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Crude Slips on Uptick in U.S. Drilling

Monday, February 11, 2019

SECTOR COMMENTARY

The energy sector is poised for a mixed to higher start, supported by gains in U.S. stock index futures while oil prices slid on growing concerns about demand. Investor optimism increased this morning as the latest round of trade talks between the U.S. and China began in Beijing, while lawmakers attempted to figure out a deal to avoid another government shutdown.

Oil prices on both sides of the Atlantic slipped in pre-market trading on an uptick in U.S. drilling and concerns about demand due to the slow progress in U.S.-China trade talks which overshadow support from OPEC-led supply restraints. "Oil prices are still trying to figure out what lead to follow. On the one hand, there is the OPEC+ cut story, now coupled with increasing issues around Venezuelan supply", Vienna-based consultancy JBC Energy said. "At the same time, it has to be argued that a lot of the economic data that has been released over the last few days has really not been too encouraging.”

Natural gas futures are higher in morning trading, backed by strong demand next weekend as weather forecasts turned much colder than previously expected.

US INTEGRATEDS

Reuters - Iraqi Oil Minister Thamer Ghadhban said that disagreements remained over profit-sharing between the government and Exxon Mobil and Petrochina over its South Integrated Project Speaking at a news conference in Basra during his first visit to the oil-rich province since taking office, Ghadhban said he believed profits exceeding the agreed upon price should go to Iraq, not to foreign companies. The South Integrated Project involves development of the Nahr Bin Umar and Ratawi oilfields and related infrastructure.

INTERNATIONAL INTEGRATEDS

Reuters - BP's Egypt Giza and Fayoum fields, part of its West Nile Delta Development, are expected to hit 700 million cubic feet of gas per day by April. BP announced that the second stage of the West Nile Delta had begun production. It said output at several fields in the area would help push production to almost 1.4 billion cubic feet per day this year.

Reuters - Total is committed to continuing its exploration work in Cyprus, Chief Executive Patrick Pouyanne told Reuters, part of a major exploration campaign for 2019 focused on areas known to contain commercial levels of oil and gas.

U.S. E&PS

Press Release - Eclipse Resources and Blue Ridge Mountain Resources announced that the stockholders of Blue Ridge, through the delivery of written consents, have adopted the definitive merger agreement under which Eclipse Resources and Blue Ridge will combine in an all-stock transaction and approved the merger and the other transactions contemplated by the definitive merger agreement. The Transaction has now been approved by the boards of directors and stockholders of each company. Because Blue Ridge has received stockholder written consents sufficient to adopt the merger agreement and approve the merger and the other transactions contemplated by the merger agreement, all stockholder written consents received by Blue Ridge have become irrevocable.

Press Release - Range Resources announced that proved reserves at December 31, 2018 increased by 18% from the prior-year to 18.1 Tcfe. Year-end 2018 PV10 value of reserves using future strip prices was $9.9 billion. Year-end 2018 SEC PV10 value of proved reserves was $13.2 billion, up $5.1 billion from prior year. Proved reserves increased by 2.8 Tcfe, or 18%. Reserve extensions, discoveries and additions were 3.1 Tcfe. Proved developed reserves increased 1.4 Tcfe, or 17%. Drill-bit finding cost of $0.22 per mcfe, including performance revisions. Future development costs for proved undeveloped reserves estimated to be $0.40 per mcfe. Unhedged recycle ratio over 2.5x based on future development costs of $0.40 per mcfe.

Guggenheim started coverage of Talos Energy at ‘Buy’.

CANADIAN E&PS

Press Release - Obsidian Energy presented the results of its year-end 2018 independent reserves evaluation, prepared by Sproule Associates. 2018 marks the second year in a row that Obsidian Energy has achieved greater than 100 percent reserve replacement on proved plus probable ("2P") and total proved reserves ("1P"). All 14 wells of the second half 2018 Cardium program have been drilled and completed with 12 currently on production. Well performance on average is exceeding the updated type-curves presented at our Investor Day on November 15, 2018. The full year 2019 optimization budget has been reduced by $3 million in favour of adding one Willesden Green Cardium well to the second half 2019 drilling program for a total of 16 Willesden Green Cardium wells and two Deep Basin wells with no changes to the full year capital estimate. The Company continues to evaluate its capital allocation decisions on an ongoing basis.

