Energy Summary for March 18, 2022
2022-03-18 21:24 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery added $1.72 to $104.70 on the New York Merc, while Brent for May added $1.29 to $107.93 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.30 to WTI, down from a discount of $11.25. Natural gas for April lost 13 cents to $4.86. The TSX energy index lost 1.98 points to close at 212.52.
After touching a high of nearly $140 (U.S.) a barrel last week, oil prices ended today with their second consecutive weekly loss, but held steady in the triple digits. Analysts at UBS say tight supplies will force prices higher as spring arrives in the coming weeks. "Russian oil exports and production will be impacted by sanctions and select import bans ... We expect the hit to Russian oil exports and production to become more apparent later this month," they wrote. They forecast that prices will climb to $125 (U.S.) by June and then gradually decline to $105 (U.S.) by the end of the year.
Here in Canada, oil sands giant Suncor Energy Inc. (SU) lost 22 cents to $39.12 on 20.2 million shares. It will soon find itself in need of a new executive vice-president of mining and upgrading. The current one, Mike MacSween, has announced his early retirement, effective April 14.
The retirement is unexpected, as Mr. MacSween has been in his current role for only six months. He has, however, been with Suncor in one role or another for the last 26 years, including as vice-president of strategy and development, executive vice-president of major projects, and executive vice-president of the upstream division. Prior to Suncor, he worked for Betz Process Chemicals and Shell Canada.
His promotion to executive vice-president of mining and upgrading last September came at the same time that Suncor acquired operatorship of the Syncrude oil sands mine, a joint venture with Imperial Oil Corp. (IMO: $54.07), China's Sinopec and China's CNOOC. Suncor has claimed that its operatorship will lead to $300-million in "sustained gross annual synergies" (hitting all the buzzwords) by the end of 2023. It will now have to find someone else to oversee all of that, and says it will announce the "new incumbent" (even worse syntax) when the time is right.
South of the border, the North Dakota-focused Enerplus Corp. (ERF) lost 43 cents to $15.60 on 4.57 million shares. It is adding someone new to the organization, namely incoming director Mark Houser. Mr. Houser is the founder and principal of a Texas-based advisory firm called Symphero Energy Solutions. He was formerly the chief executive officer of University Lands, which manages the surface and mineral interests of 2.1 million acres of land -- picture carving off one-quarter of Vancouver Island -- in West Texas. Prior to that, he held various roles at Enervest, Occidental and Kerr-McGee.
In other words, Mr. Houser has spent most of his career focusing on U.S. oil and gas, which suits Enerplus just fine. The company has assets on both sides of the border but has long prioritized the U.S. ones. Many years ago (in 2004), all of Enerplus's assets were in Canada, but now the Canadian assets make up less than 10 per cent of its total production of 128,000 barrels a day. Enerplus announced last month that it plans to cut these operational ties and put its 9,100-barrel-a-day Canadian assets up for sale. CEO Mr. Dundas said he would try to announce a buyer by midyear. He did not mention an asking price, but analysts have pegged the value of the assets at about $300-million.
Even further south, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), lost three cents to $3.18 on 428,600 shares. Last night, it released its year-end financials and reserves. The financials held relatively few surprises given that Canacol has long provided monthly production updates. It turned a full-year profit of $15-million (U.S.), up from a loss of $4.7-million (U.S.) in 2020. CEO Mr. Gamba boasted during a conference call this morning that Canacol returned $30-million (U.S.) to shareholders during 2021 in the form of dividends and buybacks. (The company's 5.2-cent quarterly dividend, which stayed intact throughout the COVID downturn, represents a yield of 6.5 per cent.)
Investors remained aloof. This partly reflects a disappointing year-end reserve report, which showed a drop in proved and probable reserves to 606 million barrels as of Dec. 31 from 637 million barrels a year earlier. Canacol's reserve life index (a measure of how long until it would take to deplete the reserves) is now an uncomfortably low 8.3 years. (Investors generally prefer at least a decade.) During the conference call, Mr. Gamba said Canacol had an unlucky year in 2021 on the exploration front -- a common way of adding reserves -- and will try to make up for it in 2022 by drilling "some very large targets, much larger than we normally drill ... [including in] new areas outside of our historical core production area." The plan is to drill a total of 12 exploration wells this year, double last year's total of six.
As usual, the other big plan hyped by Canacol's management is to finally build a pipeline that will allow it to boost production by 100 million cubic feet. Current production is stuck at around 180 million cubic feet a day until Canacol actually builds this pipeline, which it has been talking about since 2019, yet has repeatedly delayed as it looks for customers, contractors and financiers. Mr. Gamba insisted during the call that Canacol is making progress. If all goes according to plan, he said Canacol should award the final contracts next month and have the pipeline in service in 2024. Investors are understandably taking the approach of believing it when they see it.
Another international producer, Randy Neely's Egypt-focused TransGlobe Energy Corp. (TGL), lost three cents to $4.39 on 73,500 shares, giving back some of the 16 cents it added yesterday after it too released its year-end financials. A prior operational update ensured that the financials held few surprises. The main thing was they brought the long-awaited return of TransGlobe's dividend, something CEO Mr. Neely has been chattering about for the last year. Now TransGlobe has made it official: It will pay 10 U.S. cents a share on May 12 to shareholders of record on April 29.
Mr. Neely hastened to make clear that this is not necessarily a regular dividend. He said TransGlobe has adopted a policy of giving shareholders at least three-quarters of its annual free cash flow, but this could be in the form of dividends or buybacks. It will assess dividend amounts semi-annually. If the above 10-U.S.-cent payout turns out to be semi-annual, the implied yield based on today's close would be 5.9 per cent. For context, TransGlobe was previously paying a 3.5-U.S.-cent quarterly dividend until suspending it in early 2020.
The new dividend received enthusiastic applause from an ever supportive cheerleader, Canaccord Genuity analyst Charlie Sharp. "We see this as a watershed moment," he declared. By his estimate, this year's dividend payout could be as high as 48 U.S. cents a share, which would "put TransGlobe in the front ranks of E&P [explorer and producer] shareholder distribution commitment." The analyst reiterated his $6.30 price target on the currently $4.39 stock. A disclosure in the fine print noted that his employer, Canaccord, is a "market maker or liquidity provider" for TransGlobe and receives compensation for unspecified investment banking services.
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