Energy Summary for Sept. 28, 2021
2021-09-28 20:37 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery edged down 16 cents to $75.26 on the New York Merc (all figures in this para U.S.). Brent for November, after briefly crossing $80 for the first time in nearly three years, retreated and lost 44 cents to $79.09. Western Canadian Select traded at a discount of $11.75 to WTI, down from a discount of $11.70. Natural gas for October added 13 cents to $5.84. The TSX energy index lost a fraction to close at 142.69.
Brent oil prices reached an intraday high today of $80.75 (U.S.), the highest level since October, 2018. The rally ran out of steam at that point -- probably reflecting profit-taking, said several analysts -- but the bulls still had a staunch supporter in OPEC. The group released its 2021 World Oil Outlook this morning. "Energy and oil demand have picked up significantly in 2021 ... Continued expansion is forecast for the longer term," wrote Secretary-General Mohammed Barkindo in the foreword to the report. The report went on to predict that oil demand will exceed pre-COVID levels and hit 101.6 million barrels a day in 2023.
With oil back in fashion for traders, the Alberta government is hoping to spruce up the image of the oil sands too. The Canadian Energy Centre (CEC), a provincial corporation set up in 2019 (and casually referred to by Premier Jason Kenney as the "energy war room"), is embarking on a PR push targeting U.S. consumers. It has launched a billboard campaign in New York and Washington DC to tout Canadian oil as "better, closer, cleaner and friendlier."
"Choose friendly oil," says one billboard right smack in Times Square, against a backdrop of a gas can pouring out maple leaves. Another reads: "A good neighbour lends you a cup of sugar. A great neighbour provides you with 1.4 million barrels of oil per day." The ads will run for four weeks and reportedly cost the CEC $240,000. The CEC has also set up the Friendly Energy website, which encourages visitors to pressure the U.S. government into reducing oil imports from "OPEC+ dictators" (such as Russia and Saudi Arabia) and instead rely on "our friendly neighbour to the north."
Here in Canada, Neil Roszell's Alberta Clearwater-focused Headwater Exploration Inc. (HWX) lost 26 cents to $4.57 on 6.29 million shares, as it resumed trading this morning and allowed investors to react to yesterday's joint announcement with Cenovus Energy Inc. (CVE). As discussed yesterday, Cenovus said it would sell 25 million of its 50 million Headwater shares -- all of which were obtained through a Clearwater asset sale last year -- through a $113.7-million secondary offering. Seeing as the entire block of 50 million shares was originally valued at just $55-million, the deal will crystallize a pleasing gain for Cenovus.
Today, Cenovus announced that it is increasing the secondary offering to 45 million shares and $204.7-million. It would even be willing to unload its final five million shares if the underwriters exercise their overallotment option. Should that happen, Cenovus would still retain some exposure to Headwater and its Clearwater assets. It received 15 million warrants of Headwater as part of the above-mentioned asset sale. These warrants are well in the money; Headwater's $4.57 stock is trading at more than double the warrants' strike price of $2.
The deal suggests healthy demand for Headwater's shares. Headwater, while it will receive no proceeds from the secondary offering, said it expects to benefit from "enhanced trading liquidity." It added that it "continues to progress its exploration program."
Further operational details were scant in the press release, but Mr. Roszell, chairman and chief executive officer, shared "a couple key messages" at an industry conference two weeks ago. He sketched out a rough multiyear plan, starting with the planned production of 7,250 barrels a day this year. (That is up from 2,800 when Headwater bought the assets last year.) Mr. Roszell wants to boost this quickly to 14,500 barrels a day in 2024. By that year -- or in promoter-guff, "this 2024 notional time frame" -- Mr. Roszell sees plenty of options for Headwater. It could double production through exploration. It could pursue acquisitions (and might even pursue them sooner, if the currently feverish land grab dies down). It will also decide "not if, but when, does a return of capital to shareholders happen." Mr. Roszell emphasized that the Clearwater offers something "bigger than anything we've participated in before." (Headwater is the fourth water-themed promotion for Mr. Roszell and his people. They previously sold Raging River in 2018, Wild Stream in 2012 and Wild River in 2009.)
Another company in the Clearwater (and which happens to be the company that bought Mr. Roszell's Raging River in 2018) is Baytex Energy Corp. (BTE), up eight cents to $3.50 on 21.1 million shares. This is its first time in the mid-$3 range since 2018. September has been an especially good month, with the stock rising from $2.14 since Sept. 1. That was when Baytex released a Clearwater-focused update and patted itself on the back for achieving production in the play of 2,300 barrels a day, up from nothing at the start of the year. While this is just a fraction of Baytex's overall production of 80,000 barrels a day (mostly from the Saskatchewan Viking and the Texas Eagle Ford), it evidently merited outsized promotional attention. President and CEO Ed LaFehr toasted the Clearwater as "one of the most profitable plays in Canada."
More recently, Mr. LaFehr was another of the presenters at the above-mentioned industry conference (the 25th Annual Energy Conference hosted by Peters & Co.). "We've got a new shareholder proposition," he declared, "and it starts with the free cash flow yield that's sitting at 30 per cent." That works out to $400-million in free cash flow, or $100-million per quarter, he clarified. Baytex is of course using some of this money to make a splash in the Clearwater. This play is such a new phenomenon for Baytex that it was not included in the five-year plan unveiled by the company in April. Mr. LaFehr is aiming to release an updated five-year plan in December.
The plan, he emphasized, "forms the basis for offering a more direct set of shareholder returns." Baytex was once notably generous with its returns, paying a dividend as high as 25 cents a month. It has not paid any dividends since 2015. Based on the stock's rapid recent rise -- and a hint in the presentation that Baytex will start to "consider" reintroducing a dividend between 2022 and 2025 -- investors are crossing their fingers for a near-term revival.
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