by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost $1.35 to $39.92 on the New York Merc, while Brent for September lost 81 cents to $42.94 (all figures in this para U.S.). Western Canadian Select traded at a discount of $10.15 to WTI, unchanged. Natural gas for September lost two cents to $1.83. The TSX energy index lost 1.68 points to close at 76.58.
Amid an already difficult quarterly reporting season -- the second quarter having borne the brunt of the ravages of the COVID-19 pandemic -- the oil patch had to contend with an extra dose of embarrassment, courtesy of one of its largest foreign visitors. France's Total has announced that it is writing off $9.3-billion worth oil sands assets in Alberta as it considers them "stranded." It explained that it is assigning this description to high-cost reserves that may not be produced before 2050 in light of its internal carbon-reduction targets.
A major writedown is not in itself unusual; the biggest part of Total's writedown ($7.3-billion) comes from its interest in the Fort Hills oil sands mine, which operator Suncor Energy Inc. (SU: $21.79) wrote down by nearly $1.4-billion in the first quarter. In addition, Total has been retreating slowly from the oil sands for a few years now, most recently selling the non-producing Joslyn project to Canadian Natural Resources Ltd. (CNQ: $24.08) in late 2018. Yet Total has now gone a step further It put on a headline-grabbing performance as it announced its withdrawal from the Canadian Association of Petroleum Producers (CAPP) while puffing about "misalignment" between CAPP's beliefs and Total's "climate ambition."
This misalignment is, apparently, quite new, considering that as recently as 2018, Total produced more from the oil sands than any other foreign company. Its green-drenched rationale for abandoning future investment in the oil sands raised more than a few eyebrows among those who pointed out that Total is increasing its investment in regions with far lower ESG (environmental, social and governance) standards, such as Nigeria, Russia and the Middle East. So noted Alberta Energy Minister Sonya Savage in a public statement lambasting Total's "highly hypocritical," "poorly informed" and "short-sighted" decision. She forgot one word: trendy. Total is not even the first newsmaker this week to spout off about the yucky oil sands. Germany's Deutsche Bank said on Monday that it will not provide direct financing for any new oil sands projects, again citing climate reasons. The flight of the Europeans continues.
Within the oil sands, life moved on. Cenovus Energy Inc. (CVE) lost 25 cents to $6.17 on 7.72 million shares, after announcing the closing of a $1-billion (U.S.) five-year note offering. This marks a change from the $750-million (U.S.) note offering proposed in its EDGAR filing (as discussed in the Energy Summary two days ago). It seems there was decent demand for Cenovus's debt, particularly given the generous coupon, which was not disclosed in the EDGAR filing but has now been set at 5.375 per cent for the five-year notes. That is nearly as high as the 5.4-per-cent coupon on the 30-year notes that Cenovus sold in April, 2017. Borrowing costs for energy companies, even majors such as Exxon, have skyrocketed since the start of the 2020 downturn. It appears, however, that the debt markets are finally opening up to the non-giants -- at least, the ones willing to pay.
Heading out of the oil sands, Mike Rose's Tourmaline Oil Corp. (TOU) -- which despite its Oil-y name is Canada's largest gas producer -- reached an intraday high of $14.00 before closing at $13.31, up 18 cents, on 4.84 million shares. Investors took heart from its second quarter financials. The company managed to turn a profit of $20.1-million. This is a steep drop from $154.9-million a year earlier, but a profit nonetheless. Production of 299,400 barrels of oil equivalent a day was in line with analysts' predictions, while cash flow of 83 cents a share sharply exceeded analysts' predictions of 67 cents a share. Tourmaline emphasized that it was able to stay busy despite "one of the most difficult quarters in the history of the industry." In terms of fieldwork, Tourmaline was not as busy as usual (31 net wells were drilled in the quarter, down from 47 a year earlier), but it was active on the deals front, putting together a $50-million string of asset acquisitions and takeovers. This is just a fraction of what Tourmaline says it could spend. Last December, after spinning out a private royalty/infrastructure company called Topaz Energy, Tourmaline boasted of having "access to over $800-million for select acquisition activity." It wants to further bulk up its treasury by taking Topaz public later this year.
Another company with second quarter results out today was Grant Fagerheim's Alberta- and Saskatchewan-focused Whitecap Resources Inc. (WCP), which edged down 10 cents to $2.22 on 4.9 million shares. It looks to be joining Tourmaline in the hunt for acquisitions. "Our focus has shifted from survival to capturing opportunities," declared Whitecap's management, noting that toward the end of the second quarter, Whitecap picked up a small, $5.2-million package of assets producing 220 barrels a day. As for the rest of the second quarter, Whitecap pegged its production at 70,800 barrels a day and its cash flow at 19 cents a share, mildly above analysts' predictions of 69,700 barrels a day and 17 cents a share. Investors yawned. They may have been hoping that Whitecap, with its relatively healthy balance sheet, would strike a bold pose for the second half of the year (rather like Tourmaline did as it promoted a "robust" program with 10 active drill rigs). Whitecap instead kept to its cautious spending plan. It reiterated its full-year budget of $190-million, of which $160.1-million was spent in the first half. That implies a second-half budget of less than $5-million a month. Whitecap did, however, reaffirm its commitment to a "meaningful" dividend, which at the current rate -- 1.425 cents monthly -- costs $5.8-million a month and represents a generous yield of 7.7 per cent.
Finishing back in the oil sands, little Athabasca Oil Corp. (ATH) stayed unchanged at 17 cents on 951,600 shares, on mixed second quarter financials. With $45-million in hedging gains, the company was able to eke out an operating profit of $6-million (down from $67-million a year earlier), but it still posted an overall net loss of $65-million (compared with a year-earlier profit of $57-million). Production averaged 27,100 barrels of oil equivalent a day and cash flow came to negative three cents a share. Athabasca does not have wide enough analyst coverage to see how these numbers line up with analysts' predictions. For many of its shareholders, the more important numbers are in the balance sheet anyway. Athabasca entered 2020 with roughly $560-million in debt, including $450-million (U.S.) in notes due in February, 2022 -- just 18 months away. Athabasca is trying to refinance this debt. It spent much of its new financials telling investors about the other steps it has taken lately to shore up its finances. For example, in the second quarter, it reassigned 15,000 barrels a day of its future capacity on TC Energy's proposed Keystone XL pipeline. While the reassignment will have little effect in the short term (as the pipeline is years away from operating, if ever), it does remove about $880-million in long-term transportation commitments. Athabasca still has 10,000 barrels a day of capacity on Keystone XL and is "evaluating various options ... to manage risk and capture value."
There was one bright spot in the financials: Athabasca has officially decided to restart its Hangingtone thermal project. This was shut down in early April in response to low oil prices, a wrenching decision for any thermal operator. Prolonged thermal shutdowns can cause expensive, even irreversible reservoir damage. Even in bad downturns, it is more common to see thermal operators keep their projects going and just swallow the losses. Yet Athabasca could not do that without causing irreversible damage to itself. Fortunately, with oil prices now improving, the company says it can bring Hangingstone back on-line in September. This is fortunate timing for two reasons: Not only will the shutdown have lasted just six months (significantly lessening the risk of damage), but the project will be up and running again before winter (whereas reactivation would be a lot harder in the cold). Athabasca is optimistic that Hangingstone's return will help boost its corporate production from 27,100 barrels a day in the second quarter to as much as 34,000 barrels a day in the fourth quarter.