Energy Summary for Feb. 17, 2022
2022-02-17 20:19 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery lost $1.90 to $91.76 on the New York Merc, while Brent for April lost $1.84 to $92.97 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.69 to WTI, unchanged. Natural gas for March lost 23 cents to $4.49. The TSX energy index added a fraction to close at 202.19.
Amid intensifying demands from anti-fossil-fuel advocacy groups to divest, divest, divest, the world's largest asset manager has issued an answer: No. "We will continue to invest in and support fossil fuel companies," wrote BlackRock in a letter to Texas officials and trade groups (as reported today by Reuters). It added that it "want to see these companies succeed and prosper."
BlackRock has never threatened divestment. It raised eyebrows in January, 2021, by supporting "the goal of net zero greenhouse gas emissions by 2050," but maintained as recently as December that "Divesting from entire sectors ... will not get the world to net zero." Apparently that was not enough for some Texas officials. Last month, Lieutenant-Governor Dan Patrick sent a letter to the state comptroller complaining about BlackRock's net-zero comments and asking that BlackRock be put "at the top of the list of financial companies that boycott the Texas oil and gas industry." (Under a new law, such companies are themselves at risk of being boycotted by the state's massive pension funds -- divestment, Texas-style.) "If Wall Street turns their back on Texas ... then Texas will not do business with Wall Street," fumed Mr. Patrick.
BlackRock's letter of support for fossil fuel companies was in response to Mr. Patrick's letter. "We have not and will not boycott energy companies," insisted the firm. It pointed to its investments in Texas-headquartered companies such as Exxon, ConocoPhillips and Kinder Morgan.
While those companies still have the backing of BlackRock, many Canadian producers have not been so lucky hanging on to institutional investors, particularly oil sands producers. Over the last five years, international financiers that have blacklisted the oil sands include BNP Paribas Group, HSBC, Sweden's AP7, Society Generale of France, Norway's sovereign wealth fund and many more. Even some Canadian funds and banks got in on the act, notably the Caisse de depot et placement du Quebec. This is to say nothing of all of the universities and other institutions that dove into divestment. There are still some holdouts showing no interest in hopping on this bandwagon, including Canada's largest pension fund, CPP Investments. It announced just last week that it prefers to "exert our influence ... as active investors, rather than through blanket divestment."
Meanwhile, companies themselves have started to voice net-zero-by-2050 commitments, doubtless with a hopeful eye on meeting institutions' increasingly strict criteria. The six largest companies in the oil sands formed a net-zero-by-2050 "alliance" last year. They are Canadian Natural Resources Ltd. (CNQ: $68.49), Imperial Oil Ltd. (IMO: $56.08), Suncor Energy Inc. (SU: $37.68), Cenovus Energy Inc. (CVE: $20.15), MEG Energy Inc. (MEG: $16.09) and ConocoPhillips Canada,, together representing about 95 per cent of oil sands output.
Moving on, elsewhere in Alberta, Darren Gee's gassy Peyto Exploration & Development Corp. (PEY) added 10 cents to $10.24 on 1.13 million shares, after releasing its year-end reserve report. Proved and probable reserves rose to 904 million barrels as of Dec. 31, 2021, from 834 million a year earlier.
Chief executive officer Mr. Gee toasted Peyto's "23rd year of successful reserves development." He provided his usual historical look-back, noting that during these 23 years, Peyto has pumped $6.8-billion into the Canadian economy, made just under $1-billion in royalty payments to Alberta, and explored for and discovered 7.7 trillion cubic feet equivalent of gas. (For context, that is enough to heat every home in the country for more than five years.)
Investors kept their attention on Peyto's future. In addition to the reserve-report, the company unveiled its 2022 guidance, setting a budget of $350-million to $400-million (relative to last year's spending of $365-million). It did not set a specific production target, but looks to be aiming to keep production fairly flat at around 100,000 barrels a day. The company expects to generate enough cash flow to cover its budget and its five-cent monthly dividend (for a yield of 5.9 per cent), with some left over to pay down debt, which remains lofty at $1.09-billion.
Speaking of debt repayment, one Alberta junior says it is looking forward to becoming "one of the first in the Canadian energy sector" to reach zero net debt. That would be Don Gray's Gear Energy Ltd. (GXE), down four cents to $1.50 on 5.33 million shares. (Incidentally, Mr. Gray is the founder and former CEO of Peyto, and remains its chairman. He is also the chairman of Gear and Petrus Resources Ltd. (PRQ: $1.55).) Today Gear released its year-end financials. They were largely in line with what investors were expecting, considering that president and CEO Ingram Gillmore posts monthly updates to shareholders on Gear's website. Production for the fourth quarter averaged 6,100 barrels a day and cash flow came to seven cents a share.
Mr. Gillmore was keen to draw attention to the improvements in Gear's balance sheet. "[We] reduced net debt by 70 per cent from year-end 2020," he boasted, referring to the drop to $15.8-million at Dec. 31 from $52.8-million a year earlier. He opted against reminding shareholders that Gear wiped out a good chunk of that debt through shares-for-debt swaps, diluting the share count to 260 million from 216 million. Cash flow should be enough to take care of the rest, and Mr. Gillmore said he is "excited to report that [Gear] is currently projecting to reach zero net debt by the second quarter of this year." Once that happens, he vowed to consider adding share buybacks or dividends to Gear's "tool chest of opportunities to further enhance future shareholder returns."
One last Alberta producer, David Wilson's Kelt Exploration Ltd. (KEL), lost 17 cents to $5.49 on 1.15 million shares, after it too released its year-end reserve report. President and CEO Mr. Wilson noted that Kelt's proved and probable reserves rose to 254.1 million barrels as of Dec. 31, 2021, from 178.7 million a year earlier. That is a sizable increase, but investors seemed displeased by an accompanying production update. Kelt's production averaged just under 21,000 barrels of oil equivalent a day in full-year 2021. That is below the guidance of 21,500 barrels a day.
The good news is that the balance sheet remains in good shape. When it comes to zero debt, Kelt beat Gear to the punch more than a year ago. It sold a large batch of B.C. Montney assets to ConocoPhillips in August, 2020, in a $500-million deal that wiped out its debt and then some. Mr. Wilson noted today that Kelt's net debt as of Dec. 31, 2021, was a surplus of $28.2-million.
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