Markets

Energy Stocks Facing Weakness

Tuesday, February 20, 2018

Sector Commentary

Energy stocks are poised for severe weakness amid sharp declines in broader index futures as interest rates climbed back toward multi-year levels. Divergence in oil prices is causing some dislocations in the energy sector as Brent fell victim to profit-taking and as WTI advanced, narrowing the differential to a 6 month low.

WTI is higher on support from reduced supply from Canada to the United States caused by pipeline reductions. Brent is trading at a premium of less than $3 a barrel to WTI, down from over $$7 at the start of the year. Strength in the US dollar, which is recovering from 3 year lows, is further weighing on Brent prices this morning.

Natural gas futures are up nearly 3% on below seasonal temperatures expected in most locations of Western Lower 48.

U.S. INTEGRATEDS

(Late Monday) Reuters - Chevron said it had resumed drilling operations in the Kurdistan region of Iraq.

Press Release - EG Group Limited, through its affiliate EG Deutschland GmbH, completed the acquisition of approximately 1,100 Esso-branded service stations located in Germany, from Exxon Mobil.

(Late Monday) Reuters - ExxonMobil acquired 2.5 percent stake in the Azeri Baku-Tbilisi-Ceyhan pipeline from CIECO, a subsidiary of Itochu.

INTERNATIONAL INTEGRATEDS

(Late Monday) Press Release - Gazprom’s export division said that it has signed three agreements to buy gas from foreign companies for a total of $2.88 billion over the course of five years. The agreements signed are worth $1.77 billion and $738.8 million with duration from Jan. 1, 2018 to December 31, 2022 and an agreement worth $367.5 million lasting throughout 2018.

(Late Monday) Press Release - Gazprom has increased its natural gas exports to the region of Southeast Europe (SEE) by 21.2% to 12.34 billion cubic metres in 2017, company data shows.

(Late Friday) Reuters - Petróleo Brasileiro said it has sold all remaining shares it owned at sugar and ethanol group São Martinho for 444 million reais.

(Late Monday) Press Release - Total, Borealis AG and NOVA Chemicals announced that affiliates of the three companies have signed definitive agreements to form a joint venture in petrochemicals on the U.S. Gulf Coast.

U.S. E&PS

Press Release - Abraxas Petroleum provided the following reserve and operational update.

Total proved reserves as of December 31, 2017 of 65.9 MMBoe up 21.2 MMBoe or 47.5. Proved developed producing reserves grew 48.5% to 20.7 MMBoe.

(Late Monday) Press Release - Anadarko Petroleum announced Mozambique LNG1 Company Pte. Ltd., the jointly owned sales entity of the Mozambique Area 1 co-venturers, has entered into a long-term LNG Sale and Purchase Agreement with Électricité de France, S.A. The off-take agreement calls for the supply of 1.2 million tonnes per annum for a term of 15 years.

KLR Group upgraded Cimarex to ‘Buy’ from ‘Hold’.

Reuters - Energen Corp reported a fourth-quarter profit, compared to a year-ago loss, due to a rise in production and higher realized prices for oil. The company's net income was $262.4 million, or $2.68 per share, in the three months ended Dec. 31, compared to a loss of $54.5 million, or 56 cents per share, a year earlier. Energen recorded a gain of $6 million due to the sale of assets in the reported quarter.

Press Release - Energy XXI Gulf Coast announced that its Board of Directors has approved a 2018 capital expenditure budget in the range of $145 million to $175 million, which includes funding of EGC’s most active drilling program since 2014, as well as recompletions, facilities improvements, plugging and abandonment expenditures and other capital investments.

(Late Monday) Press Release - Aker Energy entered into an agreement with a subsidiary of Hess Corporation to acquire its interests in Ghana consisting of a 50 percent participating interest in the Deepwater Tano Cape Three Points block. The Tano Basin offshore Ghana is a prolific petroleum region where Aker Energy sees considerable potential to apply the Aker Group's experience from the Norwegian Continental Shelf to build a significant E&P activity in Ghana together with Ghana National Petroleum.

