Markets

Energy Commentary: Energy Sector Looks To Build On Yesterday's Gains

Wednesday, July 26, 2017

Sector Commentary

The energy sector is poised for a higher open, looking to build onto yesterday’s gains on strength in the crude complex and major market indices. The support comes ahead of the closely watched EIA inventory report as well as the FOMC interest rate decision this afternoon. While expectations that the Fed will change interest rates are low, the markets are looking towards the bank's policy statement for hints at whether there will be a rate rise by the end of the year and when the bank might start shrinking its portfolio of Treasury and mortgage bonds. The USD hit 13-month lows in the prior session, which helped lift crude prices.

Sector news continues to be dominated by earnings announcements with Hess Corp making headlines this morning. The top producer reported a larger-than-expected loss in the second quarter as they cut production of oil due to a cutback in drilling and also revised their full year production guidance, excluding Libya, to 305,000 to 310,000 boepd, the upper end of previous guidance.

WTI crude oil futures are up ~1% in early trading, outpacing Brent, lifted by last night’s API report that showed a sharp drop in U.S. inventories, helping to bolstered expectations that the long-oversupplied market was moving toward balance. The API yesterday said yesterday they expect U.S. supplies dropped by 10.2 million barrels in the week ended July 21, roughly four times as much as the markets expected. Traders will be looking towards the EIA data due out later today to confirm the fourth weekly drop in crude stocks.

Natural gas futures are down over 1% so far today, pressure by forecasts for cooler temps in several US regions this week.

INTERNATIONAL INTEGRATEDS

Societe Generale downgraded BP to ‘Hold’ from ‘Buy’.

U.S. E&PS

· HES reported 2Q’17 EPS of ($1.46) versus the Thomson Reuters I/B/E/S estimate of ($1.34).

Press Release - Hess Corp reported a net loss of $449 million, or $1.46 per common share, in the second quarter of 2017 compared with a net loss of $392 million, or $1.29 per common share, in the second quarter of 2016, reflecting a lower effective tax rate in 2017 from the required change in deferred tax accounting. Our loss before income taxes was $425 million in the second quarter of 2017, compared with a loss before income taxes of $678 million in the prior-year quarter. The improved second quarter 2017 pre-tax results reflect higher realized crude oil selling prices and lower operating costs and exploration expenses that were partially offset by lower sales volumes. On an adjusted basis, second quarter 2016 adjusted loss was $335 million, or $1.10 per common share.

Press Release - Sanchez Energy announced operating results for the second quarter 2017. A record setting 24-hour initial production rate of approximately 3,800 barrels of oil equivalent per day from the Stumberg Ranch 55H well, a ~10,000 foot lateral horizontal well in the Lower Eagle Ford at Comanche, with approximately 72 percent oil-weighting. The Stumberg Ranch 55H well at Comanche realized an average 30-day peak production rate of approximately 2,900 Boe/d, which is significantly above the Company’s type curve and which, based on initial production results, appears on pace to achieve payout in approximately 12 months at current strip pricing.

CANADIAN E&PS

· VET reported 2Q’17 EPS of C$0.40 versus the Thomson Reuters I/B/E/S estimate of C$0.02.

Press Release - EncanaCorp announced that its wholly-owned subsidiary, Encana Oil & Gas (USA) Inc., completed the previously announced sale of its Piceance natural gas assets, located in northwestern Colorado, to Denver-based Caerus Oil and Gas.

Press Release - Vermilion Energy reported fund flows from operations for Q2 2017 was $147.1 million ($1.22/basic share), an increase of 3% as compared to $143.4 million ($1.21/basic share) in Q1 2017. Higher FFO was primarily due to higher sales volumes, which more than offset the impact of lower commodity prices. Year-over-year, FFO increased by 16% as compared to Q2 2016 as a result of higher commodity prices and production growth.

OIL SERVICES

· CFW-T reported 2Q’17 EPS of (C$0.15) versus the Thomson Reuters I/B/E/S estimate of (C$0.20).

· SPN reported 2Q’17 EPS of ($0.41) versus the Thomson Reuters I/B/E/S estimate of ($0.48).

