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Oil

Crude Pares Losses After Fed Announces Extensive Measures to Support the Economy

Both WTI and Brent pared earlier losses and rose in line with broader index futures following the announcement that the Federal Reserve would launch an asset purchase agreement to support the economy.

SECTOR COMMENTARY

Energy stocks are set for a mixed to higher start, back by mild strength in the crude complex and broader index futures which reversed overnight losses and after hitting ‘limit down’ as the Federal Reserve said it would launch an asset purchase program with no limits to support the economy. Investors will be keeping a close eye on any new developments out of Washington for signs of a stimulus package being signed after Congress failed to pass the bill over the weekend.

Both WTI and Brent pared earlier losses and rose in line with broader index futures following the announcement that the Federal Reserve would launch an asset purchase agreement to support the economy. WTI is outperforming Brent this morning while RBOB underperforms both as additional lockdowns and travel restrictions over the weekend added to already significant demand losses domestically and globally. "Set against this dismal outlook, the downward spiral in oil prices is poised to continue and may well reach the mid-teens. Put simply, the search for a price floor is by no means over," PVM analysts said in a note.

Natural gas futures are off ~1.5% and to new lows not seen since 1995 after a 14.4% drop last week, pressured by above-seasonal weather forecasts for the next two weeks which should hurt demand.

U.S. INTEGRATEDS

Press Release - Aker Solutions has entered a master agreement to provide umbilicals for Chevron-operated oil and gas fields in the US Gulf of Mexico. The company also secured the first work order under the new master agreement, to provide 24 kilometers (15 miles) of umbilicals for Chevron's Anchor project. The scope of the Chevron agreement includes the delivery of engineering, design and manufacturing of dynamic and static control umbilicals, dynamic and static power umbilicals, and service and installation support. This agreement lays the foundation for a long-term collaborative relationship incentivizing both Chevron and Aker Solutions to jointly improve long-term performance both technically and commercially through multi-project synergies, execution excellence and repeatability, and life-of-field thinking.

(Late Friday) Reuters - Chevron cut production at its 269,000 barrel-per-day El Segundo, California, refinery to match decreased demand due to efforts h to halt the spread of the coronavirus, said sources familiar with plant operations on Friday. The cut in production comes one day after California Governor Gavin Newsom told California's 40 million residents to stay at home to prevent the spread of the disease.

(Sunday) Reuters - Exxon Mobil is notifying contractors and vendors of planned near-term cuts in capital and operating expenses because of the coronavirus pandemic, a spokesman for the company said. Exxon will announce its reduction plans once they are final, said spokesman Jeremy Eikenberry.

(Sunday) Reuters - Exxon Mobil cut production on March 21 at its 502,500 barrel-per-day Baton Rouge, Louisiana, refinery as poor demand has pushed up inventories and filled storage tanks, said sources familiar with plant operations. The number of contract workers at the Baton Rouge refinery was cut by 1,800 people on Friday as Exxon begun informing service companies of planned spending cuts. The refinery’s production was cut to about 440,000 bpd on Saturday, the sources said. Exxon spokesman Jeremy Eikenberry said the spending cuts will be announced when final decisions are made.

(Late Friday) Reuters - Mexico's oil regulator approved on March 20 a request by Total to give up its exploration and production rights to a deep water block in the southern Gulf of Mexico that the firm had won at auction in 2016. The regulator said Total decided to return the block due to the results it had obtained to date, and must pay a fine of $21.2 million for failing to comply with its contract's minimum exploration work requirements. Total, the project's operator, had won rights to the area in a consortium that also included ExxonMobil.

(Late Friday) Reuters - Exxon Mobil is likely to delay the greenlighting of its $30 billion liquefied natural gas (LNG) project in Mozambique as the coronavirus disrupts early works and a depressed gas market makes investors wary, six sources told Reuters. Top U.S. oil and gas company Exxon said on March 17 it was evaluating "significant" cuts to capital spending and operating expenses. Energy firms worldwide have slashed spending this month as oil prices plummeted to 18-year lows after global travel curbs and reduced economic activity destroyed demand. 