Reuters - Noble Energy increased proved reserves 37 percent to total nearly 2 bboe. Its total proved reserves of 1.965 billion barrels of oil equivalent as of Dec 31, 2017, a net increase of 528 mmboe versus year-end 2016.

Press Release - Noble Energy provided an updated outlook through 2020, including detailed guidance for 2018. The Company expects to generate a cumulative total of $1.5 billion of excess cash flows through 2020 in the $50 scenario, and an additional $1.5 billion at strip pricing. Board-authorized $750 million share repurchase program and current dividend payout will result in more than $1.3 billion in direct shareholder return over the plan period.

Press Release - Fourth quarter net income attributable to Noble Energy totaled $494 million, or $1.01 per diluted share. The Company reported adjusted net income and adjusted net income per share attributable to Noble Energy for the quarter of $156 million, or $0.32 per diluted share, which excludes the impact of certain items typically not considered by analysts in formulating estimates. Adjusted EBITDAX was $789 million.

(Late Monday) Press Release - Noble Energy announced that it has signed agreements to sell significant quantities of natural gas from the Leviathan and Tamar fields to Dolphinus Holdings Limited to supply gas in Egypt. These agreements, one for natural gas from Leviathan and one for Tamar, each provide for total contract quantities of 1.15 trillion cubic feet of natural gas. The natural gas is anticipated to supply industrial and petrochemical customers as well as future power generation in Egypt.

(Late Friday) Press Release - Noble Energy announced that its Board of Directors has authorized a $750 million share repurchase program.

Press Release - Oasis Petroleum completed the acquisition of oil and gas assets located in Delaware Basin in Texas, the US, from Forge Energy, LLC, for a purchase consideration of approximately US$1,012.8 million.

Susquehanna Financial upgraded SM Energy to ‘Positive’ from ‘Neutral’

Press Release - WPX Energy’s board of directors has approved a quarterly dividend of $0.78125 per share to holders of the company’s 6.25 percent Series A Mandatory Convertible Preferred Stock. The dividend is payable as of April 30, 2018, to holders of record of the company’s preferred stock on April 13, 2018.

CANADIAN E&PS

(Late Friday) Press Release - Crescent Point Energy confirmed that the dividend to be paid on March 15, 2018, in respect of February 2018 production, for shareholders of record on February 28, 2018, will be CDN$0.03 per share.

(Sunday) Press Release - Frontera Energy announced that Camilo McAllister, its Chief Financial Officer, has resigned to pursue other career opportunities. Mr. McAllister will continue in his current role until March 9, 2018.

OIL SERVICES

Press Release - Halliburton announced that its board of directors has declared a 2018 first quarter dividend of eighteen cents ($0.18) a share on the company’s common stock payable March 28, 2018, to shareholders of record at the close of business on March 7, 2018.

Press Release - Helix Energy Solutions reported net income of $50.6 million, or $0.34 per diluted share, for the fourth quarter of 2017 compared to a net loss of $54.4 million, or $(0.46) per diluted share, for the same period in 2016 and net income of $2.3 million, or $0.02 per diluted share, for the third quarter of 2017. The net income for the year ended December 31, 2017 was $30.1 million, or $0.20 per diluted share, compared to a net loss of $81.4 million, or $(0.73) per diluted share, for the year ended December 31, 2016. Net income in the fourth quarter of 2017 includes a non-cash benefit of approximately $51.6 million, or $0.35 per diluted share, related to the U.S. tax law changes enacted in December 2017.

Press Release - Hi-Crush Partners reported fourth quarter and full year 2017 results. Revenues for the fourth quarter of 2017 totaled $216.5 million on sales of 2,985,115 tons of frac sand. This compares to $167.6 million of revenues on sales of 2,456,195 tons of frac sand in the third quarter of 2017. The limited partners' interest in net income was $43.2 million for the fourth quarter of 2017, resulting in $0.48 basic and $0.47 diluted earnings per limited partner unit. On January 17, 2018, Hi-Crush declared a quarterly cash distribution of $0.20 per unit on all common units, or $0.80 on an annualized basis, for the fourth quarter of 2017.

