by Stockwatch Business Reporter
West Texas Intermediate crude for June delivery lost $3.33 to $99.76 on the New York Merc, while Brent for July lost $3.48 to $102.46 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.81 to WTI, up from a discount of $13.07. Natural gas for June added 36 cents to $7.39. The TSX energy index lost a fraction to close at 235.25.
The oil patch will see a nearly 50-per-cent boost in drilling activity in 2022 relative to 2021, according to the Canadian Association of Energy Contractors (CAOEC -- it uses an old abbreviation containing an O, a callback to when its name included Oilwell). The CAOEC revised its annual drilling forecast this morning and predicted that the industry will drill 6,902 wells across Canada in 2022. That is a sharp increase from its original 2022 forecast of 6,457 wells, announced in November. It would represent a 48-per-cent jump over the 4,648 wells drilled in 2021 and a 109-per-cent increase from 3,293 wells in 2020. While it would fall well short of the 13,089 wells drilled in 2014, this went unmentioned in the press release, with CAOEC chief executive officer Mark Scholz sticking to a cheerful mood and calling for Canada to be "an energy leader for decades to come."
Oil sands giant Suncor Energy Inc. (SU) lost 57 cents to $44.71 on 24.3 million shares, as it released its first quarter financials amid activist scrutiny. It also hiked its dividend to what it proudly proclaimed to be "the highest quarterly dividend in the company's history." This means, at long last, the quarterly dividend is back above its pre-COVID level of 46.5 cents. It will now be a swaggering 47 cents, for a yield of 4.2 per cent.
Investors' reaction was muted. Suncor's dividend has long been a sore point, with the company having stood out unfavourably when it slashed its old 46.5-cent payout to just 21 cents in early 2020. A doubling to 42 cents in late 2021 still left investors cold. Major competitors such as Canadian Natural Resources Ltd. (CNQ: $76.08) and Imperial Oil Ltd. (IMO: $62.95) kept their dividends intact during the downturn, and the subsequent rally in oil prices allowed them to boost payouts significantly; Canadian Natural now has a 75-cent quarterly dividend (up from 42.5 cents in early 2020), while Imperial's sits at 34 cents (up from 22 cents). That Suncor is now just catching up to pre-COVID levels is seen as a feeble boast.
The first quarter financials brought some more rousing numbers. Suncor turned an operating profit of $2.7-billion, or $1.92 a share, well above analysts' predictions of $1.80 a share. Cash flow of $2.86 a share also exceeded analysts' predictions of $2.74 a share, while production of 765,000 barrels a day was mildly above predictions of 751,000 barrels a day. Suncor added that it "returned over $1.4-billion of value to its shareholders" in the first quarter through dividends ($601-million) and share buybacks ($827-million). For now, Suncor is splitting its free cash flow equally between shareholder returns and debt repayment. It vowed today to increase the percentage going toward shareholder returns once its net debt goes below $15-billion. (It was $15.4-billion as of March 31, down from $16.1-billion as of Dec. 31.)
Many of management's comments during the press release and subsequent conference call seemed directed toward one particular shareholder, the activist hedge fund Elliott Investment Management. Elliott holds a 3.4-per-cent interest in Suncor. It took aim at the company in late April, criticizing its safety record (with four workplace deaths since late 2020) and pushing for a board shake-up. CEO Mark Little emphasized today that Suncor is "heavily focused" on "safety and operational excellence." While he rebuffed some of Elliott's suggestions -- such as selling Suncor's Petro-Canada gas station chain, which he wants to keep because it is "key to maximizing the value across the integrated business chain" -- he stated diplomatically that Suncor "look[s] forward to engaging in constructive discussions with Elliott."
South of the border, U.S. shale producer Ovintiv Inc. (OVV) lost $4.85 to $57.24 on 3.07 million shares, after it too released its first quarter financials and hiked its dividend. This is its third dividend hike in a year. It will now offer a quarterly payout of 25 U.S. cents (up from 20 U.S. cents previously, 14 U.S. cents before that and 9.375 U.S. cents before that), for a yield of 2.3 per cent.
Unfortunately for Ovintiv, investors focused on different numbers, particularly its quarterly net loss of $241-million (U.S.). Hedging losses dragged the company deep into the red. Even adjusting for those and other items, Ovintiv's operating profit came in at $559-million (U.S.) or $2.15 (U.S.) a share, below analysts' predictions of about $2.50 (U.S.) a share. Cash flow of $4.20 (U.S.) was also below analysts' predictions of $4.45 (U.S.) a share, and production of 500,000 barrels a day was just shy of predictions of 513,000 barrels a day. CEO Brendan McCracken blamed "first quarter operational delays and adverse weather impacts." To account for these, and for inflation, Ovintiv hiked its full-year budget while reducing its full-year production guidance -- the exact opposite of what investors like to see.
Mr. McCracken did his best to regain their favour during a conference call this morning. He hyped Ovintiv's "tremendous progress" on debt reduction, pointing to "a line of sight to achieving $3-billion (U.S.) in net debt in the third quarter." (Net debt was $4.5-billion (U.S.) as of March 31.) With that schedule in mind, Mr. McCracken committed to a "doubling of our shareholder return starting Oct. 1." (This means that Ovnitiv will earmark 50 per cent of free cash flow for dividends and buybacks, up from 25 per cent.) As for the revised 2022 outlook, Mr. McCracken said it is still "robust." Investors still frowned.
Back in Canada (for now), Tony Marino's Tenaz Energy Corp. (TNZ) stayed unchanged at $2.30 on 23,200 shares, neither gaining nor losing ground after announcing its imminent graduation to the TSX. The company will move up from the TSX-V on May 12. President and CEO Mr. Marino cheered this as a "natural step in executing the corporate strategy" that he unveiled last fall. That was when the company began to take its current form. Prior to that, it was a quiet Alberta junior called Altura Energy. Mr. Marino and several former colleagues from Vermilion Energy Inc. (VET: $24.08) -- where he was president and CEO until 2020 -- recapitalized Altura, changed its board, management and name, and set off on a hunt for international assets.
They have come up empty so far. This is not because they are geographically picky; Tenaz's website indicates that the company is "targeting assets in Europe, MENA [Middle East and North Africa] and South America ... including optionality for Canada." Mr. Marino told investors in March that the rapid rise in oil and gas prices has led to an unusual bargaining environment, and that Tenaz is having to place "an even greater emphasis on creative structuring to meet the needs of potential sellers." He had nothing more detailed to offer today, merely saying that Tenaz continues to be "actively pursuing international investments."