by Stockwatch Business Reporter
West Texas Intermediate crude for March delivery lost $1.24 to $26.21 on the New York Merc, while Brent for April lost 78 cents to $3.06 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.25 to WTI ($12.96), up from a discount of $13.85. Natural gas for March lost 5.2 cents to $1.994. The TSX energy index lost a fraction to close at 140.04.
Cenovus Energy Inc. (CVE) added 43 cents to $13.95 on 14 million shares, after releasing fourth quarter financials that were worse than analysts had expected, but nonetheless pleasing the market with its latest commitments to cost cuts. The dividend, budget and work force are all being reduced, again. Cenovus previously lowered its quarterly dividend to 16 cents from 26.62 cents last July, and is now lowering it all the way to five cents, for a yield of 1.4 per cent. The budget is also going down for the second time in recent months. In October, Cenovus had said it would spend $1.5-billion to $2-billion in 2016, focusing on its oil sands projects. It changed its mind in December and put the budget at $1.4-billion to $1.6-billion. Now it has nudged the budget even further down to a range of $1.2-billion to $1.3-billion. It has also announced more layoffs. These were announced periodically throughout 2015, with Cenovus eventually stating in October that by year-end 2015, it expected to have around 4,000 employees (including contractors), a 24-per-cent decrease over the prior year. It repeated the 24-per-cent figure today and said more layoffs are still to come, though it did not specify how many more jobs would be affected. All in all, said Cenovus, it was able to accomplish $540-million in cost savings last year (more than double the $200-million it originally targeted) and expects another $400-million to $500-million this year. Investors seemed pleased with the announcement over all, even though, as noted above, the quarterly results were well below analysts' forecasts. Although Cenovus's oil production of around 200,000 barrels a day was roughly in line with analysts' predictions, cash flow per share was just 33 cents (compared with the 50 cents predicted by analysts) and operating loss was 53 cents (compared with the 20 cents predicted by analysts).
Montney producer ARC Resources Ltd. (ARX) added $1.12 to $17.72 on four million shares, after it too released its fourth quarter update and announced cost-cutting efforts that include dividend and budget cuts. The fourth quarter results were in line with or better than analysts' predictions. ARC had previously forecast that it would produce 118,000 to 122,000 barrels of oil equivalent a day in the fourth quarter (it actually produced 119,243), which had led analysts to predict that cash flow per share would be about 51 cents. Instead, ARC achieved 57 cents, thanks to lower operating and general and administrative costs. ARC is continuing to try to cut costs and has decided, for the first time in about seven years, to lower its dividend. The 10-cent monthly dividend had been in place since the spring of 2009, but is now being halved to five cents, for a yield of 3.4 per cent. As well, ARC has reduced its 2016 budget to $390-million from $550-million, though it says this will take only a small toll on production (now forecast to average 116,000 to 120,000 barrels a day instead of 119,000 to 124,000 barrels a day). The company will defer all drilling in Alberta and Saskatchewan and focus on its northeast B.C. Montney assets. According to an interview posted on ARC's website with senior vice-president and chief operating officer Terry Anderson, the focus in 2016 will be on low-cost production at Tower, Dawson, Sunrise and Parkland; a phase 3 infrastructure project at Dawson; and a four-well drill program at the early-stage Attachie. Mr. Anderson's interviewer, David Carey, was thrilled with this plan, declaring: "Sounds like a lot of activity this year. I really look forward to the updates." This followed his earlier comments on how Mr. Anderson and the rest of ARC "really knocked it out of the park" in 2015. Mr. Carey gets paid to sound like that; he is ARC's senior vice-president of capital markets.
Fellow Montney producer Birchcliff Energy Ltd. (BIR), a sizable investment of Seymour Schulich (who owns 42 million of its 152 million shares), added 44 cents to $5.36 on 2.12 million shares, after releasing its year-end reserve report and financials. The financials were basically as expected, seeing as the company released an operations update just three weeks ago. The reserve report was what really excited analysts. RBC Capital Markets analyst Michael Harvey liked it so much that he upgraded the stock to "outperform" from "sector perform" and raised his price target to $7 from $6. Scotia Capital analyst Cameron Bean called the report "outstanding," highlighting the year-over-year increase in proven plus probable (2P) reserves and the year-over-year decrease in finding, development and acquisition costs. Birchcliff pegged these costs at just $1.32 per barrel on a 2P basis, down strikingly from $10.45 a barrel a year earlier, a decrease it attributed to more reserves and lower-cost wells. It should be borne in mind that if Birchcliff wants to get production going from all these reserves, it will need over $3-billion, according to its reserve evaluator's estimate of future development capital. Birchcliff has a market cap of about $816-million.
Pengrowth Energy Corp. (PGF) added three cents to 94 cents on 26.9 million shares. The heavier-than-usual volume came mainly from National Bank Financial, which crossed 25 million shares at 88 cents on Pure Trading this morning. Pengrowth did not have any news today and is not expected to release any until Feb. 24, when it will put out its fourth quarter financials. Barclays predicted earlier this week that Pengrowth will actually have a good fourth quarter in terms of cash flow, which by Barclays's estimate will be 27 cents a share, up from 22 cents a share a year earlier, thanks to hedging gains. Yet what investors will really be looking for is progress on debt reduction. Pengrowth had a total debt load of around $1.85-billion as of Dec. 31. It had pledged to sell about $600-million worth of non-core assets in 2015 to pay that down, but was only able to sell $263-million by year-end, though it says it will close more sales this quarter to bring the total to over $300-million. Other cost-saving measures it has taken recently include setting a bare-bones, no-drilling budget of $60-million to $70-million, and -- for the first time in its nearly three-decade history -- suspending its monthly dividend, which it did on Jan. 20. Barclays still worries about the debt, stating this week that Pengrowth is at risk of breaching its debt covenants as early as next quarter.
Another debt-laden company, Colombian producer Pacific Exploration & Production Corp. (PRE), lost one cent to 59 cents on 975,200 shares. Pacific owes about $5.3-billion (U.S.) (as of Sept. 30), including $4.1-billion (U.S.) in notes due from 2019 to 2025. EIG Pacific Holdings, a subsidiary of Harbour Energy (which was part of a duo that made a $6.50-a-share failed takeover offer for Pacific less than a year ago), recently offered to buy the notes for 17.5 cents on the dollar. EIG's ultimate hope is to take control of the company. Its note tender offer expired yesterday afternoon, but last evening, EIG extended it to March 24 -- only now it will pay just 16 cents on the dollar 147104. "Our goal remains to keep Pacific intact and avoid the death spiral the company appears to be facing," said EIG's CEO, R. Blair Thomas, adding, "It seems apparent that Pacific is insolvent and that a bankruptcy filing is imminent." The extension comes as Pacific tries to avoid defaulting on bond payments (having failed to make interest payments on two sets of notes at the end of January, triggering a 30-day grace period), and as it tries to reach an agreement with its bank lenders, which had granted debt covenant waivers that expire on Feb. 26. If the waivers are not extended, the lenders could call a default. Fitch Ratings said earlier this month that a default is "likely imminent."