$PEAK - Energy Summary -29th - $PEAK - InvestorVillage
This is a semi-private group. You are free to browse messages, but you must be a member of this group to post messages. Join This Group

Group: $PEAK   /  Message Board  /  Read Message


Rec'd By
Authored By
Minimum Recs
Previous Message  Next Message   Post Message   Post a Reply return to message boardtop of board
Msg  61077 of 61099  at  7/29/2020 9:32:02 PM  by


Energy Summary -29th

Energy Summary for July 29, 2020

2020-07-29 20:27 ET - Market Summary

by Stockwatch Business Reporter

West Texas Intermediate crude for September delivery added 23 cents to $41.27 on the New York Merc, while Brent for September added 53 cents to $43.75 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.15 to WTI, down from a discount of $10.00. Natural gas for August added five cents to $1.85. The TSX energy index added 1.63 points to close at 78.26.

The energy bankruptcy club is adding another member. Denbury Resources Inc. (U:DNR), a NYSE-listed U.S. oil producer with over 55,000 barrels a day of production in the Gulf Coast and Rocky Mountain regions, announced this morning that it expects to file voluntary Chapter 11 petitions today or tomorrow. It has entered a restructuring support agreement with creditors whereby it would eliminate roughly $2.1-billion (U.S.) in debt. Total debt at the end of 2019 was about $2.3-billion (U.S.), with roughly half of that due to mature by mid-2022. Denbury set the bankruptcy clock ticking just a month ago when it skipped an $8-million (U.S.) interest payment, followed by a $3-million (U.S.) skipped payment earlier this month. The stock, which once traded at a high of $40 (U.S.) in 2008, was halted today at just 24 U.S. cents.

Now Denbury will join the big U.S. energy bankruptcy pile-up of 2020. It is one of the larger victims so far, with a debt load of over $2-billion (U.S.). Other big bucklers include Chesapeake Energy, which went bust with over $9-billion (U.S.) in debt; California Resources, with over $5-billion (U.S.); Whiting Petroleum and Ultra Petroleum, each with $3.6-billion (U.S.); and Extraction Oil and Gas, with $1.7-billion (U.S.). This is to say nothing of the scores of smaller companies that have gone under as well. There are undoubtedly more to come.

Some companies are facing even more massive debt loads. For example, Occidental Petroleum borrowed $40-billion (U.S.) to finance last year's takeover of Anadarko Petroleum. The deal is now seen as an incredibly ill-timed bet on oil prices. Occidental's shares have lost nearly two-thirds of their value this year as various industry observers have placed it on their bankruptcy watch list. Currently Occidental is casting about for ways to reduce debt; today, for example, Bloomberg reported that Occidental is in talks with Indonesia's Pertamina to sell assets in Africa and the Middle East for $4.5-billion (U.S.). Even that substantial price tag would just be a drop in the bucket.

Another company widely considered to have made an ill-timed acquisition last year is Ovintiv Inc. (OVV), which today lost 59 cents to $13.80 on 2.25 million shares, after releasing its second quarter financials. This is the first quarter showing the full year-over-year effects of Ovintiv's $7.7-billion (U.S.) takeover of Newfield Exploration in the first quarter of 2019. Ovintiv bought Newfield for its assets in the U.S. Anadarko basin. These assets were producing about 144,000 barrels of oil equivalent a day at the time. By the second quarter of 2019, the first full quarter under Ovintiv's watch, they were up to 163,000 barrels a day. In the second quarter of 2020, however, they were back down to 144,000, reflecting a sharp decrease in drilling activity. (Ovintiv had been running six drill rigs in early 2019 but is currently running just two.) This is unlikely to make investors feel much better about the takeover. They have of course already made their opinions quite clear: Ovintiv's stock, which was trading at around $60 prior to the announcement of the takeover in November, 2018, is currently worth $13.80. (The $60 figure is adjusted for a 1-for-5 rollback earlier this year.)

