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Crude Rebounds After Trump Criticized OPEC

Tuesday, February 26, 2019

SECTOR COMMENTARY

Energy stocks are higher in the pre-market as oil prices recover from yesterday’s 3% sell-off but broader markets are lower after several negative earnings surprises from bellwether companies.

A handful of E&Ps reported earnings results that fell short of estimates. Also in news, the Simmons & Company Energy conference takes place this week as well as the International Petroleum Week in London.

Both Brent and WTI prices rebounded moderately from yesterday’s sell-off as analysts said that yesterday’s Presidential Tweet would not actually alter OPEC’s output policy. "Yesterday was a typical price action you see during IP Week when you have a headline," said Olivier Jakob, oil analyst at Petromatrix. "But I don't think it will change anything in current OPEC supply policy.” Optimism about a U.S.-China trade deal also helped prices to rally. Trump on Monday said he may soon sign a deal to end a trade war with Chinese President Xi Jinping if their countries can bridge remaining differences.

Natural gas futures are up more than 1% ahead of contract expiration and amid colder weather forecasts.

INTERNATIONAL INTEGRATEDS

Reuters - Royal Dutch Shell said that Nigeria's claims that it was owed billions in taxes could delay the development of a major oil field off the coast of the West African nation. Nigeria ordered several major foreign oil and gas companies to pay nearly $20 billion in taxes it says are owed to local states, industry and government.

Reuters - Workers at three of Total's North Sea oil and gas platforms will hold a series of strikes between March 11 and May 8. Unite members on the Elgin Franklin, North Alwyn and Dunbar platforms will take part in a continuous ban on overtime on March 11, the union said in a statement.

CANADIAN INTEGRATEDS

Press Release - Husky Energy generated funds from operations of $4 billion in 2018, an increase of 21 percent from 2017. Annual net earnings rose 85 percent to $1.5 billion, and free cash flow was $426 million. Cash flow provided by operating activities, which includes changes in non-cash working capital, was $4.1 billion in 2018 compared to $3.7 billion in 2017. Fourth quarter funds from operations was $583 million, compared to $1.3 billion in the previous quarter. The Board of Directors has approved a quarterly dividend of $0.125 per common share for the three-month period ended December 31, 2018. The dividend will be payable April 1, 2019 to shareholders of record at the close of business on March 19, 2019.

U.S. E&PS

Guggenheim downgraded Alta Mesa Resources to ‘Sell’ from ‘Buy’.

(Late Monday) Press Release - Alta Mesa Resources announced its 2019 outlook, preliminary fourth quarter 2018 production and volume results and certain other full year 2018 unaudited financial and operational results for its subsidiaries, Alta Mesa Holdings, LP and Kingfisher Midstream, LLC. Key Updates: 2019 upstream capital program of $190 to $210 million is expected to deliver full year 2019 average production of 29,500 to 31,500 BOE per day (45% oil, 70% liquids); 2019 midstream capital program of $55 to $60 million is expected to deliver $55 to $60 million of 2019 Kingfisher Midstream Adjusted EBITDA; Q4-18 net production was approximately 37,600 BOE per day (50% oil, 73% liquids) and December net production was approximately 39,100 BOE per day (50% oil, 74% liquids); and Year-end 2018 proved reserves were 158 MMBOE (44% Proved Developed).

Press Release - Chaparral Energy anticipates 2019 total company production to be between 25 to 27 MBoe/d, which represents an anticipated 22% to 32% year-over-year growth. Total STACK production is expected to be between 21 and 23 MBoe/d, which is a forecasted year-over-year growth rate of 45% to 59%. While full year production will have significant growth, first quarter production will be impacted by the timing of first sales associated with Chaparral’s current spacing tests and remaining drilling joint venture wells.

(Late Monday) Press Release - Carrizo reported fourth quarter of 2018 net income attributable to common shareholders of $255.1 million, or $2.79 and $2.75 per basic and diluted share, respectively, compared to a net loss attributable to common shareholders of $23.4 million, or $0.29 per basic and diluted share, in the fourth quarter of 2017. Adjusted net income attributable to common shareholders, which excludes the impact of these items as described in the non-GAAP reconciliation tables below, for the fourth quarter of 2018 was $52.1 million, or $0.56 per diluted share, compared to $47.9 million, or $0.58 per diluted share, in the fourth quarter of 2017.

