Energy Summary for April 7, 2022
2022-04-07 20:01 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for May delivery lost 20 cents to $96.03 on the New York Merc, while Brent for June lost 49 cents to $100.58 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.51 to WTI, down from a discount of $12.45. Natural gas for May added 33 cents to $6.36. The TSX energy index added 4.15 points to close at 227.24.
The Canadian government has approved the $12-billion Bay du Nord oil project off the coast of Newfoundland. The project, a joint venture between Norway's Equinor and Canada's Cenovus Energy Inc. (CVE: $21.12), could produce up to 200,000 barrels a day starting in 2028. It lies 500 kilometres east of St. John's and would be the fifth offshore oil field -- and the first deepwater one -- since the Newfoundland oil industry began in the 1990s.
It has faced a long road. The project has been under review for four years, was temporarily postponed by Equinor and Cenovus in 2020 because of the COVID pandemic, and since then has seen the deadline for a decision from Ottawa postponed twice. In a statement yesterday evening, Environment Minister Steven Guilbeault said Bay du Nord can (finally) proceed, as he has determined that it would not cause "significant adverse environmental effects."
One could be forgiven for reading some reluctance into his statement. By approving Bay du Nord, Mr. Guilbeault -- a former Greenpeace activist who in 2001 scaled the CN Tower and hung a banner calling Canada a "Climate Killer" -- made no new friends in his old green circles. Greenpeace lamented last night that Bay du Nord will "deepen the climate crisis and global addiction to planet-wrecking fossil fuels." Other green groups piled on, such as Environmental Defence, which dubbed the decision a "slap in the face" and "another leap towards an unlivable future."
Mr. Guilbeault did his best to soothe the ruffled green feathers, emphasizing that his approval comes with no fewer than 137 legally binding conditions. These include, for the first time ever, a requirement to reach net zero greenhouse gas emissions by 2050. He also noted that as things stand, Bay du Nord is already projected to be "five times less emissions-intensive than the average Canadian oil and gas project, and 10 times less than the average project in the oil sands." It is a shining example of how Canada can "chart a path forward on producing energy ... while looking to a net-zero future."
Absolutely none of that satisfied Greenpeace and its ilk, but fans of Bay du Nord were pleased (and relieved) that Ottawa has finally come around. Newfoundland Premier Andrew Furey toasted the decision as a "giant step forward" (both for the project and for the province's painfully empty coffers). Equinor cheered the "important milestone" and added that it "look forward to progressing this key investment ... which has the potential to produce the lowest-carbon oil in the country."
While Bay du Nord basked in its hard-won approval, another project got a federal scolding (and perhaps gave Mr. Guilbeault some of his pep back). Suncor Energy Inc. (SU), up 52 cents to $41.12 on 9.09 million shares, has received a letter from Mr. Guilbeault indicating that a planned oil sands extension project "would likely cause unacceptable environmental effects" in its currently proposed form. Mr. Guilbeault published the letter on a government website yesterday, in response to an April 5 letter from Suncor requesting more time to submit an impact statement.
The project in question would be a life-of-mine extension to Suncor's existing base mine in the oil sands. Suncor submitted the proposal in the spring of 2020, forecasting production of 225,000 barrels a day over a 25-year lifespan starting in 2030. It talked of using the best available technology to reduce emissions, store carbon and generally aim to "provide the world with trusted low-carbon energy" (in addition to a wealth of socioeconomic benefits). Details of exactly how it would do this would follow in its impact statement, it vowed.
This has yet to be submitted. In May, 2021, one year after submitting the proposal, Suncor publicly proclaimed its "objective to be net zero by 2050." Apparently it is still trying to figure out how the above project fits into that. "We're taking more time to improve the project in alignment with our strategy, which includes meeting our emissions reduction ambition to be net zero," a spokesman told Reuters yesterday in the wake of Mr. Guilbeault's letter. Mr. Guilbeault was all too pleased to confirm in the letter that the project is currently falling short. He granted Suncor's request for a deadline extension, giving it an extra nine months to sort things out.
Outside the oil sands, the Saskatchewan- and Texas-focused Baytex Energy Corp. (BTE) added 19 cents to $5.47 on 7.87 million shares. It has won a nod of approval from Fitch Ratings. The credit rating agency, complimenting Baytex's "improved leverage, diversified asset base and FCF [free cash flow] profile," upgraded the company's rating to B+ from B. This is still in junk territory, but a nicer neighbourhood. The agency also kept its outlook at "stable."
The upgrade comes as Baytex toils away at its plan to reduce its net debt to $1.2-billion by midyear. A little over three years ago, Baytex owed $2.3-billion. It managed to get this down to $1.4-billion as of its most recent financials for the quarter ended Dec. 31, 2021, and said in February that the achievement of the $1.2-billion target would let it start "the next phase of its enhanced return-to-shareholder framework." It clarified that it was referring to the start of a share buyback program. Fitch, for its part, foresees the ultimate launch of a dividend -- or rather a relaunch; Baytex previously paid a dividend until 2015 -- but not until the debt gets to around $800-million.
Lastly, the Saskatchewan- and Alberta-focused Crescent Point Energy Corp. (CPG) added 19 cents to $8.78 on 5.92 million shares. Its president and chief executive officer, Craig Bryksa, headed to BNN yesterday afternoon to hype the company's operations. He said Crescent Point is a "microcosm" of the broader energy sector. After a multiyear downturn in oil and gas prices, the industry is enjoying the current windfall of cash flow, which companies are using to repair balance sheets and/or meet shareholders' demands for dividends and buybacks. (With a net debt load of $2-billion as of Dec. 31, Crescent Point is largely in the first camp, but it does pay a 4.5-cent quarterly dividend, for a yield of 2 per cent.)
These days, there is a new demand that the industry is hearing: increase production so the world can ditch supplies from the belligerent Russia. Mr. Bryksa said the industry of course wants to "support our allies." The issue is that large-scale production increases require time and money, which in turn require an environment of "confidence to invest." Whether Canada offers this confidence is debatable. Given rumours that the U.S. government is pressing Ottawa for higher supplies, Mr. Bryksa suggested that if the two governments really want to see more Canadian oil and gas, "I think we need to see some infrastructure on both sides of the border to support that, and ... some policy on the Canadian side." He will be keeping his eye on the budget that Ottawa will unveil today after the close.
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