INTERNATIONAL INTEGRATEDS

(Late Friday) Reuters - A 160,000 barrel-per-day (bpd) refinery owned by BP and Husky Energy in Toledo, Ohio has shut a 3,000 bpd alkylation unit, according to a source familiar with plant operations. It is unclear when the unit will resume operating. The plant has also sent home more than 1,000 outside contractors who were performing work on the plant, according to the source. The contractors are set to return in approximately 2-3 weeks. Maintenance on critical projects such as tanker repairs is still ongoing with approximately 200 workers still at the plant.

Press Release - As the COVID-19 virus spreads across the world, Shell is putting the safety and health of its people and customers first, along with the safe operations of all its businesses. At the same time, the Company is taking decisive action to reinforce the financial strength and resilience of its business so that it is well-positioned for the eventual economic recovery. In order to deliver sustainable cash flow generation, Shell is actively managing all its operational and financial levers – from focusing on maintaining safe and reliable operations each day to reducing capital spend and operating expenses. The Company announced that it has embarked on a series of operational and financial initiatives that are expected to result in: reduction of underlying operating costs by $3-4 billion per annum over the next 12 months compared to 2019 levels; reduction of cash capital expenditure to $20 billion or below for 2020 from a planned level of around $25 billion; and material reductions in working capital. Together, these initiatives are expected to contribute $8 - 9 billion of free cash flow on a pre-tax basis. Shell is still committed to its divestment programme of more than $10 billion of assets in 2019-20 but timing depends on market conditions. The Board of Royal Dutch Shell has decided not to continue with the next tranche of the share buyback programme following the completion of the current share buyback tranche.

Press Release - Patrick Pouyanné, Chairman & CEO of Total, addressed the Group’s employees on March 19 to mobilize them in the face of the challenges ahead. He recalled the resilience that the Group’s teams demonstrated during the 2015-16 oil crisis as well as the two pillars of the Group’s strategy which are the organic pre-dividend breakeven of less than $25/b and the low gearing to face this high volatility. In a context of oil prices on the order of $30 per barrel, he announced an action plan to be implemented immediately based on the following three axes: Organic Capex cuts of more than $3 billion, ie. more than 20%, reducing 2020 net investments to less than $15 billion. These savings are mainly in the form of short-cycle flexible Capex, which can be arbitrated contractually over a very short time period; $800 million of savings in 2020 on operating costs compared to 2019, instead of the $300 million previously announced; Suspension of the buyback program – the company announced a $2 billion buyback for 2020 in a 60 $/b environment; it bought back $550 million in the first two months.

(Late Friday) Reuters - Mexico's oil regulator approved on March 20 a request by Total to give up its exploration and production rights to a deep water block in the southern Gulf of Mexico that the firm had won at auction in 2016. The regulator said Total decided to return the block due to the results it had obtained to date, and must pay a fine of $21.2 million for failing to comply with its contract's minimum exploration work requirements. Total, the project's operator, had won rights to the area in a consortium that also included ExxonMobil.

CANADIAN INTEGRATEDS

(Late Friday) Reuters - A 160,000 barrel-per-day (bpd) refinery owned by BP and Husky Energy in Toledo, Ohio has shut a 3,000 bpd alkylation unit, according to a source familiar with plant operations. It is unclear when the unit will resume operating. The plant has also sent home more than 1,000 outside contractors who were performing work on the plant, according to the source. The contractors are set to return in approximately 2-3 weeks. Maintenance on critical projects such as tanker repairs is still ongoing with approximately 200 workers still at the plant.

(Sunday) Press Release - Husky Energy announced that it will begin a systematic and orderly suspension of major construction activities related to the West White Rose Project. The decision reinforces Husky’s objective to prevent the transmission of the COVID-19 virus among its employees, contractors, and the community. The Company carefully assessed the risks and determined they could not be adequately mitigated for such a large construction workforce.

