by Stockwatch Business Reporter
West Texas Intermediate crude for November delivery added $1.67 to $72.23 on the New York Merc, while Brent for November added $1.83 to $76.19 (all figures in this para U.S.). Prices rose as the U.S. government reported that U.S. crude inventories have fallen to their lowest level in three years. Western Canadian Select traded at a discount of $11.45 to WTI, unchanged. Natural gas for October was unchanged at $4.81. The TSX energy index added 5.04 points to close at 132.87.
The U.S. shale industry is getting another megadeal. Shell has agreed to sell its assets in the world's busiest shale patch, the Permian basin of Texas and New Mexico, to ConocoPhillips for $9.5-billion (U.S.) cash. This is the largest all-cash acquisition in the U.S. upstream sector in more than three years. It is also a continuation of a year-long period of Permian mania, following Chevron's $12.1-billion (U.S.) takeover of Noble Energy last October, Devon Energy's $5.8-billion (U.S.) takeover of Parsley Energy last January, and the in-progress $17-billion (U.S.) merger of Cimarex Energy and Cabot Oil, just to name a few.
The $9.5-billion (U.S.) price tag for Shell's assets is in line with analysts' estimates in July, when Shell was rumoured to be marketing the assets. That was just two months after Shell was ordered by a Dutch court to slash its emissions harder and faster than it had planned. While Shell said it would appeal the ruling, it also showed a willingness to unload some of its oil and gas assets in order to accelerate the emission cuts. Other companies will surely be happy to scoop them up
A noteworthy contrast to Shell's attitude is that of Chevron. Its chief executive officer, Mike Wirth, quipped during a CNBC interview last week that instead of making clean energy investments, he "would rather dividend [money] back to shareholders and let them plant trees." Perhaps Conoco is taking a similar view of things. Conoco is, in fact, increasing its dividend in tandem with the acquisition. Its new quarterly payout of 46 U.S. cents (up from 43) represents a yield of 3.0 per cent. Meanwhile, the news also seemed to lift the mood of shareholders of Ovintiv Inc. (OVV), up $1.88 to $37.83 on 477,200 shares. Ovintiv is active in the Permian and considers it one of its top plays. In the second quarter, the Permian contributed 126,000 of Ovintiv's total production of 554,600 barrels of oil equivalent a day.
In other dividend news, Corey Ruttan and John Wright's Brazil-focused Alvopetro Energy Ltd. (ALV) shot up 60 cents to $4.45 on 67,000 shares, as it achieved a long-held dream and introduced a dividend of its own. It is committing to a regular quarterly dividend of six U.S. cents. The implied yield is 7.0 per cent. That is a generous yield, but on an annualized basis, the dividend should cost only about $10-million, or less than half of Alvopetro's forecast 2021 EBITDA of $23-million. The company has a trim 33 million shares outstanding (even if that trimness was partly achieved through cosmetic surgery, specifically a 1-for-3 rollback that Alvopetro completed earlier this month).
Mr. Ruttan, Alvopetro's president and CEO, has been daydreaming of dividends since 2019. That was when he told a New York energy conference that dividends would absolutely play a role in future "stakeholder returns." To be clear, he did not actually want to introduce a dividend in 2019, as Alvopetro was still working on achieving sales from its core Cabure gas field in Brazil. Mr. Ruttan said his plan was to achieve sales in 2020 and introduce a dividend in 2021. Despite long odds, Mr. Ruttan managed to achieve both goals.
Investors seemed pleased. Many will be hoping that Alvopetro will become the third successful Ruttan-Wright promotion in South America, following Pacalta Resources (sold for $1-billion in 1999) and Petrominerales (sold for $1.6-billion in 2013). Mr. Ruttan likes to talk about those companies. He generally avoids mentioning two of Mr. Wright's other promotions, which had considerably less pleasant endings. In late 2015, Mr. Wright's Alberta-focused Spyglass Resources had to enter receivership, its stock having fallen to five cents from $2.60 within two years. That was followed in 2016 by the collapse of Mr. Wright's Lightstream Resources, another Western Canadian producer, which was once worth as much as $36 per share but had plummeted to just 11.5 cents by the time it ceased trading and sold its assets to a private company. Apparently Mr. Wright is on firmer promotional footing in South America than he is in Western Canada.
Back in the U.S., the North Dakota Bakken-focused Enerplus Corp. (ERF) added 25 cents to $8.29 on 2.57 million shares. Although the rise likely had to do with oil prices, the company is surely also keeping its eye on the latest developments at the contentious Dakota Access pipeline, or DAPL (rhymes with apple). The owner of DAPL is currently trying to remove the threat of another potential legal challenge.
By way of background, DAPL is the main oil pipeline for North Dakota's Bakken producers. It first started operating in 2017, but in 2020, a district judge stripped it of a key environmental permit and tried to shut it down. A higher court reversed the shutdown order but not the permit revocation. Since then, as required, DAPL has been undergoing an environmental review by the U.S. Army Corps, which recently extended the completion date to September, 2022, from March, 2022. Regardless of the date, the completion of the review is thought likely to trigger another challenge from DAPL's lawsuit-happy detractors.
Presumably with that in mind, DAPL's operator, Energy Transfer, has just petitioned the U.S. Supreme Court to tell the Corps that it does not need to finish the review after all. The petition claims that allowing the current state of affairs, in which pipelines can be thrown into jeopardy years after starting service, "could delay or thwart any number of other national infrastructure projects and provide litigants a weapon to shut down even long-operational, essential [projects]." A victory at the Supreme Court level would go a long way to helping Bakken operators breathe more easily. It is a long shot, however; the court rarely moves petitions to hearings.
We end with a last bit of pipeline hysteria here in Canada. In Burnaby, B.C., RCMP officers spent today trying to extract protesters from trees in the path of the Trans Mountain pipeline expansion. For the last 10 days, the protesters -- whose employment status is unknown, but easy to guess -- have been lounging in hammocks six metres in the air, illegally blocking the pipeline's route. "We won't back down," declared one of the tree sitters in a public statement. "Our commitment to delay or cancel construction of this project is unshakeable." Some proved easier to shake than others. According to the local North Shore News, one tree sitter, who wished to be known as "Big Bird," ended up rappelling down a tree on his own before being escorted away by police.