Oil Higher As U.S. Fed Keeps Interest Rates Unchanged

SECTOR COMMENTARY:

The energy sector is poised for a higher start, backed by strength in both the crude complex and major equity futures which gained this morning as treasury yields continued to fall. With a slew of earnings across the energy sector released this morning and after-market close yesterday, investors will have many data points to digest.  Focal points remained capex discipline and shareholder returns, with a number of dividend increases and increased share repurchase totals announced.

Following three-consecutive days of declines, WTI and Brent crude oil futures turned higher this morning on positive economic sentiment after the U.S. Federal Reserve again decided to kept benchmark interest rates unchanged. Lingering demand concerns in Europe and China continued to weight on sentiment and overshadowed supply concerns in the Middle East. While markets remain fixated on the Israeli conflict, crude has now given up its war premium as fears the conflict would spread across the region and disrupt supply have failed to occur, with oil options now pricing in a smaller risk of escalation.

Natural gas futures extended its slide lower for the second-straight session and are off a further 2.5% so far this morning, continuing to reel on reports showing record output and forecasts for milder weather over the next two weeks than previously expected. Traders will also be looking to today storage report which analysts expect to show a build of 81 bcf.

BY SECTOR:

US INTEGRATEDS

Chevron is negotiating contracts to supply liquefied natural gas (LNG) into Europe for up to 15 years as buyers expect the region to rely on imports for longer than previously thought, an executive at the U.S. oil and gas company said. The new willingness by buyers to agree on long-term supply deals comes after several European governments rolled back some green policies citing higher costs and economic concerns. European imports of the super-chilled fuel surged after Russia halted pipeline gas exports in the wake of Moscow's invasion of Ukraine last year.

Bernstein upgraded Chevron to Outperform from Market-Perform.

INTERNATIONAL INTEGRATEDS 

Shell Plc announced the 3rd Quarter 2023 Unaudited Results. Income attributable to Shell plc shareholders, compared with the second quarter 2023, mainly reflected higher refining margins, higher realised oil prices, higher LNG trading and optimisation results, and higher Upstream production, partly offset by lower Integrated Gas volumes. Third quarter 2023 income attributable to Shell plc shareholders also included impairment charges, largely offset by favourable movements due to the fair value accounting of commodity derivatives. These charges and favourable movements are included in identified items amounting to a net loss of $0.1 billion in the quarter. This compares with identified items in the second quarter 2023 which amounted to a net loss of $1.6 billion and mainly related to net impairment charges and reversals of $1.7 billion. Adjusted Earnings and Adjusted EBITDA were driven by the same factors as income attributable to Shell plc shareholders and adjusted for the above identified items and the cost of supplies adjustment of negative $1.0 billion.

Shell plc announced the commencement of a $3.5 billion share buyback programme covering an aggregate contract term of approximately three months (the ‘programme’). The purpose of the programme is to reduce the issued share capital of the Company. All shares repurchased as part of the programme will be cancelled. It is intended that, subject to market conditions, the programme will be completed prior to the Company’s Q4 2023 results announcement, scheduled for February 1, 2024.

TotalEnergies started commercial operations of Myrtle Solar, its utility-scale operated solar farm in the United States. Located south of Houston, Texas, Myrtle has a capacity of 380 megawatts peak (MWp) of solar production and 225 MWh of co-located batteries. With 705,000 ground-mounted photovoltaic panels installed over an area equivalent to 1,800 American football fields, Myrtle produces enough green electricity to cover the equivalent consumption of 70,000 homes.

TotalEnergies signed an amendment to extend its partnership with Oman LNG, an Omani liquefied natural gas (LNG) joint venture in which the Company holds a 5.54% stake. Located on the northeast coast of Oman, the Oman LNG liquefaction complex comprises two liquefaction trains, each with a capacity of 3.8 million metric tons of LNG per year (Mtpa). It is adjacent to the Qalhat LNG project, comprising one 3.8 Mtpa train, and in which Oman LNG holds a stake. This brings the site's total production to 11.4 Mtpa. Through this agreement, TotalEnergies is extending beyond 2024 its interest in Oman LNG, by ten years, and in Qalhat LNG, by five years. The parties agreed to finance investments to reduce the plant's GHG emissions during this extension. In January 2023, TotalEnergies had also signed an agreement with Oman LNG to offtake 0.8 Mtpa of LNG for ten years from 2025, making the Company one of the main offtaker of Oman LNG's production.

