by Stockwatch Business Reporter
West Texas Intermediate crude for September delivery lost $2.68 to $89.41 on the New York Merc, while Brent for October lost $3.05 to $95.10 (all figures in this para U.S.). Western Canadian Select traded at a discount of $19.66 to WTI, unchanged. Natural gas for September lost four cents to $8.73. The TSX energy index lost 3.64 points to close at 229.67.
Oil prices skidded into the week, tumbling on bearish economic data from China. Not even an upbeat earnings report from Saudi Aramco over the weekend could lift the market's mood. The Saudi oil behemoth trumpeted a second quarter profit of $48.4-billion (U.S.), the highest in its three-year history as a public company and (according to Bloomberg) the highest of any publicly listed company globally. President and chief executive officer Amin Nasser gave the credit to higher oil prices and better refining margins. The company took in $34.6-billion (U.S.) in free cash flow during the second quarter and plans to pay out $18.8-billion in dividends in the third quarter.
Mr. Nasser added that "ongoing investment in our industry is essential" to meet rising global demand. Despite "global market volatility and economic uncertainty," he said, referring to widespread recessions fears, "... we expect oil demand to continue to grow for the rest of the decade." Despite his booterish demand predictions, oil prices took a tumble.
Canadian oil stocks fell with oil prices. Vermilion Energy Inc. (VET) lost 83 cents to $31.69 on 2.91 million shares, despite trying to stir up some good feelings last Friday, when it released its second quarter financials (as discussed on Friday). Following the financials, president Dion Hatcher headed to BNN to hype the results and an accompanying dividend increase.
"The international diversified nature of our business ... generates outsized free cash flow," declared Mr. Hatcher. He noted that while Vermilion gets about two-thirds of its production from Canada, these operations are providing only about one-third of its cash flow. The real cash cow at the moment is Vermilion's international operations, especially in Europe. Geopolitical tensions and lack of sufficient non-Russian supplies are pushing gas prices toward record highs. As nearly one-quarter of Vermilion's output is European gas, Mr. Hatcher said the company is enjoying some "really robust free cash flow."
With that extra cash flow, Vermilion decided to increase its quarterly dividend to eight cents from six cents. The yield remains relatively low, at 1.0 per cent, but Mr. Hatcher said the company wanted to make sure that the dividend is "resilient" even if oil prices retreat as far back as $55 (U.S.) a barrel. He is "open to other options" for rewarding shareholders, and emphasized that he sees share buybacks as a particularly "compelling opportunity." (Since announcing a share buyback program on July 4, Vermilion has spent $35-million repurchasing 1.25 million shares. Interestingly, SEDI also shows that Vermilion has spent about $2.5-million over the same period buying shares of a junior Montney investment, Coelacanth Energy Inc. (CEI: $0.73). It now owns 58.5 million of Coelacanth's 399 million shares.)
As peppy as Vermilion is about its European gas operations, Mr. Hatcher dubbed himself "a proud Canadian" who would love to see Canada play a larger role in the global market, particularly for LNG (liquefied natural gas). "I think there is a real opportunity for Canada to continue to be a leader and provide some of the most responsibly produced, safest, cleanest gas in the world, and I'm fully supportive" of LNG export projects, he said. He did not identify any by name. The Canadian LNG project that is closest to reality is the Shell-backed LNG Canada terminal in Kitimat, B.C., scheduled to open in 2025. (It would focus on exports to Asia, but would still indirectly help Europe by freeing up other global LNG for rerouting to European customers.)
Another executive looking for a BNN boost was Jeff Tonken, CEO of the B.C. Montney-focused Birchcliff Energy Ltd. (BIR), down 13 cents to $10.07 on 2.95 million shares. He headed to BNN last Thursday to talk up "very strong" gas prices in Canada (not just in Europe). "Life is good in the natural gas business," he declared. It is so good, in fact, that Mr. Tonken reckoned that Birchcliff will pay off every single penny of its debt by year-end. It has already reduced its debt to $266-million as of June 30 from $770-million a year earlier.
Mr. Tonken raised an eyebrow at companies that are hiking their dividends without paying off all their debt first. (The above Vermilion happens to be among those companies, with forecast year-end debt of $1.2-billion, though it says it will be perfectly comfortable paying its increased dividend while continuing to repay debt.) Birchcliff currently has a barely noticeable dividend of two cents each quarter. Given the plan to be debt-free by year-end, Mr. Tonken reminded BNN watchers of his ambition to hike the dividend tenfold (to 20 cents each quarter) in 2023. Investors seem intrigued, but watchful. Birchcliff will not release its official budget for 2023 until mid-October.
Further afield, Philip O'Quigley's would-be Australian gas producer, Falcon Oil & Gas Ltd. (FO), flitted up 1.5 cents to 14 cents on a heavier-than-usual 1.35 million shares. It had no news to explain the activity, but may have got a boost from fellow explorers in Australia's Beetaloo shale gas basin. The ASX-listed Tamboran Resources cheered today that the latest flow rates from its Tanumbirini-2H well are "the highest sustained flows ... within the [Beetaloo] basin to date." Meanwhile, Empire Energy has been boasting of "strong" initial rates from its Carpentaria-2H well elsewhere in the basin.
While none of the wells are at the commercial stage -- something no one in the Beetaloo has been able to crack, despite years of trying -- the news seems to have stirred up optimism about Falcon's work in the Beetaloo with its joint venture, Origin Energy. They are looking to spud their next wells in 2023. It just so happens that some of the cheerleaders to take notice of the buzz in the Beetaloo were the analysts at the U.K. brokerage Cenkos Securities, who published a boosterish research note today on the Beetaloo and its explorers, including Falcon. Cenkos also happens to be Falcon's sole broker and nominated adviser. The retired co-founder of Cenkos, Joe Nally, has been Falcon's chairman since last year.
Companies often try to keep the specifics of their ties to banks or brokerages tucked carefully behind the scenes. There is, however, the odd and delightful occasion when a securities regulator sits up, takes notice and demands a spotlight. Such was the case today with Mehran Ehsan's U.S. Permian junior, Permex Petroleum Corp. (OIL), down half a cent to 14.5 cents on 97,100 shares. Permex was thrilled to announce last week that Noble Capital Markets had launched coverage of the company, including a rating of "outperform" from analyst Michael Heim. Permex's mood was significantly more subdued as it issued today's "clarification" at the "request" of IIROC. The regulator's prodding compelled Permex to disclose that it is paying Noble for its fawning attention. Specifically, the required payment is $50,000 (U.S.) annually, not including option grants.