by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost $1.06 to $53.63 on the New York Merc, while Brent for October lost 87 cents to $58.94 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.46 to WTI, unchanged. Natural gas for September added four cents to $2.11. The TSX energy index lost 3.34 points to close at 124.84.
Li Ka-shing's Husky Energy Inc. (HSE) lost 42 cents to $9.21 on 6.58 million shares, continuing its steady march below $10, where it has not traded since 2003. A fortnight ago it was worth around $11.50, but it dipped below $10 on July 29, three trading days after it released its second quarter financials on July 25. The financials were a decided disappointment. Production averaged 268,000 barrels of oil equivalent a day, down from 285,000 barrels a day in the first quarter (and well below Husky's full-year guidance of 290,000 to 305,000 barrels a day), while cash flow of 80 cents a share was sharply below analysts' predictions of 96 cents a share. President and chief executive officer Rob Peabody stayed upbeat. "We remain on track with the plan we outlined at our recent investor day," he declared, referring to Husky's May 28 presentation in Toronto, where the company released a five-year outlook while touting its "general operational excellence." The stock has since fallen from about $12.75. Mr. Peabody is taking the dip as a buying opportunity. Last week, he bought 10,000 shares at $10.01, boosting his holdings to 202,924 of Husky's one billion shares.
As an aside, the $100,100 that Mr. Peabody spent on shares last week represents a fraction of the $1.52-million salary he drew in 2018. If bonuses and other compensation are included, he earned a total of $7.88-million, making him one of the highest-paid CEOs of any Canadian energy producer in 2018. He was outdone only by Doug Suttles of EnCana Corp. (ECA: $5.45) and Steve Williams of Suncor Energy Inc. (SU: $37.01), who received $15.5-million and $14.8-million, respectively. (Scott Saxberg, formerly of Crescent Point Energy Corp. (CPG: $3.92), received $18.6-million, but that was mostly because of a $15-million-plus severance package.) These healthy salaries stood in stark contrast to the beatings taken by each stock. From the beginning to the end of 2018, Suncor lost 18 per cent of its value, Husky lost 24 per cent and the unfortunate EnCana lost 54 per cent.
A different set of CEOs has gone on record arguing that a more supportive political environment would go a long way to solving the sector's woes. Last week, Tim McKay of Canadian Natural Resources Ltd.(CNQ: $31.48), Alex Pourbaix of Cenovus Energy Inc. (CVE: $11.23) and Derek Evans of MEG Energy Corp. (MEG: $5.03) made headlines by taking the rare step of publishing an open letter, calling on Canadians to keep the energy industry in mind during the federal election this fall. "As we head into the upcoming election, we are asking you to join us in urging Canada's leaders of all political stripes to help our country thrive by supporting an innovative energy industry," wrote the three CEOs. They pointed to the industry's improving environmental record and its contributions to social programs that benefit all Canadians.
Although no political parties or candidates were singled out, the letter drew instant criticism from (among others) Green Party Leader Elizabeth May, who accused the CEOs of a "beyond despicable" display of "self-interest and deception." MEG's Mr. Evans insisted that the letter is non-partisan and that the industry is not necessarily calling for a change in government. "I'm fine with having Justin Trudeau as prime minister," he told The Canadian Press, "if he embraces a philosophy with respect to energy that says that Canada has a much larger role to play on the global stage and we need to encourage that part of our sector."
Back within the sector, second quarter financials continued to roll in. The latest batch came from Lundin family promotion International Petroleum Corp. (IPCO), down 40 cents to $5.19 on 91,000 shares. Investors seemed unconvinced by CEO Mike Nicholson's declarations of "another strong set of quarterly results." The results were not quite as strong as analysts had expected; production averaged 46,100 barrels of oil equivalent a day (compared with analysts' predictions of about 47,000) and cash flow came to 46 cents a share (compared with analysts' predictions of 49 cents a share). As well, although Mr. Nicholson reiterated the company's full-year production guidance of 46,000 to 50,000 barrels a day, he warned that the actual figure will be "towards the lower end." He blamed a delay at a thermal project in Canada and a temporary refinery suspension in France.
Meanwhile, in Malaysia, International Petroleum had some disappointing news from its Bertam field. As discussed in the June 25 Energy Summary, Bertam is an intriguing field characterized by a small number of highly profitable wells. Its production is relatively low (averaging 6,200 barrels a day during the second quarter), but it is a disproportionately large contributor to cash flow, thanks to Malaysia's high oil prices (which were nearly $73.50 (U.S.) per barrel during the second quarter, compared with about $46 (U.S.) in Canada). Bertam has low reserves, however, and to try to extend the field's useful life, International Petroleum started a multiwell drill program in June, comprising several infill wells and one exploration well. The exploration well targeted a prospect containing up to 15.7 million barrels. Unfortunately, the exploration well will now be plugged and abandoned after encountering water.
Another overseas driller, CGX Energy Inc. (OYL), lost five cents to 29 cents on 250,300 shares, after announcing a "resequencing" of its drill program in Guyana. This is just a delay with extra syllables. CGX and its much larger joint venturer in Guyana, Frontera Energy Corp. (FEC: $13.69) (which is also CGX's majority shareholder), have spent months hyping their plans to drill a well at their offshore Corentyne block later this year. The terms of the block contract require a well to be spudded by Nov. 27, 2019. Now, the Guyanese government has accepted the joint venturers' proposal to drill a well by Nov. 27, 2020, instead, and merely complete a seismic survey in 2019. Investors did not seem pleased at the prospect of a year-long delay. CGX's executive chairman, Dr. Suresh Narine, took a twofold approach to damage control. First, he emphasized that the survey will be done in the same region as the proposed well, maximizing the odds of hitting hydrocarbons. Second, CGX and Frontera are making plans to drill a different well, at the nearby Demerera block, immediately before or after the Corentyne well, even though they are not contractually obligated to drill a well at Demerara until 2021. Drilling both wells in 2020 is expected to save costs because the rig and crew (if reused) will already be more or less in place. All in all, Dr. Narine declared the "resequencing" to be a marvellous idea that will surely lead to greater efficiencies and odds of success. Investors remained aloof.
For its part, Frontera Energy Corp. (FEC) added 15 cents to $13.69 on 256,600 shares, as investors overlooked the Guyanese delay and continued to focus on Frontera's second quarter financials. The stock has now added 46 cents since the release of the financials late last Thursday. Frontera used them as an opportunity to announce a 53.5-cent special dividend, on top of its regular quarterly dividend of 20.5 cents. Chairman Gabriel de Alba (yes, the same one who is currently in the news in his capacity as partner of Catalyst Capital, which is trying to block the go-private plans of Hudson's Bay) attributed the special dividend to Frontera's "strong financial and operational results in the first half of 2019." Canaccord Genuity analyst Jenny Xenos participated in the praise-fest. In a research note on Friday, she enthused over Frontera's "second beat in a row," noting that it surpassed analysts' predictions in both the first and second quarters. She added that Frontera produced 71,200 barrels of oil equivalent a day in the first half of the year, above its full-year guidance of 65,000 to 70,000 barrels a day. That guidance is staying intact, but the company has hiked its forecast for operating EBITDA (earnings before interest, taxes, depreciation and amortization) to about $550-million (U.S.) from about $425-million (U.S.), citing better oil prices and lower costs. Ms. Xenos titled her research note "Q2/19 First Look," implying that she will release a second update soon. For now, she left her price target unchanged at $14.50 and her rating at "hold."