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Msg  61080 of 61099  at  7/31/2020 8:38:44 PM  by


Energy Summary -31st

Energy Summary for July 31, 2020

2020-07-31 20:21 ET - Market Summary

by Stockwatch Business Reporter

West Texas Intermediate crude for September delivery added 35 cents to $40.27 on the New York Merc, while Brent for September added 36 cents to $43.30 (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 three cents to $1.80. The TSX energy index lost 1.70 points to close at 74.88.

The oil patch was in a downbeat mood heading into the long weekend. Today marks the last day before OPEC+ is scheduled to roll back its production cuts, effectively adding up to two million barrels a day to the market. The rollback was designed to coincide with improving fuel demand, but there are signs that the recovery is slackening amid a resurgence in COVID-19 cases.

Meanwhile, this earnings season has been rough at best, and today brought no relief as two U.S. supermajors -- Exxon and Chevron -- announced larger quarterly losses than analysts were expecting. Exxon lost $1.1-billion (U.S.), its second quarterly loss in a row. (It had previously not reported any quarterly losses since 1999.) Chevron posted a loss of $8.3-billion (U.S.) as it fully erased the value of its Venezuelan operations. Both companies are continuing to slash spending in a bid to protect their prized dividends. They are the only two energy "dividend aristocrats," a term for companies that have hiked their dividends every year for at least 25 years.

Exxon is also the parent company and majority owner of Alberta oil sands giant Imperial Oil Ltd. (IMO), which today lost $1.06 to $20.95 on 3.02 million shares, after it too released its second quarter financials. These also failed to impress the market. Imperial posted a loss of $526-million, whereas analysts had been expecting a loss of just $188-million. "The headline miss certainly stands out relative to the rest of the group," wrote Raymond James analyst Chris Cox, adding that the "acute weakness" appears to reflect high taxes as well as poor results from Imperial's downstream refining division. This division saw throughput of 278,000 barrels a day, down from 383,000 in the first quarter, illustrating the ravages of COVID-19-related demand destruction. Seasonal maintenance work had an effect as well, but some analysts had still hoped for throughput to approach 300,000 barrels a day. This was not to be, and the downstream division posted an overall loss of $32-million. Meanwhile, in the upstream division, Imperial's production averaged 347,000 barrels of oil equivalent a day, mildly exceeding analysts' predictions of 326,000 barrels a day. Weak oil prices still dragged the division to a loss of $444-million.

Chief executive officer Brad Corson tried to stay upbeat despite the copious red ink. In a difficult market, Imperial pursued "progressed key projects and maintained its dividend without increasing its debt," said Mr. Corson. (Imperial has yet to touch its dividend despite the downturn. It currently pays a 22-cent quarterly dividend, for a yield of 4.2 per cent.) Mr. Corson added that he is "highly confident in our ability to meet our targets, improve cash flow and continue to deliver value to shareholders." During a conference call this morning, he implied that Imperial will try to achieve this by essentially staying on its same slow and steady path, at least in the near term. The company is planning to spend $1.1-billion to $1.2-billion in 2020 (a $500-million reduction from the original budget), and Mr. Corson implied that this could be a good range for 2021 as well. He emphasized that the important thing in 2021 is to "maintain flexibility with our plans, just as we did this year."

Not everyone's quarterly results disappointed the market. The Montney- and Cardium-focused ARC Resources Ltd. (ARX) edged up seven cents to $5.69 on 4.6 million shares, after touting "strong," "robust" and "excellent" numbers for the second quarter, including record production of 166,500 barrels of oil equivalent a day. Analysts were expecting production of 154,000 barrels a day. ARC's cash flow came to 42 cents a share, or 34 cents a share excluding a large income tax recovery, either way exceeding analysts' predictions of 26 cents a share. Alas, ARC was unable to turn a profit in the quarter, posting a loss of $43.5-million (down from earnings of $94.4-million a year earlier). Analysts nonetheless erupted in applause. "Q2/20 Results Smash Expectations," declared Scotia Capital analyst Cameron Bean, highlighting ARC's "robust production ... [and] huge cash flow beat." He attributed the production gains in part to the new infrastructure that ARC completed at Dawson and Ante Creek in April, slightly earlier than expected. With a few more compliments tossed out to ARC's "enviable" asset base, Mr. Bean hiked his price target on the stock to $8 from $7.75. Meanwhile, Canaccord Genuity analyst Anthony Petrucci wrote that ARC has been "firing on all cylinders" and is "poised for a rerating" He also hiked his target to $8, from $7.

Two Saskatchewan- and Alberta-focused producers turned in quarterly results that were largely in line with analysts' predictions, namely Crescent Point Energy Corp. (CPG), down two cents to $2.07 on 8.42 million shares, and TORC Oil & Gas Ltd. (TOG), down four cents to $1.67 on 1.1 million shares. Crescent Point produced 120,800 barrels of oil equivalent a day and had cash flow of 21 cents a share. It patted itself on the back for not allowing its net debt to rise during the quarter. Just like March 31, the June 30 net debt load was $2.3-billion. (Of course, given the current market cap of $1.1-billion, that is still much too high for many investors' comfort.) A highlight of Crescent Point's update was its announcement that Myron Stadnyk has joined its board of directors. Mr. Stadnyk served as president and CEO of the above-mentioned ARC Resources until he announced his surprise retirement, age just 56, in February. He had been with ARC for 23 years and was apparently seeking a fresh challenge. Turning around Crescent Point, whose $2 stock traded at nearly $50 back in 2014, would certainly fit the bill.

As for TORC Oil, it produced 24,900 barrels of oil equivalent a day in the second quarter and achieved cash flow of three cents a share, mostly matching analysts' predictions. The company adopted a slightly more confident air entering the second half of the year. Having previously suspended its production guidance and slashed its budget to $75-million from $190-million, TORC has now reinstated some level of guidance -- forecasting that it will end the year producing 25,000 barrels a day -- and hiked the budget ever so slightly to $80-million. It made no firm mention, however, of reintroducing its dividend, which it suspended indefinitely in May. In a research note about TORC's second quarter financials, the above-mentioned Canaccord analyst Mr. Petrucci speculated that rising cash flow "could support a reinstatement of the dividend in 2021." He opined that TORC owns "amongst the best light oil assets [in Western Canada]" and reiterated his price target of $2.50. The stock closed today at $1.67.

Ending with some non-financials-related news, little Alberta producer Bonavista Energy Corp. (BNP) stayed unchanged at five cents on 1.67 million shares, after announcing that its shareholders and debtholders have approved its proposed recapitalization. As discussed in previous Energy Summaries, Bonavista's proposal had a few unusual features. Notably, the deal will see the company go private; that was a condition of the senior noteholders holding over $880-million of Bonavista's debt. (The company's market cap is about $13-million.) As well, shareholders were given the option to vote on whether a firm controlled by George Armoyan, a director of Bonavista, could acquire all of Bonavista's prerecapitalization shares at five cents each (equal to a 7-per-cent interest after the recapitalization). Now all of the above has been accepted. Shareholders will get their nickel buyout, and Bonavista will disappear from the TSX.

About three-quarters of the voting shareholders voted in favour of the proposals. While enough to pass the two-thirds acceptance threshold, this is not especially high in general terms -- and neither was the voter turnout. Only 123.5 million of Bonavista's 264 million shares were represented at the meeting, or just over half. Perhaps some investors felt that apathy was all the response that the five-cent offer deserved. Back in 2014, Bonavista's stock traded at closer to $18.


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