Press Release - Oceaneering International announced that it has amended its October 2014 credit agreement to extend the maturities of its $500 million undrawn unsecured revolving credit facility, such that the total commitments will be $500 million until October 2021, and thereafter, $450 million until January 2023. The original credit agreement also provided for a $300 million term loan that was paid off in conjunction with the amendment using proceeds from the Company's issuance of $300 million of ten-year senior notes in February 2018. Prior to being repaid, the term loan was scheduled to mature in October 2019.

Reuters - Superior Energy Services announced fourth quarter and full year 2017 results. Its

Q4 earnings per share and revenue were $0.14 and $497, respectively.

DRILLERS

Press Release - Transocean Ltd announced that Transocean Ltd. along with Transocean Inc. received all required regulatory approvals and has commenced a compulsory acquisition of all shares in Songa Offshore SE that are not already owned by Transocean. Transocean expects to complete the compulsory acquisition by the end of the first quarter of 2018.

(Late Monday) 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. On January 30, 2018, the company closed the acquisition of Songa Offshore SE. The transaction added seven semisubmersibles to the company’s fleet, including four high-specification, harsh environment CAT-D rigs under long-term contracts with Statoil. As of February 19, 2018, the combined company’s contract backlog is $12.8 billion.

Press Release - Trinidad Drilling announced that Trinidad's Board of Directors has commenced a formal process to initiate a strategic review in an effort to enhance shareholder value. Trinidad believes that the current trading price of its common shares does not reflect the value of the Company, despite improving industry fundamentals and recent steps taken by Trinidad to improve shareholder value.

MLPs & PipelinES

(Saturday) Press Release - Andeavor Logistics entered into an agreement to acquire the Wamsutter Pipeline System from Plains All American Pipeline, for a purchase consideration of US$180 million.

Press Release - Holly Energy Partners reported financial results for the fourth quarter of 2017. Net income attributable to Holly Energy Partners for the fourth quarter was $86.1 million compared to $41.4 million for the fourth quarter of 2016. Distributable cash flow was $65.5 million, an increase of $7.0 million, or 12% compared to the fourth quarter of 2016. HEP announced its 53rd consecutive distribution increase on January 26, 2018, raising the quarterly distribution from $0.645 to $0.650 per unit, representing a 7% increase over the distribution for the fourth quarter of 2016. Revenues for the quarter were $129.2 million, an increase of $16.7 million compared to the fourth quarter of 2016.

(Late Monday) Press Release - Magellan Midstream Partners resumed pipeline service at its terminal in Fargo, North Dakota, after a fire over the weekend halted operations.

Press Release - Noble Midstream Partners reported net income of $46 million, or $43 million attributable to the Partnership. Adjusted EBITDA was $52 million, or $48 million attributable to the Partnership, an increase over the prior quarter of 4% and year over year of 76% attributable to the Partnership. Its distribution per unit of $0.4883, a 4.7% increase from the third quarter 2017 distribution and 30% above the minimum quarterly cash distribution; this represents a 24% year-over-year increase.

Press Release - Noble Midstream Partners announced its 2018 capital budget and guidance as well as an updated long-term outlook through 2022. GAAP Net Income was $220 - $260 million. Its Gross Oil and Gas gathering volumes was 200 - 235 thousand barrels of oil equivalent per day, up 144% year over year at the midpoint.

MARKET COMMENTARY

Stock futures pointed to a lower opening for Wall Street's major indexes, with traders set to return from the long U.S. holiday weekend to face rising bond yields. Asian stock markets were down, while European shares were mixed with bank shares falling after HSBC reported weaker than expected earnings. Brent crude fell pulled down by a stronger dollar, while U.S. crude futures gained on concerns over lower Canadian supply. Gold prices dropped.


Nasdaq Advisory Services Energy Team Tamar Essner
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