Energy Summary for Nov. 9, 2021
2021-11-09 20:58 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for December delivery added $2.22 to $84.15 on the New York Merc, while Brent for January added $1.35 to $84.78 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.04 to WTI, down from a discount of $18.79. Natural gas for December lost 45 cents to $4.98. The TSX energy index lost a fraction to close at 168.78.
Oil prices had another good day, buoyed by rising enthusiasm about recovering demand. One prominent oil bull is doubling down on a prediction that prices could hit $120 (U.S.) in 2022 for the first time since 2012. Francisco Blatch, global head of commodities research at Bank of America, made this prediction a week ago and repeated it to Bloomberg today. "[We will see a] booming air travel window for the next six months," he predicted, noting the recent reopening of U.S. borders to vaccinated travellers. He added that the European gas crisis is boosting demand for oil as an alternative, while Asian demand should come roaring back as governments roll out vaccines. All of these factors on the demand side, combined with "rigidities" on the supply side, mean only one thing to Mr. Blatch. He sees prices hitting their highest levels in a decade within the first half of 2022.
Here in Canada, the oil patch is still in the thick of quarterly reporting season. Oil sands producer MEG Energy Corp. (MEG) lost 22 cents to $11.21 on 8.4 million shares, after releasing third quarter financials that were generally as expected. Production averaged 91,500 barrels a day, while cash flow came to $239-million, or 77 cents a share. MEG would have raked in even more if not for approximately $66-million in hedging losses. The company had locked in the hedges to guarantee a desired amount of cash flow, with all excess cash flow going toward its debt, which as a result now sits at $2.7-billion (down from $3.0-billion a year earlier).
Debt reduction has been a priority for MEG since 2018, a year in which its debt-to-EBITDA ratio was a painful 8.8 times. Now it is closer to three times. That is still fairly high, but MEG (which has additional hedges in place through the fourth quarter) seems to see itself getting closer to a perceived finish line. It noted in the press release that it has not entered any hedges for 2022. Moreover, though MEG resisted dropping any trendy clues about dividends and shares buybacks in its press release, management hinted during a subsequent conference call that shareholders will want to pay attention to the guidance being released on Nov. 29. "Just be patient," said chief financial officer Erik Toews, when asked by an analyst about MEG's thoughts on dividends and share buybacks. "We'll talk about that at the back end of the month, when we come out with our [2022] budget."
Another Alberta producer, Rick McHardy's Spartan Delta Corp. (SDE), added 32 cents to $6.85 on 1.76 million shares, after it too released its third quarter financials. These were slightly better than analysts were expecting. On the back of production of 46,300 barrels a day (relative to analysts' predictions of 46,200 barrels a day), Spartan enjoyed cash flow of 47 cents a share (relative to analysts' predictions of 43 cents a share). Spartan noted that the quarter included only a month of contributions from its takeover of Velvet Energy at the end of August. Its more recent production (for the month of October) is 68,000 barrels a day.
Spartan has also shown little interest in hopping aboard the dividend bandwagon. From the moment it was formed in 2019, Spartan has focused on acquisitions, the main means through which it has boosted production to over 60,000 barrels a day from about 200 in the space of two years. The Velvet deal apparently marked the end of this shopping spree. In September, the company began promoting a three-year plan centred on "organic growth and free funds flow generation." In other words, it has racked up over $480-million in debt by splurging on new assets, and now wants to develop those assets while giving its balance sheet a chance to breathe. The new financials continued to emphasize this shift toward "responsible future growth with organic drilling."
Further afield, Dr. Suresh Narine's CGX Energy Inc. (OYL) shot up 29 cents to $1.57 on 702,500 shares, following a brief but intriguing update on CFO Tralisa Maraj. Specifically, she is "leaving CGX effective immediately." Neither she nor CGX provided a reason. Dr. Narine, CGX's executive chairman, provided the standard thank-yous and well wishes to Ms. Maraj, and announced that Hill-York Poon will take over as interim CFO while the company looks for a permanent replacement.
Ms. Maraj had served as CGX's CFO since 2013. She received $1.0-million in total compensation in 2020, including a base salary of $479,000. Her abrupt departure today happens to come just a few weeks after she caused a stir among CGX's investors by selling the vast majority of her shares. In mid-October, she sold 85,000 of her 90,718 shares at $1.50 (enjoying a tidy profit of $100,300, as she had previously acquired those 85,000 shares at just 32 cents in 2019). CGX's stock dropped to $1.13 from $1.47 in the three days after the sale appeared on SEDI, on no particular news. Antsy investors fretted about what the sale might mean in light of CGX's continuing Guyanese drill program. (The company spudded its first exploration well in a decade in August, alongside joint venturer and major shareholder Frontera Energy Corp. (FEC: $8.54), with results expected in December.)
It is, of course, unclear that there is any relation between Ms. Maraj's share sale in October and her departure today. Insiders may sell for many reasons and may leave jobs for many reasons. Yet it does seem that CGX's investors are hardly sad to see Ms. Maraj go. Dr. Narine, as noted above, thanked Ms. Maraj for her service, before immediately trying to put some oil back in the hype machine. "CGX stands at an exciting time of potential growth," he declared. He added that the company has "such exciting prospects as we look to the results of the [Guyanese] well and beyond."
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