Press Release - Centennial Resource Development posted its earnings results on Monday. The oil and natural gas company reported $0.12 earnings per share (EPS) for the quarter, missing analysts' consensus estimates of $0.15 by ($0.03), Briefing.com reports. Centennial Resource Development had a net margin of 23.90% and a return on equity of 6.57%. The company had revenue of $222.50 million during the quarter, compared to analysts' expectations of $238.16 million. The firm's quarterly revenue was up 34.0% on a year-over-year basis.

Press Release - Earthstone Energy announced its year-end 2018 estimated proved reserves of approximately 98.8 MMBoe, representing a 24% increase compared to year-end 2017 proved reserves of 80.0 MMBoe. In 2018, the Company added approximately 16.2 MMBoe of proved reserves through drilling and completion activities representing approximately 447% of estimated 2018 production of 3.6 MMBoe. Management estimates F&D costs from extensions and discoveries were $9.49 per Boe of proved reserves while F&D from all-sources, including acquisitions and trades, was $7.79 per Boe. The 2018 year-end reserve report includes 182 proved undeveloped locations, representing approximately 19% of Earthstone’s estimated 968 total drilling locations.

(Late Monday) Press Release - Range Resources reported non-GAAP revenues for 2018 totaled $3.2 billion, an increase of 33% compared to 2017 and cash flow from operations before changes in working capital, a non-GAAP measure, was $1.05 billion, compared to $916 million in 2017. Adjusted net income comparable to analysts’ estimates, a non-GAAP measure, was $279 million ($1.13 per diluted share), compared to $143 million ($0.58 per diluted share) in 2017. Fourth quarter 2018 drilling expenditures of $158 million funded the drilling of 17 wells.

SM Energy was downgraded to equal-weight at Morgan Stanley.

CANADIAN E&PS

(Late Monday) Press Release - TORC Oil & Gas achieved record production of 28,163 boepd in the fourth quarter of 2018, a 29% increase (14% per share) from 21,886 boepd in the fourth quarter of 2017. Average production increased to 25,339 boepd in 2018, up from 20,871 boepd in 2017. Production growth was achieved while maintaining the Company's decline rate at approximately 23%. Cash flow per share was $0.25 per share in the fourth quarter and $1.40 per share for 2018 relative to $0.32 in the fourth quarter of 2017 and $1.11 in 2017. TORC's dividend is reviewed regularly with the Board of Directors and is an important component of TORC's overall strategy. TORC paid dividends of $0.254 per share in 2018 up from $0.24 in 2017, of which $0.066 was paid in the fourth quarter of 2018. During 2018, TORC declared dividends of $53.1 million of which $17.0 million was paid under the share dividend program (SDP). The Board of Directors has confirmed a dividend of $0.022 per common share will be paid on March 15, 2019 to shareholders of record on February 28, 2019.

OILFIELD SERVICES

Press Release - Fluor announced that it was awarded an engineering, procurement and construction management services contract by SABIC for the recommissioning of its polyphenylene ether (PPE) resin plant in Bergen op Zoom, the Netherlands. Fluor will book the undisclosed contract value in the first quarter of 2019.

Press Release - KBR reported fourth quarter 2018 revenue growth of 42% to $1.3 billion, diluted EPS of $0.31 and adjusted EPS of $0.39.

(Late Monday) Press Release - Pointe LNG announced that it has signed an engineering and technical services agreement with KBR to provide Pointe LNG with front end engineering design submittals and services as required to obtain Federal Energy Regulatory Commission (FERC) approval for Pointe LNG's proposed LNG liquefaction and export facility to be located in Plaquemines Parish, Louisiana.

(Late Monday) Press Release - Key Energy Services reported fourth quarter 2018 consolidated revenues of $117.2 million and a net loss of $23.1 million, or $(1.14) per share as compared to consolidated revenues of $134.7 million and a net loss of $23.9 million, or $(1.18) per share for the third quarter of 2018. The results for the fourth quarter of 2018 include expenses of $1.3 million, or $0.06 per share, associated with certain equity awards, and gains on sale of assets of $2.2 million, or $0.11 per share.

Press Release - McDermott International announced it was awarded a sizeable contract by Precision Mechanical, Inc. for a double wall liquid hydrogen sphere at the John F. Kennedy Space Center in Cape Canaveral, Florida. The scope of the contract includes the engineering, procurement and construction of the sphere, which will be the largest ever built for NASA.

