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Bullboard - Stock Discussion Forum Vermilion Energy Inc T.VET

Alternate Symbol(s):  VET

Vermilion Energy Inc. is a Canada-based international energy producer. The Company seeks to create value through the acquisition, exploration, development, and optimization of producing assets in North America, Europe, and Australia. Its business model emphasizes free cash flow generation and returning capital to investors when economically warranted, augmented by value-adding acquisitions. The... see more

TSX:VET - Post Discussion

Vermilion Energy Inc > The energy sector is “puking out cash.”
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Post by GregC24 on Oct 28, 2021 9:23am

The energy sector is “puking out cash.”

'We’ve got all this cash': Analysts expect oil companies to keep buying their own shares in massive rally


CALGARY – Canadian Natural Resources Ltd. is now trading at all-time highs and analysts and investors expect the company to continue buying up swathes of its own shares as the country’s largest oil and gas producer, like its smaller competitors, enjoys a boost from rising commodity prices.

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CNRL signalled in March it would aggressively buy up to five per cent, or 59 million of its own shares this year, and the stock has climbed 69 per cent year to date. In fact, shares in Canada’s biggest oil and gas producer are rising so sharply they have eclipsed a high set Jan. 2014 of $52.31 per share and reached $53.44 each in Toronto Stock Exchange trading on Oct. 18.
 

The Calgary-based producer’s outperformance raises questions about whether it should continue buying shares at elevated prices or instead spend its windfall of cash from crude oil and natural gas prices on additional dividends or to speed up an aggressive debt repayment plan.

Across the Calgary oilpatch, companies’ boards are wrestling with the same question as they begin reporting third-quarter earnings results this week buoyed by oil and natural gas prices that have doubled this year.

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“They’re struggling to say, ‘We’ve got all this cash, what do we do with it?’” said Rafi Tahmazian, director and senior portfolio manager at Canoe Financial, noting that he’s expecting companies to continue buying back their own stock, even after the broader energy rally, because the energy sector is “puking out cash.”
 

Rising commodity prices have lifted Canadian oil and gas stocks. The S&P/TSX Composite Index is up 69 per cent so far this year and that performance has more than tripled the rise in the S&P/TSX Composite Index, which is up 20 per cent over the same time period.

Suncor Energy Inc. reports quarterly results Wednesday and is the only large Canadian oil producer that has underperformed the energy index, but is still up 31 per cent this year to $28.04 per share. The stock has been weighed down by operational problems after the company hit an aquifer at its Fort Hills oil sands mine.

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In the second quarter, Suncor distributed the bulk of its $958-million in shareholder returns by buying back its own shares, spending $643 million to buy up stocks compared with $315 million in dividends. Analysts expect share buybacks to continue for Suncor.

“The stock has been a relative laggard for over a year now, reflected in the now consistent trading discount to peers,” Citi analyst Prashant Rao wrote in an Oct. 19 research note.

Tahmazian said he expects to see more companies implement or boost dividends as they have hit, or are close to hitting, their debt-reduction targets for the year.

Even high-flying CNRL is trading at the same value-to-earnings ratio, of roughly three-times earnings, as it was before both oil and natural gas prices doubled, Tahmazian said. “It’s at one of the cheapest values it’s been at in 30 years.”
 

CNRL, which overtook Suncor Energy Inc. to become the most valuable Canadian oil company last year, declined to comment on whether it would change its capital deployment strategy, citing its upcoming third-quarter earnings call Nov. 4.

Most analysts expect share buybacks to continue.
 

“We view the purchase and cancellation of shares in the market as an appropriate component of its capital deployment, as this element does drive (net asset value) growth per share whereas elevated cash distributions do not,” Robert Fitzmartyn, analyst with Stifel FirstEnergy, wrote in a research note.

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Fitzmartyn expects oil and gas companies in Canada to generate $21 billion in cash flow in excess of expenses over the course of next year, given the current outlook for oil and gas commodity prices.  He said that money would be divided into a few “buckets,” including debt reduction, share buybacks, dividends and special dividends.

Eight Capital analyst Phil Skolnick said he expects smaller- and mid-sized oil and gas companies to implement share buybacks and possibly boost dividends given the “tailwinds” of rising commodity prices and lower debt levels, which translate to lower corporate breakeven costs.

Skolnick said he expected Tamarack Valley Energy Ltd., a mid-sized Calgary-based oil producer, to unveil a new capital allocation strategy during its earnings call this week, and the company is likely to implement a dividend in the near future.

PrairieSky Royalty Ltd.’s net earnings rose 258 per cent to $33.7 million in the third quarter, up from $9.4 million during the same period a year earlier. The company also declared a nine cent per share dividend on Monday, up 38 per cent from 6.5 cents per share in the second quarter.

 

Comment by Rational43 on Oct 28, 2021 2:11pm
“We view the purchase and cancellation of shares in the market as an appropriate component of its capital deployment, as this element does drive (net asset value) growth per share whereas elevated cash distributions do not,” Robert Fitzmartyn, analyst with Stifel FirstEnergy, wrote in a research note. Amen.  Don't make it so cheap for investors who've abandoned the energy sector for ...more  
Comment by prested on Oct 28, 2021 4:58pm
Amen indeed.
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