by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery lost $2.26 to $63.82 on the New York Merc, while Brent for July lost $2.27 to $67.05 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.81 to WTI, unchanged. Natural gas for June was unchanged at $2.97. The TSX energy index lost 2.80 points to close at 123.24.
Another international energy company is taking a step back from Canada. Japan Petroleum Exploration, or Japex, announced this morning that it is selling its entire 10-per-cent interest in the North Montney shale gas project in British Columbia to its joint venturer, Malaysia's Petronas.
Japex acquired this interest from Petronas in 2013 for $1-billion. Asian investment in North American shale gas projects was popular at the time, especially with Japan growing increasingly reliant on LNG (liquefied natural gas) since the Fukushima disaster knocked out much of its nuclear power capacity in 2011. The North Montney arrangement between Japex and Petronas included an interest in a $36-billion LNG plant that Petronas was trying to build on Lelu Island (near Prince Rupert, B.C.). The North Montney project was said to hold enough gas to fill the massive LNG plant for 20 years. By 2018, declared the companies, the plant would be in service and the North Montney project would be a gas-producing powerhouse.
Things did not go according to plan. The dozens of LNG proposals that had once dotted the B.C. coast began to fold one after another, with Petronas cancelling the Lelu Island idea in 2017. In 2018, Japex booked an impairment loss on its North Montney interest of $750-million. Now Japex is exiting the project altogether. "The environment surrounding the E&P [exploration and production] business is expected to become even more severe due to the prolonging effects of COVID-19 ... and accelerating global decarbonization," said the Japanese company this morning. It did not mention a sale price, but said the sale will cause it to record a one-time loss of $493-million.
Meanwhile, first quarter reporting season kept the Canadians busy. Within the Montney, on the Alberta side, Jeff Tonken's Birchcliff Energy Ltd. (BIR) lost 15 cents to $3.22 on 2.94 million shares. It cheered its "strong financial and operational results" and even raised its full-year 2021 production guidance. For the first quarter, production averaged 75,100 barrels of oil equivalent a day and cash flow was 33 cents a share, in line with analysts' predictions. Birchcliff boasted that some of its new wells have been "significantly better" than modelled. As a result, it is boosting its full-year production guidance to a range of 79,000 to 81,000 barrels a day (up from a range of 78,000 to 80,000), while leaving the budget unchanged at $210-million to $230-million.
Investors frowned. Production boosts are all well and good, but alas for Birchcliff, today's market is in the mood for financial discipline, and the company lived beyond its means during the first quarter. As a result, its debt went up to $777-million as of March 31 from $762-million as of Dec. 31. The company sought to reassure investors that it will have ample free cash flow over the rest of the year and expects to chop its debt to as little as $600-million by year-end. That figure is still nearly three-quarters of Birchcliff's current market cap of $856-million.
Over in Alberta, Darren Gee's gassy Peyto Exploration & Development Corp. (PEY) lost 30 cents to $5.32 on 1.05 million shares, despite touting "strong Q1 2021 profits." This marks Peyto's second quarter of profits in a row. Previously, Peyto was profitable for 60 consecutive quarters, but that all changed with the onset of COVID-19. The company experienced the first impairment charge in its history -- and its first quarterly loss in years -- in the first quarter of 2020. The next two quarters were unprofitable too. Finally, in the fourth quarter, Peyto excitedly hailed its "return to profitability." It seemed chuffed with its first quarter results as well, though it has years to go before it can catch up to its old place on the curve.
In general, the first quarter results were as expected. The above-noted Mr. Gee releases monthly president's reports on Peyto's production and cash flow, so investors already knew the quarter's output of 88,100 barrels of oil equivalent a day in the first quarter. Cash flow of 70 cents a share was in line with analysts' predictions. Like Birchcliff, Peyto wrestles with a heavy debt load, which has weighed on the stock (once as high as $42 in 2014). Peyto lived within its means during the quarter and managed to trim its net debt to $1.16-billion as of March 31 from $1.17-billion as of Dec. 31. That is still above its market cap of $878-million.
Elsewhere in Alberta, oil sands producer Cenovus Energy Inc. (CVE) lost 22 cents to $9.38 on 12.5 million shares. It held its annual shareholder meeting yesterday, the first such meeting since Cenovus closed its takeover of Husky Energy in January. "I'm more optimistic about the future of the company than I have ever been," declared president and chief executive officer Alex Pourbaix. He reminded shareholders that, thanks to the Husky merger, Cenovus was able to reinstate its dividend. (More accurately, Cenovus adopted Husky's dividend and gave it a tiny nudge. Husky had been paying a 1.25-cent quarterly dividend. Cenovus, which had been paying a 6.25-cent quarterly dividend until suspending its last year, bought Husky and bumped the dividend up -- not the old level of 6.25 cents, but instead a careful 1.75 cents. The current yield is 0.7 per cent.)
Mr. Pourbaix spent much of yesterday's meeting reiterating his view of Cenovus as a "resilient, integrated Canadian energy leader." He kept his director's seat handily, winning over 99 per cent of the vote. Indeed, most of the director nominees received 97 to 99 per cent of the vote -- with three notable exceptions, who saw nearly one-fifth of shareholders vote against them. The reason is not entirely clear.
Two of these relatively unpopular directors were Canning Fok and Frank Sixt, who are two of the four directors who came over from Husky. Both Mr. Fok and Mr. Sixt are Hong Kong residents who hold high-level positions at CK Hutchison Holdings, a flagship conglomerate of Hong Kong billionaire Li Ka-shing, who was Husky's controlling shareholder and now holds 15 per cent of Cenovus. (The other two Husky newcomers are Canadian residents linked to Mr. Li's Canadian charitable foundation.)
The third relatively unpopular director is Hal Kvisle, who has been a director of Cenovus since 2018. He kept his seat last year by winning about 99 per cent of the vote. This year, he got barely 80 per cent. Mr. Kvisle is a busy man; in addition to being a director of Cenovus, he serves as chairman of the Business Council of Alberta and of two public companies (Montney producer ARC Resources Ltd. (ARX: $8.89) and equipment dealer Finning International). He is likely still best known as the former CEO of TC Energy Corp. (TRP: $60.35), which he led from 2001 to 2010. During this time, he helped launch the controversial proposal for the Keystone XL pipeline, which of course has been much in the news this year, following its death in January at the hands of U.S. President Joe Biden.