Energy Summary for Aug. 9, 2019
2019-08-09 20:23 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery added $1.96 to $54.50 on the New York Merc, while Brent for October added $1.15 to $58.53 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.70 to WTI, down from a discount of $12.67. Natural gas for September lost one cent to $2.12. The TSX energy index added a fraction to close at 126.73.
Though benchmark oil prices enjoyed a pleasant rise today, the wider picture is still looking grim, according to the International Energy Agency (IEA). The Paris-based advisory agency released its closely watched monthly energy report this morning and declared that global oil demand is rising at its slowest pace since 2008. From January to May, 2019, demand rose by 520,000 barrels a day, the lowest figure in 11 years. "The situation is becoming even more uncertain ... [and] global growth has been very sluggish in the first half of 2019," said the IEA. Its outlook is not particularly heartening. "The prospects for a political agreement between China and the United States have worsened. This could lead to reduced trade activity and less oil demand growth," said the agency. It lowered its 2019 forecast for rising oil demand to just 1.1 million barrels a day. (This is the third reduction this year, from 1.2 million previously and 1.5 million originally.) The IEA added that its outlook is "fragile, with a greater likelihood of a downward revision than an upward one."
Some companies still had reasons to stay upbeat. Enerplus Corp. (ERF) added 63 cents to $8.48 on 5.55 million shares, pleasing investors with its financials for the second quarter, in which it managed to cross the 100,000-barrel-a-day production threshold. Quarterly production averaged 100,694 barrels of oil equivalent a day, exceeding analysts' predictions of about 98,100 barrels a day. Cash flow of 80 cents a share also exceeded analysts' predictions of 76 cents a share. President and chief executive officer Ian Dundas patted Enerplus on the back for its "strong operational momentum." Much of this momentum was in the core Fort Berthold asset in the North Dakota Bakken, where Enerplus gets about half of its total output. Thanks to rising production from Fort Berthold, as well as the general "outperformance" of the first half of the year, Mr. Dundas said Enerplus is hiking its full-year production guidance to a range of 99,000 to 102,000 barrels a day from a range of 97,000 to 101,000.
Management continued to heap praise on the Bakken during a conference call this morning. While Mr. Dundas cheered Enerplus's "absolute best-in-class performance" on costs, Ray Daniels, senior vice-president of operations, talked up a "strong ramp in Bakken volumes" during the second quarter and the "solid build" expected in the third quarter (although he noted that production will ease off in the fourth quarter as Enerplus hunkers down for the winter). Mr. Dundas added that Enerplus has plenty of "high-quality Bakken inventory" that is not reflected in the current share price. In fact, the share price so low -- or, to use the rosier terms preferred by Mr. Dundas, there is so much "compelling value in our equity" -- that Enerplus is treating its share buyback program as a top priority, as it "feels like a no-brainer right now." Enerplus has bought back 15.3 million shares since September, 2018, including 6.6 million shares during the second quarter. The average price per share repurchased since September is about $11.60. Alas, the program has had little noticeable effect on the stock, which closed today at $8.48.
Montney producer Kelt Exploration Ltd. (KEL) added seven cents to $3.24 on 2.52 million shares, regaining some of the 15 cents it lost yesterday after it too released its second quarter financials. It had a productive quarter despite some pipeline disruptions. Production averaged 30,314 barrels of oil equivalent a day, up from 26,120 barrels a day in the same period last year. Notably, high-margin oil and liquids production rose by nearly one-third, to about 14,400 barrels a day from 11,000. Such products now make up just under half of Kelt's total output. The oil and liquids gains appear to have helped offset some of the more disquieting information in the financials. For example, Kelt spent $91-million during the quarter, about $20-million more than analysts had been expecting. Shareholders are taking that mostly in stride, a stark contrast to the recent experience of fellow Montney producer NuVista Energy Ltd. (NVA: $2.02). (That stock has lost nearly 60 cents since investors learned on Wednesday that NuVista spent $89-million during the second quarter, compared with analysts' predictions of about $57-million.) Kelt also gave warning that, due to a temporary shutdown of an Enbridge-owned gas plant, Kelt expects to be at the low end of this year's production guidance of 33,500 to 34,500 barrels a day. That guidance is still staying in place for now.
Another Alberta producer is keeping its guidance intact despite some recent setbacks. The Cardium-focused Yangarra Resources Ltd. (YGR), down seven cents to $1.55 on 774,100 shares, released its second quarter financials yesterday evening, complete with production of 13,032 barrels of oil equivalent a day. That was just barely within its previously announced second quarter target of 13,000 to 14,000 barrels a day. Yangarra blamed wet weather for delaying field operations. The rain let up last month, and Yangarra says it should still be able to achieve its full-year guidance of 13,000 to 14,000 barrels a day, even though its first-half production was well below that at about 12,500. Yangarra also noted that it spent just $13.8-million during the quarter while enjoying cash flow of $24.4-million. It acknowledged that it could, in theory, afford a share buyback program, but sees better value in drilling step-out wells and buying land instead. (Perhaps Yangarra sees the above Enerplus as proof that even an active buyback program will not necessary prop up a stock.)
Yangarra's financials drew praise from Canaccord Genuity analyst Anthony Petrucci. He acknowledged that the second quarter production of about 13,000 barrels a day was below his own forecast of 13,300, but given that Yangarra is now back in the field and drilling busily away, he is confident that the company will "meet or exceed" its guidance for the year. The company drilled just 13 wells of its 24-well program during the first half of the year. It also has a healthy record of boosting production, which, after all, was below 3,000 barrels in 2016 (the year Yangarra began to prioritize the Alberta Cardium). Mr. Petrucci left his rating at "buy" and his price target at $4.
Elsewhere in Alberta, gassy Bellatrix Exploration Ltd. (BXE) lost three cents to 57 cents on 30,000 shares, giving back most of the four cents it added yesterday after releasing its second quarter financials. The quarter was dominated by the recapitalization that Bellatrix carried out at the beginning of June. This involved, among other things, a dilutive shares-for-debt swap (giving creditors more than four-fifths ownership of the company), followed by a 1-for-12 share rollback. Although the recapitalization wiped out around $110-million worth of debt, the remaining debt load of about $330-million still worried investors, despite Bellatrix's assurances that the recapitalization would "improve and strengthen the company's overall financial position." The stock was trading at 55 cents before Bellatrix announced the recapitalization in March. It is now right back around that level, closing today at 57 cents, except for the tiny fact of the 1-for-12 rollback. Adjusting for that, the stock has fallen from $6.60 since March, a 91-per-cent drop in value.
It turns out that investors were right to be concerned. As disclosed in the newly released second quarter financials, there is still "substantial doubt" as to whether Bellatrix can continue as a going concern. Bellatrix sees "potential for insufficient liquidity to fund its future operations if current strip prices are realized," and also sees a risk of breaching its debt covenants within 12 months. If that happens, the company's credit facilities, second-lien notes and third-lien notes -- about $330-million of debt in total -- could become due on demand. Bellatrix is now "actively negotiating" with third parties to try to arrange financings. It will also seek covenant relief if necessary.