The Anadarko assets are just part of Ovintiv's portfolio. Its overall production in the second quarter of 2020 was 537,000 barrels a day, well above analysts' predictions of just 506,000 barrels a day. Even so, cash flow of $1.17 (U.S.) a share fell below analysts' predictions of $1.37 (U.S.) a share, weighed down by a restructuring charge. This, along with a massive impairment charge of $3.25-billion (U.S.) -- and for context, Ovintiv's current market cap is $2.68-billion (U.S.) -- helped spur a net loss for the quarter of $4.38-billion (U.S.). This compares with earnings of $336-million (U.S.) a year earlier.

Ovintiv tried to look on the bright side. President and chief executive officer Doug Suttles maintained that Ovintiv did "exceptionally well" in a "very challenging period." He drew attention to the $52-million (U.S.) in free cash flow generated in the quarter, noting that free cash flow is a key part of Ovintiv's plan to reduce debt. All free cash for the next six quarters is being dedicated to debt repayment. As of June 30, Ovintiv's long-term debt was $7.36-billion (U.S.).

Here in Canada, Alberta Montney producer Seven Generations Energy Ltd. (VII) added 30 cents to $3.93 on 2.81 million shares, garnering a much more favourable reaction to its second quarter financials. It posted a net loss of just $116.9-million. This was down from earnings of $295.3-million a year earlier, but the swing to a loss was not as substantial as Ovintiv's. Of course, worth noting is that Seven Generations already took a hefty impairment charge in the first quarter of 2020, when it posted a net loss of $1-billion. Ovintiv did not take substantial impairments in the first quarter and was able to post earnings of $421-million. Now their positions are switched and Ovintiv is the one with the big impairment-driven loss. The timing of impairments, along with the fact that they can be reversed later and cause multibillion-dollar gains in stated income, plays a large role in why many energy investors and analysts -- at least over the last six years of wildly volatile pricing -- tend to focus on cash flow and production.

On that note, Seven Generations produced 183,200 barrels of oil equivalent a day and had cash flow of 42 cents a share during the second quarter. That compares favourably with analysts' predictions of 178,000 barrels a day and 37 cents a share. Seven Generations also boasted of achieving $69.4-million in free cash flow during the quarter. In keeping with a common theme these days, this free cash flow is being earmarked for debt reduction. Seven Generations' net debt as of June 30 was $2.22-billion, compared with a current market cap of $1.30-billion.

A much smaller Alberta producer, Alfred Sorensen's gassy Pieridae Energy Ltd. (PEA), edged up two cents to 33 cents on 35,100 shares, after attempting to discover just how big a mountain can be made out of a molehill. Essentially, the company has secured a $6-million guarantee facility from Export Development Canada (EDC). This means it can release cash collateral provided as security for existing and future letters of credit. While $6-million would not even have covered Pieridae's basic administrative expenses in the first quarter (let alone any other expenses), the amount was still more than enough to send management into a tizzy of excitement, with gleeful proclamations about the "significant opportunity," the "strong signal to the market," and the "key support for the company" as it embarks on "what is hoped to be a strong and ongoing partnership with EDC." The press release is only three paragraphs long yet still manages to leave a reader exhausted.

Pieridae can be forgiven some of its excitement. For one thing, it appears to be the first energy company to officially announce liquidity support from the Canadian government. Ottawa launched support programs through EDC and the Business Development Bank of Canada months ago, directly promising to help the energy industry, but the programs have been criticized as overly complex and slow-moving. (The amounts also seem worryingly low, if Pieridae's arrangement is indicative of wider trends.) Still, if money is finally starting to move, that is an encouraging sign. As for Pieridae itself, any good news is welcome, as the past few months have brought far more in the way of bad news. Pieridae has faced problems with the licence transfers related to a 2019 asset acquisition; the delay of an investment decision on its proposed Goldboro LNG (liquefied natural gas) project in Nova Scotia; and, just two weeks ago, the loss of the engineering firm that was supposed to be working on a construction contract for Goldboro. Should Goldboro ever be built, it could be one of Canada's first LNG export facilities. Yet the $10-billion (U.S.) price tag and the long history of delays seem to have most shareholders discounting its value to zero. Pieridae's stock has thus spent most of this year dropping to 33 cents from over 80 cents. Two and half years ago, it was worth nearly $6.


     e-mail to a friend      printer-friendly     add to library      
| More
Recs: 9     Views: 137
Previous Message  Next Message   Post Message   Post a Reply return to message boardtop of board

Financial Market Data provided by