Energy Summary for Dec. 13, 2022
2022-12-13 21:14 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for January delivery added $2.22 to $75.39 on the New York Merc, while Brent for February added $2.69 to $80.68 (all figures in this para U.S.). Western Canadian Select traded at a discount of $27.75 to WTI, unchanged. Natural gas for January added 35 cents to $6.94. The TSX energy index added 3.64 points to close at 241.75.
Oil prices headed higher on hopes of rising fuel demand. At a business summit in Africa, China's ambassador to the United States said China is making "dynamic readjustments" -- relaxations -- to its stringent anti-COVID curbs, which should lead to increased international travel "in the near future." Separately, vocal oil bull Goldman Sachs published a report opining that the current weakness in oil prices is merely "transient." It lowered its WTI oil price forecast to a range of $90 (U.S.) to $95 (U.S.) for the first half of 2023 (down from $100 (U.S.)), but maintained that demand will rise as China reopens its economy.
Closer to home, traders watched for updates on a potential restart of TC Energy Corp.'s (TRP: $58.59) massive Keystone pipeline system, which moves over 600,000 barrels of oil a day from Alberta to refiners in the United States. The line was shut down last Wednesday after spilling 14,000 barrels into a creek in Kansas, the worst leak in its history. TC Energy is now aiming for a partial restart as early as tomorrow. The timeline for a full restart, which will require approval from regulators, remains uncertain. For some context, when Keystone previously spilled about 4,500 barrels in South Dakota in 2019, it was shut down for 13 days.
With a recent Wood Mackenzie report suggesting that Canadian storage hubs have enough space to handle stranded barrels even if Keystone's shutdown persists for weeks, the mood in the oil patch remains watchful but largely unworried. Oil sands giant Imperial Oil Ltd. (IMO), up 27 cents to $66.59 on 2.81 million shares, has been trying to redirect focus to its large-scale share buybacks. It estimated yesterday that it will buy back a total of 20.6 million shares under its previously announced $1.5-billion special buyback program. Its outstanding share count will then be 584 million. Imperial will pay $72.50 a share, the bottom end of the program's proposed range of $72.50 to $87.
Elsewhere in Alberta, Craig Bryksa's Crescent Point Energy Corp. (CPG) added 14 cents to $9.25 on 7.4 million shares. It is still in a buoyant mood after announcing last Friday that it plans to buy $375-million worth of assets in the Kaybob Duvernay play from Jim Riddell's Paramount Resources Ltd. (POU), down 44 cents to $28.13 on 402,700 shares. The assets are producing 4,000 barrels a day. In a show of confidence, Crescent Point also announced an increase in its quarterly dividend to 10 cents from eight cents, for a new yield of 4.3 per cent.
The price tag is on the hefty side relative to current production. For context, when Crescent Point bought Shell Canada's Kaybob Duvernay assets in the spring of last year, it paid $900-million for 30,000 barrels a day -- more than seven times as much output for only about twice as much money. Management took pains to emphasize that the assets include "significant inventory depth" (drilling inventory being something that shareholders have been criticizing lately as rather shallow). The new assets should fit seamlessly into the company's five-year outlook, unveiled in October, boasted management. It also gestured vaguely at the "underpinnings of [a] 10-year plan," which it is still keeping largely under wraps.
As for Paramount, it applauded itself for having "crystallize[d] the value of the assets at attractive metrics," adding that the assets had not played a large role in its production plans anyway. It is happy to take the cash instead. With the cash, it plans to pay down its net debt (which was $347-million as of Sept. 30) and pay out a $1-a-share special dividend (which will cost about $142-million). If all goes well, Paramount expects to close the deal in January. Upon closing, it told investors, it plans to release fresh guidance for both 2023 and 2024, as well as the ever-trendy five-year outlook.
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