U.S. E&PS

(Sunday) Reuters - Occidental Petroleum is nearing an agreement with activist investor Carl Icahn to halt a proxy battle in return for board seats, according to a person familiar with the matter. The agreement could put an end to a bitter fight over Occidental's ill-timed purchase of rival Anadarko Petroleum last year, a bet on the continued growth of U.S. shale. After closing that deal, the market turned against Occidental, with oil prices diving more than 60% this year as the global coronavirus outbreak cut oil demand and OPEC and Russia launched an oil-price war. If the settlement talks conclude successfully, Icahn associates Andrew Langham and Nicholas Graziano would get board seats, and Icahn would have a say in the naming of a third independent director, the source said. An announcement could come later this week, alongside an official announcement on the appointment of former Occidental CEO Stephen Chazen as Occidental's new chairman, the source said. The Wall Street Journal was the first to report that Occidental was nearing a truce in the proxy fight with Icahn.

Press Release - Talos Energy announced updated full year 2020 financial guidance, inclusive of $170.0 million of reductions in capital, operating and G&A expenses. The Company will continue to evaluate additional opportunities to further reduce 2020 costs. Those reductions would be incremental to the $170.0 million already identified. Talos continues to expect to generate positive free cash flow in 2020 despite the current commodity environment. We believe that these cost reduction measures, coupled with Talos's low cash cost structure and robust hedge book, allow the Company to generate free cash flow in 2020, after capital expenditures and interest expense, in the mid-$20's per barrel average WTI prices for the balance of the year.

Press Release - Pursuant to the Italian Government’s decree issued on March 22, 2020 regarding COVID-19, Westport Fuel Systems announced it will temporarily suspend production at its facilities in Cherasco and Albinea, Italy. The directive is in effect until April 03, 2020. The temporary suspension of the Company’s production in Brescia, Italy announced on March 16, 2020, will be extended to align with this latest directive.

Press Release - W&T Offshore announced the Company was the apparent high bidder on two blocks in the Gulf of Mexico Lease Sale 254 held by the Bureau of Ocean Energy Management on March 18, 2020. W&T was the apparent high bidder on one deepwater block, Garden Banks block 782, and one shallow water block, Eugene Island Area South Addition block 345. These two blocks cover a total of approximately 10,760 acres and, if awarded, the Company will pay approximately $708,500 for the awarded leases combined, which reflects a 100% working interest in the acreage. The shallow water block has a five-year lease term and 12.5% royalty, while the deepwater block has a seven-year lease term and an 18.75% royalty. Despite submitting the apparent high bid on these leases, the BOEM reserves the right not to award the blocks based on their minimum bidding criteria. W&T expects to receive the final award results over the next 90 days.

CANADIAN E&PS

(Late Friday) Press Release - Canacol Energy announced the appointment of Mr. Ari Merenstein as an independent director to the board of the Corporation.

OILFIELD SERVICES

Press Release - Black Hills announced an update regarding the actions it is taking in response to COVID-19 and the related impacts on the company’s business. The company is executing its business continuity plan and remains focused on prioritizing the health and safety of its customers, employees, business partners and communities. Black Hills continues to monitor its operations and believes the fundamentals of its utility-focused business remain sound. Operations and delivery of energy to its 1.3 million customers have not been materially impacted. To date, Black Hills has not experienced significant reductions in sales volumes across its business and is closely monitoring potential impacts due to the states’ and the nation’s COVID-19 pandemic responses. The company continues to maintain adequate liquidity to operate its businesses and fund its capital program. The company is shifting its short-term funding from its commercial paper program to its $750 million revolving credit facility, which expires July 30, 2023. The credit facility has two one-year renewal options and contains an accordion feature that allows Black Hills to increase total commitments up to $1 billion under certain conditions.   

Press Release - KBR announced that it has been awarded a $26.8 million task order to provide additional cybersecurity engineering support to the U.S. Air Force Life Cycle Management Center (AFLCMC) Engineering Directorate Cyber Systems Engineering Division.