CANADIAN INTEGRATEDS

Cenovus Energy's quarterly profit rose, helped by strong demand for crude oil amid tight supplies and higher production. The Calgary, Alberta-based company reported net income of C$1.86 billion ($1.35 billion), or 97 Canadian cents per share, for the quarter ended Sept. 30, compared with C$1.61 billion, or 81 Canadian cents per share, a year earlier.

U.S. E&PS

APA Corporation announced third-quarter 2023 financial and operational results. APA reported net income attributable to common stock of $459 million, or $1.49 per diluted share. When adjusted for items that impact the comparability of results, APA’s third-quarter earnings were $410 million, or $1.33 per diluted share. Net cash provided by operating activities was $764 million, and adjusted EBITDAX was $1.4 billion. The company generated $307 million in free cash flow during the quarter.

Callon Petroleum reported third quarter 2023 financial and operating results. Callon reported third quarter 2023 net income of $119.5 million, or $1.75 per share, (all share amounts are stated on a diluted basis),  and adjusted EBITDAX of $342.2 million. Adjusted income was $123.9 million, or $1.82 per share. The Company generated $266.8 million of net cash provided by operating activities in the third quarter. Total operational capital expenditures for the quarter were $251 million.

California Resources reported third quarter 2023 operational and financial results. Reported a net loss of $22 million, or $0.32 per diluted share. When adjusted for items analysts typically exclude from estimates (including mark-to-market adjustments of $109 million, and one-time costs of $24 million and adjusting for taxes of $37 million), the Company’s adjusted net income1 was $74 million, or $1.02 per diluted share. Generated adjusted EBITDAX1 of $187 million. Ended the quarter with $479 million of cash and cash equivalents, an undrawn Revolving Credit Facility and $958 million of total liquidity.

Chord Energy reported third quarter 2023 financial and operating results and announced an increase to its share repurchase authorization. During the three months ended September 30, 2023, net cash provided by operating activities was $399.5MM and net income was $209.1MM ($4.77/diluted share). Adjusted EBITDA was $469.1MM, Adjusted Free Cash Flow was $207.4MM and Adjusted Net Income was $220.2MM ($5.04/diluted share). Adjusted EBITDA, Adjusted Free Cash Flow and Adjusted Net Income are non-GAAP financial measures.

ConocoPhillips reported third-quarter 2023 earnings of $2.8 billion, or $2.32 per share, compared with third-quarter 2022 earnings of $4.5 billion, or $3.55 per share. Excluding special items, third-quarter 2023 adjusted earnings were $2.6 billion, or $2.16 per share, compared with third-quarter 2022 adjusted earnings of $4.6 billion, or $3.60 per share. Special items for the current quarter were primarily comprised of a benefit related to the reversal of a tax reserve and a gain associated with the divestiture of a Lower 48 equity investment. Additionally, ConocoPhillips announced a quarterly ordinary dividend of $0.58 per share, payable Dec. 1, 2023, to stockholders of record at the close of business on Nov. 14, 2023. ConocoPhillips paid its fourth quarter VROC of $0.60 per share on Oct. 16, 2023, to stockholders of record at the close of business on Sept. 28, 2023.

Crescent Point Energy announced its operating and financial results for the quarter ended September 30, 2023. The Company reported net income from continuing operations of $133.6 million for third quarter 2023. Crescent Point's total after-tax net loss for the quarter of $809.9 million was driven by non-cash charges related to the announced sale of its U.S. assets. This included an impairment charge recorded on classifying these assets as held for sale and a deferred income tax expense related to the derecognition of all U.S. tax pools. In conjunction with the sale closing in fourth quarter and discontinuation of operations in the U.S., Crescent Point expects to record a non-cash gain of approximately $600 million, representing the cumulative foreign exchange gain on the Company's net investment in its U.S. subsidiary.

Viper Energy Partners LP, a subsidiary of Diamondback Energy, announced that it has completed its previously announced acquisition of certain mineral and royalty interests from affiliates of Warwick Capital Partners and GRP Energy Capital. Aggregate consideration consisted of $750 million in cash and approximately 9.02 million Viper common units, subject to customary post-closing adjustments. The cash portion of the transaction was funded with cash on hand, proceeds from the recently completed $400 million bond offering, $200 million in net proceeds from the issuance of 7.22 million common units to Diamondback under the common unit purchase agreement, dated as of September 4, 2023, and borrowings under the Company’s revolving credit facility.

