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Msg  724 of 759  at  5/18/2022 8:55:51 PM  by

carswell


Energy Summary - 18th

Energy Summary for May 18, 2022

2022-05-18 19:55 ET - Market Summary

by Stockwatch Business Reporter

West Texas Intermediate crude for June delivery lost $2.81 to $109.59 on the New York Merc, while Brent for July lost $2.82 to $109.11 (all figures in this para U.S.). Western Canadian Select traded at a discount of $14.00 to WTI, unchanged. Natural gas for June added seven cents to $8.37. The TSX energy index lost 4.55 points to close at 250.59.

Here in Canada, oil sands giant Suncor Energy Inc. (SU) lost 52 cents to $48.60 on 14.1 million shares. It may soon find itself in the crosshairs of another activist hedge fund. Third Point LLC, a New York hedge fund led by billionaire investor Daniel Loeb, has acquired 3.5 million of Suncor's 1.4 billion shares, according to a Reuters article about Third Point's latest EDGAR filing. The filing comes mere days after Mr. Loeb published a letter to Third Point's investors on May 9 and vaguely referenced "interesting opportunities in energy and other cyclical stocks."

It also comes mere weeks after a different activist hedge fund, Paul Singer's Elliott Investment Management, disclosed a 3.4-per-cent interest in Suncor on April 28 and immediately began agitating for change. Among other things, Elliott wants Suncor to shake up its board, conduct an "objective review" of its management (seen as a shot against chief executive officer Mark Little) and sell its chain of Petro-Canada gas stations. Suncor responded blandly that it would "carefully assess [Elliott's] recommendations ... [and] better understand its perspective."

Mr. Loeb's Third Point has yet to air a perspective on Suncor. Like Elliott, Third Point has a reputation as a particularly nettlesome gadfly, eager to do battle with the likes of Intel, Sony, Prudential, Sotheby's and more. A smattering of Mr. Loeb's more scorching commentary over the decades includes wishing for one CEO to get "a well worn boot planted in the backside" and telling another CEO, whose name was on a university scholarship, that he would "pity the poor student who suffers the indignity of attaching your name to his academic record."

He has toned things down in recent years (also like Elliott and other activist investors, which collectively seemed to decide one day to emphasize harmony over hurling insults). In 2021, when Third Point took an interest in European oil major Shell, Mr. Loeb restricted himself to calling Shell's business plans "incoherent." (Shell has yet to take his advice about splitting itself up into multiple stand-alone entities.)

In the May 9 letter, Mr. Loeb indicated that Shell was just the first of the "interesting opportunities" that he sees in energy. The new EDGAR filing bears this out. Besides Suncor, the filing shows that Third Point has started positions in oil sands player Cenovus Energy Inc. (CVE: $26.71) (for two million shares) and U.S. shale player Ovintiv Inc. (OVV: $58.43) (for 2.25 million shares). All three of these companies saw their share prices head down today. Mr. Loeb, for now, is keeping his thoughts on them to himself.

Elsewhere in Alberta, Pat Carlson's Montney-focused Kiwetinohk Energy Corp. (KEC) -- mercifully abbreviated to KEC -- added 32 cents to $12.58 on 113,600 shares. It spent the day toasting the "momentum of [its] upstream program." In translation, KEC is pleased with its drilling so far and wants to do more of it. It is hiking this year's budget to about $295-million and boosting its production guidance to a range of 15,000 to 17,000 barrels a day. For context, the original budget in January was about $225-million and the production target was 13,000 to 15,000 barrels a day.

This is not Mr. Carlson's first time leading a company eager to boost production. Before founding KEC in 2018, he founded and led a different Montney producer called Seven Generations Energy, taking its production from less than 5,000 barrels a day in 2012 to 164,000 barrels a day by the time he retired in 2017. (Seven Generations was subsequently acquired in 2021 by ARC Resources Ltd. (ARX: $17.63). Its production by then was around 190,000 barrels a day.) Prior to Seven Generations, he co-founded and sold Passage Energy, Krang Energy and North American Oil Sands from 1998 to 2007.

Given his tendency to favour the start-up stage, investors do not generally expect dividends or share buybacks from a Carlson promotion. Today's announcement, however, showed that even he can be tempted into dangling these increasingly trendy carrots. He hinted that he will consider "a future return-of-capital framework for shareholders" once KEC starts generating "significant" free cash flow. He hastened to add that this probably will not happen until next year at the earliest.

He was not the only one apparently eyeing this bandwagon. Don Simmons and Charlie O'Sullivan's Hemisphere Energy Corp. (HME) lost four cents to $1.49 on 348,300 shares, after releasing its first quarter financials and vowing to unveil a "return-of-capital plan" for shareholders "within the next few weeks." It said it just needs to make sure that it renews and extends its credit facility at its next review on May 31. The $35-million facility was $12.5-million drawn as of March 31.

To put those numbers in context, Hemisphere turned a net profit of $4.6-million on revenue of $22.8-million in the first quarter, and enjoyed free cash flow of $9.2-million (U.S.). It patted itself on the back for its "record production levels" of 2,600 barrels a day from its core oil assets in Alberta. As of April, added Hemisphere, production was over 2,900 barrels a day -- otherwise known as just shy of the 3,000-barrel-a-day target that CEO Mr. Simmons has been dreaming about for the last five years.

Naturally, years have passed since Mr. Simmons reminded investors of that long-ago goal. Patience is a virtue at Hemisphere. None know that better than its 79-year-old chairman, Mr. O'Sullivan, who founded the company back in 1977. He has taken it into various industries over the years -- including an interesting stint as a junior gold explorer with Vancouver's Frank Callaghan as its CEO -- but has been happily ensconced in Alberta oil since 2007. To hear Mr. Simmons talk, things are better than ever, with Hemisphere now "in a favourable position ... [to] deliver significantly enhanced return of capital to shareholders." Despite his best efforts, the stock headed down.



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