Energy Summary for March 22, 2022
2022-03-22 20:10 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost 36 cents to $111.76 on the New York Merc, while Brent for May lost 14 cents to $115.48 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.45 to WTI, unchanged. Natural gas for April added 29 cents to $5.19. The TSX energy index lost 1.84 points to close at 219.82.
Oil prices held their ground as European Union members continued to argue over a potential ban on Russian energy supplies in response to its invasion of Ukraine. Some countries, such as Germany and Hungary, say the EU is too dependent on Russian energy to impose an embargo. An anonymous EU official told CNBC that discussions continue but "no decision [is] likely this week unless [Russian President Vladimir] Putin does something even more outrageous." European leaders, as well as U.S. President Joe Biden, will be meeting in Brussels later this week to continue co-ordinating their response to the Russian-Ukrainian war.
Here in Canada, oil sands giant Suncor Energy Inc. (SU) lost 11 cents to $40.76 on 9.56 million shares. It has quickly found a replacement for its departing executive vice-president of mining and upgrading, Mike MacSween, who last week announced his early retirement on April 14. He had been in the job for only six months (but has been with Suncor in one role or another for 26 years).
His successor will be Peter Zebedee. Suncor lured Mr. Zebedee over from the Shell-backed LNG Canada, where he was seconded by Shell as chief executive officer in 2019. Prior to that, he had held various roles at Shell since 2009, including vice-president of manufacturing for the Canadian division. He was also general manager of Shell Albian Sands, the former operator of the Athabasca oil sands joint venture (until Canadian Natural Resources Ltd. (CNQ: $77.61) acquired operatorship and most of Shell's interest in 2017). Mr. Zebedee's pre-Shell career was spent at other oil sands operators such as Petro-Canada and Syncrude.
Suncor's president and chief executive officer, Mark Little, dubbed himself "extremely pleased" to welcome Mr. Zebedee and his "deep experience in oil sands mining and upgrading." Mr. Little also called Mr. Zebedee "a champion of safety and operational discipline." The emphasis on safety was surely quite intentional. In January of this year, a contractor died in a truck crash at Suncor's base mine near Fort McMurray. Oil sands fatalities are generally rare, but in Suncor's case, this was the fourth workplace death at a company facility in about 13 months. These were on top of other incidents that led to injuries or production disruptions. Mr. Little acknowledged in January that these incidents are "unacceptable" and Suncor must do a better job "implementing corrective actions." Presumably such actions will be a priority for the incoming Mr. Zebedee.
Outside the oil sands, Grant Fagerheim's Alberta- and Saskatchewan-focused Whitecap Resources Inc. (WCP) lost nine cents to $10.12 on 6.48 million shares. It likely hoped for a better reaction to today's announcement that it has essentially doubled its share buyback program. The TSX has given Whitecap permission to buy back up to 58.9 million of its 628 million shares, rather than 29.8 million.
Whether Whitecap will actually do so is uncertain. The program expires on May 20, 2022, with 22.8 million repurchased under it so far. To use up the rest, Whitecap would need to buy another 36.1 million shares in 43 trading days, or about 840,000 shares every trading day from now through May 20. This is doable -- Whitecap's daily buyback maximum under TSX rules is 913,000 shares -- but unlikely. What is more likely is that Whitecap saw it had just seven million shares left under the original program, wanted a bit more room, and opted for the relatively quick and easy amendment of doubling it. The ultimate figure in that case would lie between the original maximum and the amended one.
Whitecap would no doubt argue that it can afford to buy back as many shares as it pleases. "We'll probably have as much cash flow in the first half of the year as we had for the entire 2021 year, which was a very good year for us," boasted president and CEO Mr. Fagerheim during a BNN appearance on March 4. He calculated that Whitecap will take in $1-billion to $1.2-billion in free cash flow this year, "and that's after our capital program and after our dividends, including our most recent [dividend] increase," he said. (Whitecap hiked its monthly dividend to three cents from 2.25 cents in late February, for a current yield of 3.6 per cent.)
Another CEO who has been hyping his company's cash flow on BNN is Darren Gee of Peyto Exploration & Development Corp. (PEY), up eight cents to $11.32 on 1.7 million shares. He appeared on BNN last Tuesday to talk about how "it's a pretty enjoyable time to be a gas producer right now, I can tell you." He noted that Alberta gas producers such as Peyto went through long periods of low gas prices in the past and thus got used to running lean operations. Now gas prices are sitting at about $5, a lovely number for Peyto, which had "tooled our business for about $2.50 [gas prices] for the last decade." Higher gas prices already allowed Peyto to boost its one-cent quarterly dividend to a five-cent monthly dividend last November (for a yield of 5.3 per cent). Mr. Gee noted that Peyto will spend 2022 prioritizing debt reduction. He vowed that "by 2023, I think we can look at dividend increases as well."
Over in Saskatchewan, John Jeffrey's Saturn Oil & Gas Inc. (SOIL) added eight cents to $3.00 on 175,400 shares, as it cheered its very first drill results from its Oxbow project. This is the project that Saturn acquired from Crescent Point Energy Corp. (CPG: $9.22) for $93-million last summer. Saturn has now drilled its first six wells at Oxbow and they have "exceeded our expectations," cheered senior exploration vice-president Justin Kaufmann.
For context, operators in this area of Saskatchewan are typically quite happy with a well that produces, say, 70 barrels a day in its first 30 days (gushers, these wells are not -- but they are cheap to drill and can hold their own when the oil price is right). Saturn boasted today that its six wells have averaged 96 barrels a day over their first 30 days. One standout well even returned 220 barrels a day in 30 days, representing "the best-performing well in Saturn's history," cheered Mr. Kaufmann.
Investors seemed pleased. The Oxbow drill program is off to a good start, which is good news for Saturn, seeing as it just announced last week that more than 85 per cent of this year's drilling activity will target Oxbow. The company has set a full-year budget of $50-million and aims to produce a total of 7,800 to 8,200 barrels a day. Today it claimed to be well on its way, with Mr. Kaufmann pegging production at 7,500 barrels a day for the month to date.
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