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Canadian Blue-chip Industrial Forum
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Energy Summary - 29thEnergy Summary for May 29, 2017
2017-05-29 19:03 ET - Market Summary
by Stockwatch Business Reporter U.S. markets were closed for Memorial Day. West Texas Intermediate crude for July delivery added 19 cents to $49.99 in electronic trading on the New York Merc, while Brent for July added 15 cents to $52.30 (all figures in this para U.S.). Western Canadian Select traded at a discount of $9.95 to WTI ($40.04), up from a discount of $10.30. Natural gas for June lost three cents to $3.21. The TSX energy index lost a fraction to close at 190.11. Li Ka-shing's Husky Energy Inc. (HSE) added 31 cents to $16.46 on 613,100 shares. It has decided to go ahead with its long-awaited $2.2-billion West White Rose project. The project lies about 350 kilometres off the coast of Newfoundland and is a joint venture with Suncor Energy Inc. (SU: $42.58) and provincial corporation Nalcor Energy. It is an extension of the White Rose field, which has been on production since 2005. Husky's original (if tentative) plan was to bring West White Rose on production in 2016. Once oil prices crashed, however, West White Rose found itself on the back burner. Husky has remained almost mute about the project ever since, aside from a promise to consider making a development decision in 2017. This morning, Husky not only approved West White Rose, but said the project will be bigger and better than originally planned. "We've made significant improvements ... achieving a 30-per-cent improvement in capital efficiency and increasing the expected peak production rate by 40 per cent over our initial estimate," cheered chief executive officer Rob Peabody. He said West White Rose is expected to start production in 2022 and reach peak rates of 75,000 gross barrels a day in 2025. (To put that in perspective, Husky produced 334,000 barrels of oil equivalent a day in the first quarter of 2016, including 34,500 from White Rose and its satellite fields.) Government officials in Newfoundland and Labrador were even more thrilled than Mr. Peabody. "This is a significant day for the province," declared Premier Dwight Ball during a press conference in St. John's with Natural Resources Minister Siobhan Coady and Husky vice-president Malcolm Maclean (as quoted in the CBC). Mr. Ball added that Husky's revisions to West White Rose are "all positive for Newfoundland and Labrador" and will lead to a sizable increase in engineering and construction work in the province. "It's certainly a boost of confidence for the industry. But I would also add a boost of confidence to the whole province," said Mr. Ball, adding, "Every single community is impacted by this." Adding to the optimism was Husky's announcement that it has made a new discovery in an area called Northwest White Rose. An exploration well drilled in the first quarter found a light oil column of more than 100 metres. Husky's Mr. Maclean said the discovery is still being assessed, but is "of significant interest to us." All in all, this was a good start to the week for Husky, which will strive to keep the excitement going at its investor day tomorrow in Toronto. It has already promised to unveil a new five-year plan. Investors will also be hoping for an update on the company's quarterly dividend, which was suspended in January, 2016, but is expected by some analysts to return before the end of this year. Most recently, on Friday, Canaccord Genuity analyst Dennis Fong predicted that Husky could bring back the dividend in late 2017. He is looking forward to learning more about Husky's plans at tomorrow's investor day. For now, he is leaving his price target at $16.50 (barely above today's close of $16.46) and his rating at "hold." Another Canaccord analyst, Anthony Petrucci, had some lovely words for Surge Energy Inc. (SGY), up one cent to $2.39 on 559,600 shares. He applauded the company's "transformation" over the last few years, particularly regarding its debt, which has fallen to about $200-million now from about $550-million in mid-2014. Mr. Petrucci is impressed that Surge accomplished this without issuing any equity. Much of the money came from asset sales (including a $430-million sale to TORC Oil & Gas Ltd. (TOG: $5.73) in mid-2015). Surge also lowered its spending and reduced its monthly dividend to 0.625 cent from five cents. More recently, it raised the dividend to 0.7917 cent, for a yield of 4 per cent. Mr. Petrucci says the dividend is "healthy." Based on his calculations, assuming a WTI oil price of $55 (U.S.), Surge can pay for its dividend and this year's budget while generating $15-million in free cash flow. Mr. Petrucci attributes this to the "superior capital efficiencies" of Surge's core Valhalla asset in western Alberta and its Shaunavon play in Saskatchewan. These two areas are expected to contribute roughly two-thirds of Surge's planned 2017 production of 14,450 barrels of oil equivalent a day. A third core area, the Sparky play in southeastern Alberta, is to contribute the rest, but did not warrant a mention from Mr. Petrucci, who had eyes only for Valhalla and Shaunavon. He called Surge a "compelling investment opportunity" and left his price target at $4. Investors do not seem quite as enthralled as Mr. Petrucci with Surge's stock, which has fallen to $2.39 from over $2.80 in the last seven weeks (and from nearly $3.50 since the start of the year). President and CEO Paul Colborne is taking the dip as a buying opportunity. He has acquired over 100,000 shares since April 10, including 37,500 last week. He now owns 4.13 million of Surge's 225 million shares, or enough for nearly $33,000 a month in dividend payments. Alberta Cardium producer Yangarra Resources Ltd. (YGR) is having a much better year than Surge. Its stock, which was trading below $2 at the start of the year, today added 18 cents to $3.42 on 218,500 shares. Over 60 cents has been added since Yangarra released its first quarter financials on May 11. The financials were in line with analysts' expectations, with cash flow of 12 cents a share and production of 4,483 barrels of oil equivalent a day. This production was sharply higher than the fourth quarter 2016 average of 3,200 barrels a day, and Yangarra said its current production is around 6,000 barrels a day. The increase is largely thanks to a 10-well program that started last August. All 10 wells were on production as of April and were showing higher rates than Yangarra had modelled. Spring breakup has forced Yangarra to pause its drilling activities, but the company looks to be preparing for a busy second half of the year. According to public data, it licensed four new Cardium wells on May 19. It has promised to provide "amended" guidance after breakup. Investors and analysts are taking "amended" to mean "increased." In a glowing research note on May 11, entitled "6,000 reasons to buy," Canaccord Genuity analyst Sam Roach said he would not be surprised to see Yangarra boost both its budget (currently $50-million) and its full-year production guidance (currently 4,500 to 5,000 barrels a day) in June. He marvelled at the "continued outperformance" of the company's wells. The one dark cloud in the sunny report was that Yangarra's debt at the end of the quarter was approaching the limits of its $80-million bank line. Mr. Roach pointed out that net debt rose to $77-million as of March 31 from $65-million at year-end 2016. He then said he was not worried because he expected an increase to the credit facility shortly. (It came the very next day, with the bankers boosting the line to $100-million on May 12.) Despite the rising debt load, Mr. Roach left his price target on Yangarra's stock at $4, which was well above the price at the time of $2.79 but looks much closer from today's close of $3.42. Yangarra, for its part, does not seem worried about its net debt and says it can get this number back between $65-million and $70-million by year-end. That prediction could change depending on the eagerly awaited guidance amendments that could arrive within weeks. |
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