Berenberg initiated coverage of TechnipFMC at ‘Buy’.

Berenberg initiated coverage of Petrofac at ‘Hold’.

DRILLERS

(Late Monday) Press Release - Seadrill announced the following fourth quarter 2018 highlights: revenue of $292 million, operating loss of $69 million, adjusted EBITDA of $73 million; 96% economic utilization; reported net loss of $360 million and net loss per share of $3.62; total cash of $2 billion; order backlog of approximately $2 billion; and added $89 million in backlog since the last earnings report in November.

REFINERS

(Late Monday) Press Release - On February 19, 2019, the members of the Board of Directors of Delek US, acting on the recommendations of the Nominating and Corporate Governance Committee of the Board, voted to (i) expand the size of the Board from six (6) to seven (7) persons effective immediately and (ii) elect Vicky Sutil to fill the vacancy resulting from the increase of the Board size from six (6) to seven (7) persons. Ms. Sutil will hold office until the Company's 2019 annual meeting of stockholders and until her successor is duly elected and qualified, or earlier termination of her service. The Board has not yet appointed Ms. Sutil to any Board committee.

MLPS & PIPELINES

Press Release - Cheniere Energy reported net income of $67 million, or $0.26 per share (basic and diluted), for the three months ended December 31, 2018, compared to net income of $127 million, or $0.54 per share (basic and diluted), for the comparable 2017 period.

(Late Monday) Press Release - ONEOK's operating income increased 18 percent in the fourth quarter 2018 and 32 percent for the full-year 2018, compared with the same periods in 2017. Higher 2018 results were driven primarily by natural gas and natural gas liquids volume growth across its operations, and higher optimization and marketing earnings in the natural gas liquids segment. Paying in February 2019 a quarterly dividend of 86 cents per share, or $3.44 per share on an annualized basis, an increase of 12 percent compared with the same quarter in 2018.

ONEOK was cut to Neutral at UBS.

Press Release - Summit Midstream Partners reported net income of $38.7 million for the fourth quarter of 2018, compared to a net loss of $18.3 million for the prior-year period. Net income in the fourth quarter of 2018 included $32.8 million of non-cash income related to a decrease in the present value of the estimated Deferred Purchase Price Obligation ("DPPO").

Press Release - Summit Midstream Partners announced that it is undertaking a series of strategic actions to reposition the Company to better serve its customers and create value for its unitholders by enhancing its ability to fund attractive growth opportunities and maintain a prudent capital structure. To provide leadership for these new strategic actions, the Board of Directors of Summit Midstream GP, LLC has named Executive Vice President and Chief Operations Officer, Leonard Mallett, as President and Chief Executive Officer on an interim basis, effective immediately. By mutual agreement with the Board, Steve Newby has stepped down as a director, President, and Chief Executive Officer of Summit Midstream Partners, LLC ("Summit Investments") and Summit Midstream GP, LLC (collectively with Summit Investments, "Summit"). Mr. Mallett will maintain his COO responsibilities during this interim period. The Board has engaged an executive recruiting firm to assist it in conducting the search for a permanent CEO.

Press Release - Alerian announced that Western Gas Partners is expected to be removed from the Alerian Midstream Energy Index (AMNA), Alerian US Midstream Energy Index (AMUS), Alerian MLP Index (AMZ), Alerian MLP Equal Weight Index (AMZE), Alerian MLP Infrastructure Index (AMZI), and Alerian Natural Gas MLP Index (ANGI) in a special rebalancing. In addition, Western Gas Equity Partners (NYSE: WGP) expects to change its name to Western Midstream Partners and its common units will trade under the WES ticker symbol. It is expected that Western Midstream Partners will be added to the AMZI and ANGI.

MARKET COMMENTARY

U.S. stock futures hinted at a lower start for Wall Street, as investors were cautious ahead of Fed Chairman Jerome Powell's testimony on monetary policy. Asian markets fell and European equities traded lower. The dollar index was down. Brent crude prices made gains on expectations that OPEC would continue cutting output, despite pressure from U.S. President Donald Trump. Gold prices fell. Building permits and housing starts data are scheduled on the economic calendar.

NASDAQ ENERGY TEAM THOUGHT LEADERSHIP


Nasdaq Advisory Services Energy Team Nasdaq's Advisory Services Tamar Essner
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