by Stockwatch Business Reporter
West Texas Intermediate crude for April delivery shot up $2.96 to $64.24 on the New York Merc, while Brent for May added $3.11 to $67.18 (all figures in this para U.S.). Western Canadian Select traded at a discount of $11.19 to WTI, down from a discount of $11.08. Natural gas for April lost seven cents to $2.75. The TSX energy index added 2.81 points to close at 117.78.
Oil prices soared after today's surprise decision by OPEC+ to roll over its current production cuts for another month. With prices having risen by nearly one-third since the start of the year, analysts had been expecting OPEC+ to announce today that it would relax its cuts (that is, increase its collective output) by 500,000 barrels a day starting in April. Instead, citing the need to stay disciplined in the face of a fragile economic recovery, the group concluded today's meeting with the decision to hold the cuts steady. Moreover, Saudi Arabia, which gave the market a separate jolt in January after announcing that it would unilaterally cut its production by one million barrels a day in February and March, said today that these cuts will be extended into April too.
The result was a massive sigh of relief from traders who had feared that next month would bring a supply surge of as much as 1.5 million barrels a day. Analysts also approved of the move. Rabobank commodities strategist Ryan Fitzmaurice opined to Bloomberg. "The Saudis shrewdly recognized that in order to maintain the recent upward price momentum and speculative buying interest in oil futures, they needed to 'feed the bull.'"
Here in Canada, the newsmaker of the day was oil sands giant Canadian Natural Resources Ltd. (CNQ), up 71 cents to $38.36 on 14.3 million shares. It released its year-end financials this morning and, in a show of confidence, hiked its quarterly dividend to 47 cents from 42.5 cents -- its 21st year in a row of dividend increases. The new yield is a generous 4.9 per cent.
Chief financial officer Mark Stainthrope credited the increase to the "sustainability of our free cash flow generation." By his calculations, Canadian Natural can easily cover its higher dividend costs and its planned $3.2-billion budget in 2021, while generating an extra $4.9-billion to $5.4-billion in free cash flow. The credit for that, of course, would go to higher oil prices. Canadian Natural is now basing its cash flow forecasts for 2021 on an average WTI price of $57 (U.S.) a barrel. When it initially released the budget in December, the WTI price assumption was $45 (U.S.) a barrel and the projected free cash flow was closer to $2-billion.
During a conference call this morning, Mr. Stainthorpe added that Canadian Natural will use its extra cash to "optimize allocation to our four pillars." These would be the balance sheet, shareholder returns, resource development and acquisitions. The first one seems to be allocated the most optimizing this year, with Mr. Stainthorpe explaining (this time resisting the jargon) that the company is keen to pay down debt. Its long-term net debt was $21.2-billion as of Dec. 31, up from $20.8-billion a year earlier. Mr. Stainthorpe said the net debt would have actually gone down last year if not for acquisition costs related to the $111-million takeover of Painted Pony Energy (which Canadian Natural was happy about) plus a $143-million charge related to the cancelled Keystone XL pipeline (not so happy about that). Ultimately the company wants to get its net debt down to $15-billion, but has not estimated when.
A couple of other oil sands producers had financials worth a mention. MEG Energy Corp. (MEG), up 67 cents to $7.47 on 9.64 million shares, patted itself on the back for its "perseverance and resilience" during an "incredibly challenging" 2020. It pegged its fourth quarter production at 91,000 barrels a day and its cash flow at 27 cents a share, both in line with analysts' expectations. During a conference call this morning, MEG's president and chief executive officer, Derek Evans, discussed rising oil prices and said he now sees an "opportunity to put a little more money back to work" and boost production up to 100,000 barrels a day. He acknowledged that this would take at least 12 to 18 months and cost an extra $150-million (this year's budget is already $260-million). Investors still seemed intrigued, sending the stock to its highest level in over a year. One analyst seems worried that the rally is overblown. Scotia Capital analyst Jason Bouvier, in a research note this morning, called MEG's financials "neutral" and left his price target at $6, well below today's close of $7.47.
Separately, Athabasca Oil Corp. (ATH) edged up half a cent to 46 cents on 14.3 million shares, after it too released its financials -- with, unfortunately, not much of an update on its refinancing plans. As discussed in Tuesday's Energy Summary, Athabasca is facing a $450-million (U.S.) note maturity on Feb. 24, 2022. It has been trying to refinance for over a year but has had no luck yet. With several other companies having announced favourable refinancings lately, including the above-mentioned MEG Energy and Canadian Natural Resources, the hope is that Athabasca's turn will come soon. Today Athabasca released relatively unsurprising financials and promised that it will remain "nimble and creative" in pursuing a refinancing, which it expects to happen later this year "as energy credit markets continue to improve."
Heading outside the oil sands, U.S. shale producer Ovintiv Inc. (OVV) added $2.07 to $34.49 on 1.79 million shares, after adding a new director and thereby taming a dissident shareholder. The newcomer is Kate Minyard. She is an investment principal and partner at Cambiar Investors, a Denver-based asset management firm, which she joined in 2014. Before that, she was an executive director of J.P. Morgan's equity research division.
More importantly, Ms. Minyard is one of three nominees put forward in January by activist investor Kimmeridge Energy Management. Kimmeridge, a top 10 shareholder of Ovintiv (holding 2.5 per cent of its 259 million shares), had been dealing out snipes since last October. It described Ovintiv as "the poster child of what's gone wrong from a governance perspective." Then it appeared shocked to discover that Ovintiv's board did not appreciate such remarks and became "unreceptive" to Kimmeridge's "best efforts to engage in a constructive dialogue." Therefore, to "drive the change the company desperately needs," Kimmeridge decided to nominate three directors.
Now Ovintiv has said yes to one of them -- and what a transformation this has wrought in Kimmeridge. The now docile firm palled around the press release, agreeing to vote in favour of Ovintiv's entire board and expressing appreciation for the "constructive interactions and dialogue we have had with Ovintiv over the last several months" (so much for unreceptive). That quotation came from Mark Viviano, one of Kimmeridge's managing partners, who as recently as January was calling Ovintiv "emblematic of everything that is wrong with the U.S. shale industry." Bygones, bygones.