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Oil

Crude Extends Gains on Hopes OPEC+ Reaches Output Deal

Both WTI and Brent are adding to yesterday’s massive gains, as OPEC+ sources said the group was debating a global supply cut of 10M barrels per day, but any further cuts must include the U.S.

SECTOR COMMENTARY

Energy stocks are set to open mixed to higher, backed by further strength in the crude complex while broader index futures are off about half a percent after the Labor Department announced nonfarm payrolls dropped 701k in March, the first jobs decline since 2010. Additionally, unemployment jumped to 4.4%, compared to consensus of 3.9%. Traders will be keeping a close eye on headlines out of Washington as President Trump is scheduled to meet with top energy CEO’s today on the state of the current oil market.

Both WTI and Brent are adding to yesterday’s massive gains, as OPEC+ sources said the group was debating a global supply cut of 10M barrels per day, but any further cuts must include the U.S. Futures on both sides of the Atlantic initially spiked yesterday after President Trump told CNBC that he expected Saudi and Russia to cut oil production soon. OPEC+ will meet (video conference) on April 6th according to reports and that Texas RRC Commissioner Ryan Sitton has been invited to join. Meanwhile, Citi forecasts a 2Q20 oil demand decline of (18M) to (20M) bpd which could result in the collapse of (2M) bpd of refinery runs and 1B of stockpile builds.

Natural gas futures are off slightly, at session lows despite current near-term forecasts appearing to favor demand. Preliminary estimates have storage week-ending today building +20 to +25 Bcf.

CANADIAN INTEGRATEDS

(Late Thursday) Reuters - Cenovus Energy would support further mandated Alberta production cuts to prevent crude storage hitting full capacity, a company spokeswoman said.       

U.S. E&PS

(Late Thursday) Press Release - Extraction Oil & Gas announced reductions to its capital and G&A budgets. In response to recent commodity price weakness, The Company has reduced its 2020 upstream capital budget by 42% to $250-300 million. “As we continue to focus on strengthening our balance sheet and maximizing liquidity, we are reducing our activity in light of current challenging economic conditions,” said CEO Matt Owens. “We will continue to monitor oil prices and the economy in general, and we may further adjust our level of activity if market conditions change materially.” The Company also reduced its 2020 cash G&A budget 18% to $40-$50 million, including a reduction in the cash compensation of the Company’s senior management team. “All officers of Extraction, including the executive team, have elected to take a 10% reduction in 2020 salaries and bonus compensation effective immediately,” said Owens. Extraction expects to update its detailed financial and operational guidance in the coming months. In the interim, the Company’s previously issued guidance should no longer be relied upon.

Stifel Nicolaus downgraded PDC Energy to ‘Hold’ from ‘Buy’.

Mizuho downgraded ConocoPhillips and Occidental Petroleum to ‘Neutral’ from ‘Buy’.

Mizuho upgraded Cimarx Energy to ‘Buy’ from ‘Neutral. The firm also downgraded Marathon Oil to ‘Natural’ from ‘Buy’ and Continental ResourcesMurphy Oil, and Ovintiv to ‘Underperform’ from ‘Neutral’.

CANADIAN E&PS

(Late Thursday) Press Release - Athabasca Oil is taking further immediate actions in response to the significant decline in global oil prices to bolster balance sheet strength and corporate resiliency. Due to the significant decline in oil prices combined with the economic uncertainty associated to the ongoing COVID crisis, Athabasca has decided to suspend the Hangingstone SAGD operation. This suspension was initiated on April 2, 2020 and will involve shutting in the well pairs, halting steam injection to the reservoir, and taking measures to preserve the processing facility and pipelines in a safe manner so that it could be re-started at a future date when the economy has recovered. Annual corporate guidance is 30,000 – 31,500 boe/d and reflects a ~2,500 boe/d reduction related to the shut-in. The Company is prepared to self-curtail additional production volumes as required by the price environment. Production optimization initiatives will be aimed at maximizing corporate funds flow while maintaining the integrity of booked reserves. Athabasca has now cancelled a total of $40 million of capital expenditures, representing a 30% reduction from the original 2020 budget. The revised $85 million budget includes the recent completion of its winter Light Oil program (10 Montney wells and 16 Duvernay wells). The Company has no additional Light Oil activity planned for the balance of the year. The Company already had a minimal capital program in place and has no additional capital requirements to sustain its remaining liquids weighted production base.

(Late Thursday) Press Release - Parex Resources announced measures to protect the Company’s financial strength in response to the significant decrease in global energy prices and the COVID-19 pandemic. The Company has suspended all remaining 2020 drilling programs.  Total full-year 2020 capital is estimated at $100-$110 million with an estimated $75-$80 million invested in Q1 2020, leaving a capital program of $25-$30 million for the balance of 2020 as long as oil prices remain at current levels.  Depending on market conditions and community safety, Parex has an option to invest $15-$20 million for the drilling of an appraisal well and up-front infrastructure on its VIM-1 block La Belleza high-impact discovery. Parex’ Q1 2020 average production is estimated at 54,290 boe/d compared to the Company's Q4 2019 average quarterly production of 54,221 boe/d (consisting of 53,086 bbls/d of crude oil and 6,810 mcf/d of conventional natural gas) (98% crude oil).  As Parex' conventional reservoirs provide the optionality to vary production without material productivity degradation, we intend to reduce production in Q2 2020 in response to the recent significant decrease in global energy demand and pricing.  Additionally, Parex has begun to voluntarily reduce oil production on legacy fields as part of its COVID-19 plan to minimize the social interactions in its operating communities and maximize shareholder value.  The Company’s April production is expected to be in the range of 45,000-50,000 boe/d. Due to the significant decline in oil prices, resulting reductions in the Company’s capital expenditures and the ongoing uncertainty in market conditions resulting from the COVID-19 pandemic, Parex announced the withdrawal of its fiscal year 2020 Brent pricing, production, funds flow, netback and capital expenditure guidance, as set out in our March 10, 2020 press release. As of April 1, 2020, Parex has purchased for cancellation 4,000,000 common shares of the Company at an average cost of CAD$18.70 per share, pursuant to the normal course issuer bid (“NCIB”) that commenced on December 23, 2019.  Pursuant to the NCIB, Parex may purchase for cancellation up to 13,986,994 common shares prior to December 22, 2020.  At current market conditions, Parex is not purchasing shares under its NCIB and is preserving cash to retain its best-in-class debt free balance sheet.