Northern Oil and Gas announced the Company’s third quarter results. Oil and natural gas sales for the third quarter were $511.7 million. Third quarter GAAP net income was $26.1 million or $0.28 per diluted share. Third quarter Adjusted Net Income was $161.2 million or $1.73 per adjusted diluted share. Adjusted EBITDA in the third quarter was $385.5 million, a 22% sequential increase from the second quarter and a record for NOG.

Magnolia Oil & Gas announced its financial and operational results for the third quarter of 2023. Magnolia reported third quarter 2023 net income attributable to Class A Common Stock of $102.0 million, or $0.54 per diluted share. Third quarter 2023 total net income was $117.5 million. Diluted weighted average total shares outstanding decreased by 4% to 209.1 million compared to third quarter 2022. Adjusted EBITDAX was $239.0 million during the third quarter of 2023 and total drilling and completions (“D&C”) capital was $104.3 million, or approximately 44% of adjusted EBITDAX. The Company continues to realize the benefit of lower capital related costs for oil field services and materials due to successful initiatives earlier this year.

Marathon Oil reported third quarter 2023 net income of $453 million or $0.75 per diluted share, which includes the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. Adjusted net income was $466 million or $0.77 per diluted share. Net operating cash flow was $1,066 million or $1,144 million before changes in working capital (adjusted CFO). Free cash flow was $573 million or $718 million before changes in working capital and including Equatorial Guinea (E.G.) distributions and other financing (adjusted FCF).

Murphy Oil Corporation announced its financial and operating results for the third quarter ended September 30, 2023, including net income attributable to Murphy of $255 million, or $1.63 net income per diluted share. Excluding discontinued operations and other items affecting comparability between periods, adjusted net income attributable to Murphy was $249 million, or $1.59 adjusted net income per diluted share.

Tellurian continued to progress the production and sales of natural gas and the financing and construction of its Driftwood project. Tellurian generated approximately $43.2 million in revenues from natural gas sales in the third quarter of 2023 compared to $81.1 million in the third quarter of 2022, a change driven by decreased realized natural gas prices partially offset by increased production volumes. Tellurian reported a net loss of approximately $65.4 million, or $0.12 per share (basic and diluted), for the quarter ended September 30, 2023, compared to a net loss of approximately $14.2 million, or $0.03 per share (basic and diluted), for the same period of 2022.

According to StreetAccount, Vital Energy filed for offering resale of up to 3.4 mln shares of common stock by selling stockholders.

Bernstein downgraded Hess to Market-Perform from Outperform.

CANADIAN E&PS

Canadian Natural Resources announced 2023 third quarter results. The company posted a decline in third-quarter profit as lower oil prices offset higher production. The company reported a net income of C$2.34 billion ($1.69 billion), or C$2.13 per share, for the quarter, down from C$2.84 billion or C$2.49 per share a year earlier.

Canadian Natural Resources announced that its Board of Directors has approved an 11% increase to its quarterly cash dividend on its common shares to C$1.00 (One dollar) per common share. The dividend will be payable on January 5, 2024 to shareholders of record at the close of business on December 8, 2023.

Tourmaline Oil released financial and operating results for the third quarter of 2023. Third quarter 2023 cash flow was $878.5 million ($2.55 per diluted share) on total capital expenditures(9) of $565.4 million (EP spending(10) of $533.4 million in Q3), generating free cash flow of $332.3 million for the quarter ($0.96 per diluted share). Tourmaline generated Q3 2023 net earnings of $274.7 million ($0.80 per diluted share), and first nine-month 2023 earnings of $1,035.7 million ($3.01 per diluted share).

OILFIELD SERVICES

Aris Water Solutions announced financial and operating results for the third quarter ended September 30, 2023. Net income was $12.2 million for the third quarter of 2023 versus net income of $2.0 million in the third quarter of 2022 and net income of $10.4 million in the second quarter of 2023. Adjusted Net Income1 was $13.9 million for the third quarter of 2023 versus $13.2 million for the third quarter of 2022 and $13.2 million in the second quarter of 2023. Adjusted EBITDA was $44.9 million for the third quarter of 2023, up approximately 14% from $39.3 million in the third quarter of 2022, and up approximately 5% from $42.6 million in the second quarter of 2023.

Core Laboratories reported third quarter 2023 revenue of $125,300,000. Core's operating income was $14,700,000, with diluted earnings per share ("EPS") of $0.19, all in accordance with U.S. generally accepted accounting principles ("GAAP").  Operating income, ex-items, a non-GAAP financial measure, was $16,000,000, yielding operating margins of  13%, and EPS, ex-items, of $0.22.  During the third quarter of 2023, the Company recorded aggregate charges of $1,100,000 associated with termination of its at-the-market equity offering program and exit of facilities aligned with Core's continuing efforts to improve operational efficiencies. 