Press Release - Calfrac Well Services reported that its revenue in the second quarter of 2017 was $325.3 million, an increase of 116 percent from the same period in 2016. The company’s adjusted EBITDA of $39.9 million for the second quarter of 2017 increased from negative $14.1 million in the comparable period in 2016 primarily due to significantly higher utilization in the United States and Canada. The net loss attributable to shareholders of Calfrac was $20.3 million or $0.15 per share diluted compared to a net loss of $41.7 million or $0.36 per share diluted in the same period last year.

Press Release - On July 19, 2017, Superior Silica Sands, a wholly owned operating subsidiary of Emerge Energy Services, and EP Energy E&P Company, L.P. entered into a Sand Supply Agreement, effective as of January 1, 2017. The Supply Agreement is structured as a take-or-pay agreement pursuant to which SSS will supply sand and proppants to Customer at a price per ton that may be adjusted on a quarterly basis by mutual agreement.

(Late Tuesday) Press Release - Superior Energy Services announced a net loss from continuing operations for the second quarter of 2017 of $62.0 million, or $0.41 per share, on revenue of $470.1 million. This compares to a net loss from continuing operations of $89.7 million, or $0.59 per share for the first quarter of 2017, on revenue of $400.9 million and a net loss from continuing operations of $468.6 million, or $3.09 per share for the second quarter of 2016, on revenue of $356.3 million.

DRILLERS

· RES reported 2Q’17 EPS of $0.20 versus the Thomson Reuters I/B/E/S estimate of $0.13.

Press Release - RPC announced its unaudited results for the second quarter ended June 30, 2017. For the quarter ended June 30, 2017, revenues increased to $398.8 million compared to $143.0 million in the second quarter of last year. Revenues increased compared to the prior year due to higher activity levels and pricing for our services, higher service intensity, and a slightly larger fleet of in-service revenue-producing equipment. Operating profit for the quarter was $67.0 million compared to an operating loss of $75.2 million in the prior year. Net income for the quarter was $43.8 million or $0.20 diluted earnings per share, compared to net loss of $48.7 million or $0.23 loss per share last year.

Press Release - RPC announced that its Board of Directors declared a cash dividend of $0.06 per share payable September 11, 2017 to common stockholders of record at the close of business on August 10, 2017.

Press Release - Seadrill announced that it has reached an agreement with its bank group to extend the comprehensive restructuring plan negotiating period until 12 September 2017. The Company has also received lender consent to extend the maturity date under the US$400 million credit facility from 31 August 2017 until 14 September 2017.

(Late Tuesday) Press Release - Transocean issued a quarterly Fleet Status Report that provides the current status of and contract information for the company’s fleet of offshore drilling rigs. As of July 25, 2017, the company’s contract backlog is $10.2 billion.

REFINERs

(Late Tuesday) Press Release - Tesoro, to become Andeavor on Aug. 1, 2017, announced it has reached a definitive agreement that will enable the company to supply transportation fuels and launch the ARCO brand in the states of Sonora and Baja California, Mexico.

MLPs & Pipelines

(Late Tuesday) Press Release - TransCanada was notified that PETRONAS affiliate Pacific NorthWest would not be proceeding with their proposed LNG project near Port Edward, British Columbia.

(Late Tuesday) Press Release - Western Gas Partners reported net income (loss) available to limited partners for the second quarter of 2017 totaled $82.9 million, or $0.49 per common unit (diluted), with second-quarter 2017 Adjusted EBITDA of $274.8 million and second-quarter 2017 Distributable cash flow of $247.2 million. WES previously declared a quarterly distribution of $0.890 per unit for the second quarter of 2017. This distribution represented a 2% increase over the prior quarter's distribution and a 7% increase over the second-quarter 2016 distribution of $0.830 per unit. The second-quarter 2017 Coverage ratio of 1.19 times was based on the quarterly distribution of $0.890 per unit.

MARKET COMMENTARY

U.S. stock index futures were set to open slightly higher amid a rush of earnings, and as investors trimmed their bets ahead of the Federal Reserve policy decision. Quarterly earnings from Boeing, Gilead Sciences and Facebook are slated for release later in the day. New home sales data is on the economic calendar. European stock markets rose, led by energy and commodity-linked companies, and Asian stocks closed higher. Oil prices inched higher, holding near eight-week highs, as U.S. inventories declined. Gold drifted lower as the dollar firmed.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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