 4.8 per cent).
Vermilion's executive chairman, Lorenzo Donadeo, and its president Dion Hatcher, tried to reassure shareholders that the company has "significant capacity to increase the base dividend" and indeed plan to "provide ratable increases over time." They also have other options such as share buybacks and special dividends. A key goal is to keep the regular dividend "resilient," they emphasized. (This particular emphasis is more understandable in light of the lesson learned in late 2019 and early 2020, when Vermilion's management at the time was stubbornly insisting that the company could make it through 2020 with the dividend intact. The dividend was then gutted in March, 2020, and suspended a month later, not returning until April, 2022 -- over all, a humbling experience that Vermilion is clearly not keen to repeat.)
Further afield, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), edged down three cents to $2.50 on 397,000 shares. Its habit of releasing monthly operational updates ensured that its second quarter financials held relatively few surprises. Production averaged 190 million cubic feet a day (the equivalent of about 34,000 barrels a day), while cash flow came to 23 U.S. cents a share. A hefty tax bill dragged the company down to a net loss of $6.4-million (U.S.) (compared with pretax earnings of $20.7-million (U.S.)).
Management used the update as a chance to burnish its green credentials. "Canacol currently leads the industry as one of the cleanest oil and gas producers in both Colombia and North America," it proclaimed, pointing to low emissions from its gas assets. It reiterated its view that "gas will play a crucial role in a fair and equitable energy transition" and ultimately "a cleaner energy future." Such remarks are aimed not only at eco-minded investors, but also at Colombia's anti-fossil-fuel new president, Gustavo Petro. Mr. Petro has vowed to ban fracking, halt oil exploration, and impose higher taxes on oil and coal companies. Fortunately for Canacol, gas appears to be in a more favoured position, with Finance Minister Jose Antonio Ocampo recently telling a local television station that gas exploration remains "fundamental." Canacol will no doubt try its hardest to keep it that way.
Another international producer, Paul Baay's Trinidad-focused Touchstone Exploration Inc. (TXP) added 18 cents to $1.56 on 1.54 million shares. It too has been busy schmoozing. Photographs posted this week on Touchstone's Twitter account show Mr. Baay, its president and CEO, and Xavier Moonan, its exploration manager, meeting with Trinidadian Energy Minister Stuart Young. A subsequent statement from the ministry expressed optimism about Touchstone's exploration activities and its ability to produce "for many years to come." Mr. Young added on his own Twitter account that he is "looking forward to good news from [Touchstone] in the not-too-distant future ... as we continue to work to increase production in [Trinidad]."
The good news is that Mr. Young expects so imminently is the start of production at Touchstone's Coho gas project. Touchstone already produces about 1,400 barrels a day of oil from other assets, but is looking forward to adding gas to the mix. Coho will roughly double its overall production. Pending environmental permits, Mr. Baay is hoping to bring Coho on production late this summer or in the fall (which will be about 2-1/2 years behind his original plan, but fortunately Touchstone's investors are a patient lot).
All of this remained a key theme in Touchstone's second quarter financials, released yesterday. "This quarter represents the end of an era for the company ... with the next quarter seeing a combination of oil and natural gas production," declared Mr. Baay in his opening comment. Investors seemed pleased enough, although a profit would have been nice. Touchstone came close to eking one out, but ended up with a net loss of $262,000 on oil sales of $12.5-million.
Back in North America, Doug Bartole's InPlay Oil Corp. (IPO) lost 19 cents to $3.54 on 553,700 shares, giving back most of the 24 cents it added yesterday after it too released its second quarter financials. It turned a profit of $29.0-million on sales of $71.2-million. Production (which comes from the Alberta Cardium) averaged 9,100 barrels a day, which was slightly lower than an earlier estimate of 9,200 barrels a day, reflecting transportation difficulties in an unseasonably wet and muddy June. Management reassured shareholders that the weather has improved and that the full-year guidance remains intact. It is no doubt pleased with itself for having set such a forgiving range for the guidance, 8,900 to 9,400 barrels a day.
On the U.S. side of the border, Ian Dundas's Bakken-focused Enerplus Corp. (ERF) added 48 cents to $18.61 on 2.09 million shares, after renewing its share buyback program. It can buy back up to 23.1 million of its 235 million shares. Management gave the usual spiel to explain the decision, namely its belief that the market price of the shares "does not adequately reflect their underlying value" and therefore the shares represent an "advantageous" investment.
Presumably Enerplus finds buybacks more advantageous than other options for its extra cash. Like the above Vermilion, Enerplus pays a dividend, but the yield is modest, at 1.3 per cent (based on quarterly payouts of five U.S. cents). Buybacks help keep the complaints at bay. The new press release emphasized that under the previous program, announced exactly one year ago today, Enerplus bought back a total of 25.5 million shares, the maximum allowable amount.
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