OILFIELD SERVICES

Press Release - Key Energy Services expects fourth quarter 2018 revenues to range between $115 million and $120 million as compared to third quarter 2018 revenues of $134.7 million. Fourth quarter 2018 consolidated operating loss is expected to range between $14.5 million and $15.5 million.

Press Release - KBR announced that its global government services business, KBRwyle, has been awarded two contract modifications to continue providing base operating support services (BOSS) to the U.S. Navy in Djibouti and the Kingdom of Bahrain. The Naval Facilities Engineering Command (NAVFAC), Europe, Africa and Southwest Asia, awarded both contract extensions. KBRwyle also received a one-year contract modification to continue support services at Naval Support Activity Bahrain. KBRwyle will provide a full range of services, including galley, security operations, and facilities, waste and utilities management. This is the first of a possible seven options years on a $91M indefinite-delivery/ indefinite-quantity contract originally won in 2017.

Reuters - Petrofac secured UK well services agreement. The three-year agreement, which includes options to extend, is estimated to be worth up to us$95 million over term. Under terms, Petrofac will be responsible for all new well work and ongoing integrity management of existing well stock. The contract includes provision of well operator and well engineering project management services. The company announced award of a contract from independent exploration and production company Siccar Point Energy.

JP Morgan downgraded Petrofac to ‘Neutral’ from ‘Overweight’.

DRILLERS

Press Release - Diamond Offshore reported fourth quarter total revenue of $232.5 million and adjusted loss per share of $0.42. As of January 1, 2019, the Company's total contracted backlog was $2.0 billion, not including $135 million margin commitment from one of the Company's customers.

Press Release - Transocean announced that since its last Fleet Status Report, the company closed the acquisition of Ocean Rig UDW. on December 5, 2018. The transaction adds eight high-specification ultra-deepwater drillships and two harsh environment semisubmersibles to the Transocean fleet. In addition, the acquisition includes two high-specification ultra-deep water drillships currently under construction at the Geoje Samsung shipyard in South Korea. Transocean added approximately $907 million in contract backlog since its last report, bringing the company’s backlog to $12.2 billion. Among the contract additions, Transocean signed a rig design and construction management contract, as well as a five-year drilling contract, with Chevron USA for one of Transocean’s two dynamically positioned ultra-deepwater drillships under construction at the Jurong shipyard in Singapore.

REFINERS

Reuters - The second largest crude distillation unit (CDU) was shut by a fire at Phillips 66's barrel-per-day (bpd) joint-venture Wood River, Illinois, refinery.

(Late Friday) Reuters - Valero Energy sees Q1 refining cash operating expenses per barrel throughput of $4.05. The company also sees 2019 capex of $2.5 billion.

MLPS & PIPELINES

(Late Friday) Press Release - Enable Midstream Partners announced that the board of directors of its general partner declared a quarterly cash distribution of $0.318 per unit on all outstanding common units for the quarter ended Dec. 31, 2018. The distribution is unchanged from the previous quarter. The quarterly cash distribution of $0.318 per unit on all outstanding common units will be paid Feb. 26, 2019, to unitholders of record at the close of business on Feb. 19, 2019. Enable also announced that the board declared a quarterly cash distribution of $0.625 per unit on all Series A Preferred Units for the quarter ended Dec. 31, 2018. The quarterly cash distribution of $0.625 on all Series A Preferred Units outstanding will be paid Feb. 14, 2019, to unitholders of record at the close of business on Feb. 8, 2019.

Stifel downgraded Phillips 66 Partners to ‘Hold’ from ‘Buy’.

MARKET COMMENTARY

Wall Street indexes’ futures were higher as investors eyed the latest round of trade talks between U.S. and China. Growing global growth uncertainties continued to drive investors towards the greenback, the world’s most liquid currency. European markets bounced from one-week lows, while major Asian indexes were little changed. Oil prices were down on slowing global demand concerns and a pick-up in U.S. drilling activity. Gold prices slipped.

NASDAQ ENERGY TEAM THOUGHT LEADERSHIP


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