OILFIELD SERVICES

Press Release - Baker Hughes announced that the Baker Hughes international rig count for March 2020 was 1,059, down 26 from the 1,085 counted in February 2020, and up 20 from the 1,039 counted in March 2019. The international offshore rig count for March 2020 was 244, down 1 from the 245 counted in February 2020, and down 3 from the 247 counted in March 2019. The average U.S. rig count for March 2020 was 772, down 19 from the 791 counted in February 2020, and down 251 from the 1,023 counted in March 2019. The average Canadian rig count for March 2020 was 133, down 116 from the 249 counted in February 2020, and down 18 from the 151 counted in March 2019. The worldwide rig count for March 2020 was 1,964, down 161 from the 2,125 counted in February 2020, and down 249 from the 2,213 counted in March 2019.

(Late Thursday) Press Release - ION Geophysical announced enhanced measures to mitigate the impact of COVID-19 and oil price volatility while maintaining business continuity. The Company plans to scale down costs by $18 million during the remaining nine months of 2020 to preserve cash and manage liquidity, building on the >$20 million permanent cuts taken in January of this year. ION's asset light strategy avoids significant fixed costs and provides flexibility to easily scale the business to meet demand. ION's priority remains the health and wellbeing of all its employees and the communities in which it operates and, earlier this week, it described the steps it had taken to rapidly shift 95% of its workforce to remote working and enhance protocols in accordance with CDC recommendations for the remaining 5% of exempted essential employees onsite. In addition to the aforementioned cost reductions, the company is also scaling back capital expenditure estimates for the year to $20-$35 million, down from its initial estimate of $35-$50 million to reflect both reduced seismic demand and travel/border restrictions impacting new data acquisition offshore. 

Press Release - PGS is doing its utmost to ensure the health and safety of employees, their families and other personnel, and to maintain uninterrupted operations. The Company has implemented preventive measures and contingency plans, and is managing all its activities in close dialogue with clients, authorities and other relevant stakeholders. So far, PGS have been able to continue vessel operations without interruptions. Short-term, severe logistical challenges caused by travel restrictions and quarantine provisions impacting crew-changes have been resolved by cancelling all crew changes since March 18, with all crews continuing on a second full rotation. The extended crew periods will start coming to an end in the latter part of April, and the Company believes it will be able to find viable methods for crew rotations. The low oil price will have a material negative impact on demand for seismic services and activity levels. The Company is implementing substantial cost and capital expenditure measures to meet an expected significant revenue reduction. Details relating to such measures will be provided in connection with the Q1 2020 earnings release on April 23, 2020. Meanwhile the following business update is provided: To date PGS has not received contract cancellations. However, most processes to conclude contract negotiations have since early March been substantially delayed or resulted in postponement of projects; The Company has decided to cold-stack two of the eight currently operated 3D vessels early in Q2, after completion of current projects. Further capacity adjustments will be evaluated on an ongoing basis.

Press Release - PATTERSON-UTI ENERGY reported that for the month of March 2020, the Company had an average of 124 drilling rigs operating. For the three months ended March 31, 2020, the Company had an average of 123 drilling rigs operating. Average drilling rigs operating reported in the Company's monthly announcements represent the average number of the Company's drilling rigs that were operating under a drilling contract. The Company cautioned that numerous factors in addition to average drilling rigs operating can impact the Company's operating results and that a particular trend in the number of drilling rigs operating may or may not indicate a trend in or be indicative of the Company's financial performance. The Company intends to continue providing monthly updates on drilling rigs operating shortly after the end of each month. 

(Late Thursday) Press Release - NCS Multistage Holdings announced immediate actions taken in response to current global market conditions which have been impacted by the effect of COVID-19 on economic activity, reduced demand for crude oil, refined products and natural gas and recently-announced reductions in drilling and completion activity by E&P companies. The company expects its operational and financial results for the first quarter and full year 2020 to be negatively impacted by a reduction in demand for its products and services and potential disruptions to field operations in certain geographies. As a result, the Company is withdrawing guidance related to the first quarter and full year 2020 provided in its earnings call on March 3, 2020, and as such, investors should no longer rely on that guidance. The Company is not providing an updated outlook at this time. In response to these market circumstances, the Company has initiated further cost reductions which include: 1) a reduction in force of over 80 employees, or approximately 20% of our U.S. and Canadian workforce, 2) furloughs for certain operationally-focused employees and engineers, and 3) salary reductions for substantially all remaining U.S. and Canadian employees not participating in furloughs, including reductions in base salaries for our executive officers averaging approximately 20%.

MARKET COMMENTARY

U.S. stock index futures fell, with investors awaiting data on non-farm payrolls and business activity to assess the extent of the economic hit from the coronavirus. European shares were lower, as more companies flagged a blow to business from the pandemic. Japan’s Nikkei ended flat, helped by healthcare and energy firms. Gold prices were lower, as the dollar strengthened. Oil rose on hopes of a huge global supply cut deal to support prices.

NASDAQ ENERGY TEAM THOUGHT LEADERSHIP


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