Energy Summary for Feb. 25, 2022
2022-02-25 20:10 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery lost $1.22 to $91.59 on the New York Merc, while Brent for April lost $1.15 to $97.93 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.30 to WTI, down from a discount of $12.10. Natural gas for April lost 10 cents to $4.47. The TSX energy index added 4.57 points to close at 204.03.
Oil prices retreated as the U.S. government reiterated that it will not retaliate against Russia's invasion of Ukraine by imposing sanctions on Russia's energy imports. "The sanctions will not target the oil flows as we go forward," State Department senior energy adviser Amos Hochstein said today on Bloomberg Television.
The concern -- shared by other Western governments as well -- is that such sanctions would drive up fuel prices for American and European consumers without necessarily harming Russia, as it could continue to sell energy to China and possibly even benefit from a sanction-driven price spike. "Perhaps he [Russian President Vladimir Putin] would sell only half his product, but for double the price. That means he would not suffer the consequences, while the United States and our allies would suffer the consequences," said Mr. Hochstein.
Russia was also top of mind at the International Energy Agency (IEA), which convened a meeting today of its 31 member countries (which do not include Russia). "The Russian invasion has increased concerns among oil market participants against the backdrop of already tight global markets and heightened price volatility," said IEA executive director Fatih Birol in a statement. He urged countries to "act in solidarity to ensure global energy security," and also briefly referenced "options the IEA could take over the coming days and weeks," but did not go into detail on either front.
Here in Canada, the mood in some circles was very different. Legislators in Alberta were all smiles yesterday afternoon, after Finance Minister Travis Toews said the province is expecting its first budget surplus in eight years. "In [the fiscal year beginning April 1] 2022, Alberta's economy will fully recover from the contraction that first started in 2014, and we will lead the nation in economic growth," said Mr. Toews. He is forecasting a surplus of $500-million for the year. By comparison, only one year ago, Mr. Toews was forecasting a deficit for 2021/2022 of $18.2-billion. The actual deficit came in at just $3.2-billion, thanks to rising oil prices.
Within the sector, companies said they too are raking in cash. U.S. shale producer Ovintiv Inc. (OVV) added $1.74 to $52.64 on 966,100 shares, after reporting a fourth quarter profit of $1.4-billion (U.S.) and raising its dividend. Ovitinv took advantage of the rise in oil prices to shed some non-core assets at desirable prices. Because of the asset sales, analysts were expecting production to fall to 517,000 barrels a day in the fourth quarter of 2021 from 557,200 barrels a day a year earlier. The actual figure fell short of that at just 508,000 barrels a day -- with management blaming some "mid-stream outages and permitting delays" during a conference call this morning -- but investors found this easy to forgive. Even with the nearly 10-per-cent drop in production, quarterly revenue more than doubled to $3.3-billion (U.S) from $1.5-billion (U.S.).
As for the dividend hike, it is the second one in about six months. Ovintiv was previously paying a 9.375-U.S.-cent quarterly dividend, which it hiked to 14 U.S. cents last summer. Now the payout is going up to 20 U.S. cents, for a yield of 1.9 per cent. Chief executive officer Brendan McCracken hinted that he plans to "unlock another significant increase in cash returns" once Ovintiv reaches a targeted debt level later this year. He was less formal during a conference call this morning, promising to deliver "some truly eye-popping cash return yields."
Another U.S.-focused producer, Enerplus Corp. (ERF), added 26 cents to $15.55 on 3.46 million shares, after it too released its year-end financials. They were generally as expected in light of Enerplus's previous operational update in early February. The company did include its 2022 guidance, calling for full-year production of 95,500 barrels a day on a budget of about $400-million (U.S.) -- again lining up with analysts' expectations. Enerplus added that it will likely keep spending around $400-million (U.S.) annually over the next five years. Over the same period, it expects to generate $2.2-billion (U.S.) in free cash flow, which it will use in part for dividends and share buybacks. (The current 3.3-U.S.-cent quarterly dividend represents a yield of 1.1 per cent.)
Neither Ovintiv nor Enerplus hit new 52-week highs today after releasing their financials. Two companies that did crack fresh 52-week highs are Baytex Energy Corp. (BTE), up 71 cents to $5.71 on 34.3 million shares, and Cardinal Energy Ltd. (CJ), up 59 cents to $5.93 on 4.75 million shares. Baytex released year-end financials that were mildly better than analysts had predicted and also included a "return of capital framework." No, the company did not revive its dividend, which was once as high as 25 cents a month but has lain dormant since 2015. The company instead plans to start a share buyback program next quarter. Yet once Baytex gets to a desired debt level in 2023, president and CEO Ed LaFehr said he will "consider steps to further enhance shareholder returns."
As for Cardinal, it did not release its year-end financials, but rather its year-end reserves -- with some eye-catching new boilerplate. The reserve report showed that proved and probable reserves rose to 110 million barrels as of Dec. 31 from 99.2 million a year earlier. That is a solid increase, but investors were likely more intrigued by Cardinal's self-summary and the new reference therein to "dividend income." Cardinal suspended its 1.5-cent monthly dividend in early 2020. It has since made many noises about reviving the dividend in 2022, and today's update was seen as a hint to shareholders that their wait is almost over.
Shareholders who visited Cardinal's website would have found even more to chirp about. A new presentation explicitly outlines "estimated second-half 2022 dividend level scenarios," projecting a monthly dividend of one cent to seven cents (depending on oil prices) starting in July. The implied yield based on today's closing price is 2.0 to 14.1 per cent.
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