DRILLERS

Press Release - Helmerich & Payne announced it is implementing additional cost controls and re-evaluating its capital allocation to proactively preserve its strong financial position in response to a combination of a weakened commodity price environment, broader uncertainties related to COVID-19 and the resulting high market volatility. Concurrently, due to the rapidly evolving market conditions over the past few weeks, the Company feels that it is appropriate to withdraw its fiscal second quarter guidance, which was previously provided on February 3, 2020. The Company regularly reviews its costs, both operational and SG&A, as well as capital expenditures and is doing so now in light of the precipitous fall in the active rig count following the recent OPEC meeting in mid-March 2020 and the increasing concerns over the ultimate impact of COVID-19, which together manifested in the lowest oil prices in 20 years this past week. H&P is reassessing its cost structure based on newly developing rig activity levels and will provide updated guidance as part of the upcoming fiscal second quarter results process. In addition to these measures, the Company and its Board of Directors are currently reassessing optimal cash deployment plans, including the levels of future dividends, in order to balance the Company’s commitment to shareholder returns while maintaining its ongoing financial strength. At the same time, H&P remains committed to paying the previously announced $0.71 per share dividend on June 1, 2020, to stockholders of record at the close of business May 11, 2020.

MLPS & PIPELINES

Press Release - In response to extraordinary and volatile market conditions, DCP Midstream announced the following decisive actions. First, the board of directors of its general partner approved a plan to reduce quarterly distributions to its common unitholders to $0.39 per unit or $1.56 annually, beginning with the first quarter 2020 distribution, payable in May 2020. This 50% distribution reduction results in $325 million of cash that will be fully utilized to reduce leverage and strengthen the balance sheet. Second, DCP will reduce its 2020 growth capital program by 75%, to approximately $150 million for the year, down from a guidance midpoint of $600 million. This remaining capital spend is required for necessary and strategic projects that are already underway. The $450 million growth capital reduction includes the strategic decision to defer a 30% ownership option in Phillips 66’s Sweeny Frac 2 and 3 projects, which was projected to be exercised at the end of 2020. Although DCP does not expect to exercise the option in 2020, Phillips 66 and DCP are considering an option in later years that would be mutually beneficial for both companies. Additional growth capital reductions have been made on a basin-specific basis. Looking to 2021, DCP has provided a growth capital range of $50 million to $150 million and the company anticipates targeting the low end of the range. Third, through targeted cost and sustaining capital reductions, DCP expects to minimize the negative impact of the commodity price environment by approximately $80 to $100 million in 2020. To achieve this goal, DCP plans to lower costs by at least $50 million enterprise-wide, reduce sustaining capital by $30 million, and further drive DCP 2.0 innovation efforts by up to $20 million to improve cash flows. 

(Late Friday) Reuters - Energy Transfer’s new construction on the Mariner East pipeline project is being temporarily suspended after Pennsylvania Governor Tom Wolf ordered all "non-life-sustaining businesses" in the state shut down as coronavirus cases continue to rise, Energy Transfer said on Friday. The pipeline system and facilities in service have been deemed "life-saving" and ongoing work on the existing lines of Mariner East will continue, Energy Transfer ET.N said. "We are working to safely comply with the Governor’s order regarding the temporary suspension of our ongoing construction activities," a company spokesperson said in an emailed statement. The governor issued the order on Thursday. Energy Transfer is working with state regulators within an exemption process outlined by the administration giving it time to safely suspend active construction over a reasonable period of time, given that some activities have a longer shut-down process, the spokesperson added. The company did not respond to comment on whether the Mariner East 2X pipeline is on track to be completed by mid-2020 as formerly announced. Once complete the pipeline will add another 250,000 barrels per day to the Mariner East system.

National Bank of Canada upgraded Gibson Energy and TC Energy to ‘Outperform’ from ‘Sector Perform’.

Suntrust Robinson upgraded Magellan Midstream Partners to ‘Buy’ from ‘Hold’.

MARKET COMMENTARY

U.S. stock index futures tumbled, mirroring world stocks, as lockdowns by various countries threatened to overwhelm the efforts by policymakers to cushion what is likely to be a deep global recession. The dollar index was slightly lower. Spot gold fell as investors unloaded bullion in exchange for cash. Oil prices extended their fall with demand sliding as travel and industrial activity contracted across the globe.

NASDAQ ENERGY TEAM THOUGHT LEADERSHIP 


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