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Msg  720 of 766  at  5/12/2022 8:28:39 PM  by


Energy Summary - 12th


Energy Summary for May 12, 2022

2022-05-12 19:52 ET - Market Summary

by Stockwatch Business Reporter

West Texas Intermediate crude for June delivery added 42 cents to $105.71 on the New York Merc, while Brent for July lost six cents to $107.45 (all figures in this para U.S.). Western Canadian Select traded at a discount of $13.47 to WTI, unchanged. Natural gas for June added 10 cents to $7.74. The TSX energy index lost 3.00 points to close at 235.86.

Oil prices wobbled as OPEC reduced its global demand forecast for the second month in a row. In the latest version of its closely watched monthly report, OPEC predicted that global oil demand will rise by just 3.36 million barrels a day in 2022, a decrease of 310,000 barrels a day from its prior forecast (which itself was a drop of 480,000 barrels a day from the forecast before that). OPEC cited "ongoing geopolitical developments in Europe, as well as COVID-19 pandemic restrictions."

Within the sector, international producer Vermilion Energy Ltd. (VET) lost 69 cents to $23.35 on 4.33 million shares, as investors yawned off its first quarter financials. The numbers came in largely as expected, considering that Vermilion already gave investors a preliminary look at them last month (including production of 86,200 barrels a day and cash flow of about $2.40 a share). Net earnings of $1.75 a share, however, came in below analysts' predictions of $1.87 a share, buffeted by hedging losses.

Management seemed unfazed by the hedges. Some of them are related to Vermilion's planned acquisition of a larger interest in the Corrib gas field in Ireland, where the company will soon triple its ownership to 56.5 per cent from 20 per cent. The seller of the extra 36.5-per-cent interest is Norway's Equinor. It agreed to the $556-million deal last November, before European gas prices rocketed higher amid what OPEC delicately called the "geopolitical developments." At the time, Vermilion estimated that the deal would add $361-million in free cash flow in 2022. That number is undoubtedly much higher now.

(Incidentally, the Corrib deal is not the only example of Equinor's poor timing in 2021. In January of that year, Equinor sold its entire 100-million-share position in Athabasca Oil Corp. (ATH: $2.30) for $18-million. The same position today would be worth $230-million.)

Here in Canada, two companies garnered happier reactions to their first quarter financials, thanks largely to their inclusion of a dividend boost. First up was Jeff Tonken's Alberta Montney-focused Birchcliff Energy Ltd. (BIR), which added 27 cents to $9.64 on 7.72 million shares, after cheering "excellent" first quarter financials and doubling its dividend. The dividend will now be two cents every quarter instead of one. On its own, such a move would not be enough to please investors; the revised yield is a nominal 0.8 per cent. The real cheer arose after Birchcliff's chief executive officer, Mr. Tonken, set an explicit goal of boosting the quarterly dividend all the way to 20 cents in 2023.

Mr. Tonken made sure to give himself some wiggle room, noting that Birchcliff is merely "targeting" such an increase, which will depend on factors such as commodity prices and debt. Less than two years ago, Birchcliff owed over $800-million. It has since halved that number to $408-million. Mr. Tonken likes to boast (and did so again in the latest financials) that Birchcliff does not hedge any of its production and can thus "take full advantage of the robust commodity price environment." He expects to reach zero total debt by the end of this year, hence the hoped-for dividend boost next year.

Meanwhile, Craig Bryksa's Saskatchewan-focused Crescent Point Energy Corp. (CPG) added 11 cents to $8.77 on 12.8 million shares, after it too announced its first quarter financials and a dividend hike. This is its third dividend hike in about eight months. Its quarterly dividend was previously a nominal 0.25 cent (one penny annualized). Last September, Crescent Point boosted the quarterly payout to three cents, which it then boosted to 4.5 cents in December. Now the figure is going up again, to 6.5 cents, for a new yield of 3.0 per cent.

The other headline-grabbing number in the quarterly financials was $1.18-billion (or $2.03 a share), which Crescent Point recorded as its net profit. It did not take eagle eyes to spot that this figure was higher than its actual oil and gas sales of $1.09-billion. Crescent Pointed benefited from a $1.4-billion impairment reversal, which was more than enough to offset close to $450-million in hedging losses. On an adjusted basis, net earnings came to 41 cents a share, surpassing analysts' predictions of 35 cents a share. The financials were otherwise generally as expected.

The two Canadian companies were not the only ones trumpeting a higher dividend. Colombian oil producer Parex Resources Inc. (PXT) added 60 cents to $24.15 on 998,900 shares, as it too joined the parade of quarterly financials and dividend hikes. Its quarterly payout will now be 25 cents, up from 14 cents, for a yield of 4.1 per cent. The dividend is less than a year old and started out at just 12.5 cents last September. It has now more than doubled in just eight months.

"Parex remains steadily focused on execution and taking advantage of the opportunity that lies ahead," declared president and CEO Imad Mohsen. Besides the dividend hike, one opportunity that he seized today was to increase Parex's budget all the way to about $550-million (U.S.) from $425-million (U.S.). He emphasized that only some of the boost reflects inflation. The rest is mainly for drilling and other "opportunistic production adds," enabling Parex to increase its full-year production target to about 55,000 barrels a day from about 53,000. Mathematically minded investors will have noticed that this is just a 4-per-cent increase, relative to the 30-per-cent increase in the budget, but Mr. Mohsen promised that the higher budget would help set "a strong foundation for 2023."

Ending with a break from quarterly financials, the Lundin family's International Petroleum Corp. (IPCO) stayed unchanged at $11.78 on 83,800 shares, after arranging to buy back $128-million of its shares. This arrangement is separate from the standard buyback that International Petroleum launched in December. Although the company continues to repurchase shares under this program, it told investors earlier this month that its "robust financial outlook" made it want to buy back shares even faster. Perhaps it was inspired by Imperial Oil Ltd. (IMO: $61.88), which announced its own special buyback in April, though for the much higher amount of $2.5-billion.

Like Imperial, International Petroleum will carry out a modified Dutch auction to set the price. Unlike Imperial, International Petroleum's major shareholder does not plan to participate. Imperial's parent company, Exxon, has said it will make a proportionate tender to keep its shareholdings flat at 69.6 per cent. The largest shareholder of International Petroleum is Nemesia SARL, which is a private company controlled by a trust of the late Adolf Lundin, and which says it will not participate in the special buyback. Nemesia holds 27 per cent of International Petroleum's 150 million shares. This control block could rise to 29 per cent depending on the results of the auction.

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