Markets

Energy Market Commentary: API Report Shows Significant Drop In Crude Inventories

Wednesday, January 10, 2018

Sector Commentary

The energy sector is poised for a mixed to higher start, supported by continued gains in the crude complex while weakness in the broader equity indices on reports that China is considering slowing or halting purchases of U.S. government debt weighed on stocks and sent long-dated Treasury yields to fresh highs.

WTI crude oil futures are up nearly 1% in early trading, outpacing Brent with both benchmarks trading near their highest level since 2014. Futures gained following last night’s API report which showed that U.S. crude inventories fell significantly more than expected last week and after the EIA raised its 2018 world oil demand growth forecast by 100,000 bpd from its previous estimate. Traders will be looking to the government data later today to confirm the API report. Gains were capped however as several more analysts warned the rally is temporary and could come to a halt soon.

Natural gas futures are up roughly 0.70% so far this morning, supported by forecasts for temperatures and heating demand to remain around the same levels as previously expected. The gains are also ahead of tomorrow’s storage report which analysts expected to show utilities probably pulled 332 billion cubic feet of gas from storage during the frigid week ended on Jan. 5, the biggest withdrawal for any week ever, according to federal energy data going back to 1994.

INTERNATIONAL INTEGRATEDS

Press Release - Jacobs Engineering Group has been selected by BP to provide engineering, procurement and construction management services for the Phase 2 of the Khazzan Project in the Sultanate of Oman.

Citigroup upgraded Lukoil to ‘Buy’.

Reuters - Repsol is in talks to sell its 20 percent stake in utility Gas Natural to investment fund CVC in a deal worth an estimated 4.1 billion euros.

U.S. E&PS

(Late Tuesday) Press Release - Apache said its crude production in the fourth quarter will fall short of its previous goal after the shutdown of the Forties Pipeline System in the British North Sea. The company said its international output will likely come in around 140,000 barrels of oil equivalent a day in the fourth quarter 2017, about 10 percent lower than originally estimated, and it is heading into 2018 pumping less oil and gas than it expected.

(Late Tuesday) Press Release - Parsley Energy announced that next year, in January 2019, Chairman of the Board and Chief Executive Officer Bryan Sheffield will be succeeded as CEO by Matt Gallagher, the Company's current President and Chief Operating Officer. Mr. Gallagher is appointed to Parsley's Board of Directors effective immediately. Mr. Sheffield will serve as CEO through the end of 2018, in the newly-created position of Executive Chairman throughout 2019, and as Chairman of the Board thereafter. As part of the succession plan, the Board has determined to separate the roles of Chairman and CEO at the time of Mr. Sheffield's transition to Executive Chairman.

Capital One raised its rating on Nobel Energy to ‘Overweight’ from ‘Equal-Weight’.

(Late Tuesday) Press Release – SandRidge Energy, Inc. commented on the open letter that was received from Carl Icahn this morning: The SandRidge Board of Directors and management team value constructive shareholder dialogue and are engaged in ongoing discussions with shareholders, including Mr. Icahn. In this regard, SandRidge's independent board members are scheduled to meet with several major shareholders next week, including Mr. Icahn. As we have already confirmed in writing to Mr. Icahn on two separate occasions, both publicly in our Form 8-K filed on December 11, 2017 and privately in a letter to his counsel dated December 12, 2017, the short-term rights plan does not prevent shareholders from speaking with each other as long as they do not form a group and comply with federal securities laws.

(Late Tuesday) Reuters - SandRidge Energy’s biggest shareholder, Carl Icahn, called on Tuesday for the replacement of two directors and the removal of a poison pill barring individual shareholders from accumulating more than 10 percent of the U.S. shale producer's stock.

(Late Tuesday) Press Release - SM Energy announced that it has entered into a definitive agreement for the sale of a majority of the Company's Powder River Basin assets for a cash purchase price of $500 million.

Capital One lowered its rating on W&T Offshore Inc. to ‘Underweight’ from Equal-Weight’.

CANADIAN E&PS

(Late Tuesday) Press Release - Crescent Point Energy is pleased to announce its budget for 2018. Achieved 2017 exit rate of 183,000 boe/d and expects 2018 year-over-year exit growth of approximately seven percent. 2018 capital budget focused on returns, with over 75 percent of net wells drilled expected to payout in two years or less.

Press Release - Parex Resources provides an operational update. The Company recorded a very successful drilling program in 2017, with 23 wells drilled in the Bacano-Jacana-Tigana trend and 21 wells currently producing oil. Of the 21 oil wells, 10 wells were successfully drilled outside the areas included in the GLJ Petroleum Consultants Ltd. December 31, 2016 proved plus probable reserves assessment prepared for the Company.

OIL SERVICES

Stephens initiated coverage of Basic Energy Services and Superior Energy Services at ‘Equal Weight’.

Stephens initiated coverage of Patterson-UTI Energy at ‘Overweight’.

DRILLERS

Press Release - Ensco announced that it has commenced an underwritten offering of Senior Notes due 2026. Concurrent with the notes offering, Ensco is conducting offers to purchase for cash up to $492,500,000 aggregate purchase price of (i) the outstanding 8.50% Senior Notes due 2019 issued by Pride International, Inc., a wholly owned subsidiary of Ensco, (ii) the outstanding 6.875% Senior Notes due 2020 issued by Pride and (iii) the outstanding 4.70% Senior Notes due 2021 issued by Ensco. The terms and conditions of the tender offers are described in an Offer to Purchase dated January 10, 2018.

Stephens initiated coverage of Nabors Industries and RPC Inc at ‘Equal Weight’.

Danske Markets terminated coverage of Pacific Drilling.

MLPs & PipelinES

(Late Tuesday) Reuters - Magellan Midstream Partners said it has safely completed the repairs on the damaged pipeline that hauls fuel from Rosemount, Minnesota, to Minneapolis.

MARKET COMMENTARY

U.S. stock futures pulled back after a report that China is looking to cut down on U.S. bond purchases, which sent U.S. bond yields to fresh highs. Markets in Europe and Asia also were in the red. The dollar fell against the yen, while gold prices jumped after the Bank of Japan's move to trim its long-dated government bond purchases earlier this week. Meanwhile, OPEC-led production cuts continued to drive oil prices higher.


Nasdaq Advisory Services Energy Team Tamar Essner
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