Thermon Group Holdings announced consolidated financial results for the second quarter of the fiscal year ending March 31, 2024. Key highlights for Q2 2024 as compared to the three months ended September 30, 2022 ("Q2 2023") include: Produced record revenue of $123.7 million, an increase of 23%, driven by sales growth in the US, Europe and Asia Pacific. Realized fully diluted GAAP earnings per share ("EPS") of $0.43 and record non-GAAP adjusted EPS of $0.49, an increase of 33% and30% respectively due to operating margin improvement and ongoing disciplined cost control. Generated net income of $14.7 million, an increase of 34%, and Adjusted EBITDA of $27.7 million, an increase of 27%, driven by volumegrowth and effective cost management.

DRILLERS

No significant news.

REFINERS

Delek US Holdings announced that its Board of Directors has approved a $0.05 per share increase in the regular quarterly dividend to $0.24 per share, to be paid on November 20th, 2023, to shareholders of record on November 13th, 2023.

HF Sinclair Corporation reported third quarter net income attributable to HF Sinclair stockholders of $790.9 million, or $4.23 per diluted share, for the quarter ended September 30, 2023, compared to $954.4 million, or $4.45 per diluted share, for the quarter ended September 30, 2022. Excluding the adjustments shown in the accompanying earnings release table, adjusted net income attributable to HF Sinclair stockholders for the third quarter of 2023 was $760.4 million, or $4.06 per diluted share, compared to $982.9 million, or $4.58 per diluted share, for the third quarter of 2022, which excludes certain items that collectively decreased net income by $28.5 million.

PBF Energy reported third quarter 2023 income from operations of $1,077.1 million as compared to income from operations of $1,400.0 million for the third quarter of 2022. Excluding special items, third quarter 2023 income from operations was $1,145.6 million as compared to income from operations of $1,403.0 million for the third quarter of 2022. The company reported third quarter 2023 net income of $794.1 million and net income attributable to PBF Energy Inc. of $786.4 million or $6.11 per share. This compares to net income of $1,084.2 million, and net income attributable to PBF Energy Inc. of $1,056.4 million or $8.40 per share for the third quarter 2022. Non-cash special items included in the third quarter 2023 results, which decreased net income by a net, after-tax charge of $65.0 million, or $0.50 per share, primarily consisted of a change in fair value of the contingent consideration associated with the acquisition of the Martinez refinery and related logistics assets, loss on extinguishment of debt and exit costs associated with the early termination of the Inventory Intermediation Agreement. Adjusted fully-converted net income for the third quarter 2023, excluding special items, was $857.0 million, or $6.61 per share on a fully-exchanged, fully-diluted basis, as described below, compared to adjusted fully-converted net income of $1,008.1 million or $7.96 per share, for the third quarter 2022.

MLPS & PIPELINES

Cheniere Energy announced its financial results for the third quarter 2023. During the three and nine months ended September 30, 2023, Cheniere generated revenues of approximately $4.2 billion and $15.6 billion, net income of approximately $1.7 billion and $8.5 billion, Consolidated Adjusted EBITDA of approximately $1.7 billion and $7.1 billion, and Distributable Cash Flow of approximately $1.2 billion and $5.5 billion, respectively. Reconfirming full year 2023 Consolidated Adjusted EBITDA guidance of $8.3 billion - $8.8 billion and full year 2023 Distributable Cash Flow guidance of $5.8 billion - $6.3 billion.

Cheniere Energy announced that Cheniere’s subsidiary, Cheniere Marketing, LLC, has entered into a long-term liquefied natural gas (“LNG”) sale and purchase agreement (“SPA”) with Foran Energy Group Co. Ltd. (“Foran”). Under the SPA, Foran has agreed to purchase approximately 0.9 million tonnes per annum (“mtpa”) of LNG for 20 years from Cheniere Marketing on a free-on-board (“FOB”) basis for a purchase price indexed to the Henry Hub price, plus a fixed liquefaction fee. Deliveries will commence upon the start of commercial operations of the second train (“Train Eight”) of the Sabine Pass Liquefaction Expansion Project (“SPL Expansion Project”) in Louisiana and are subject to, among other things, a positive Final Investment Decision with respect to Train Eight.

Enbridge announced that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series N (Series N Shares) on December 1, 2023. As a result, subject to certain conditions, the holders of the Series N Shares have the right to convert all or part of their Series N Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series O of Enbridge (Series O Shares) on December 1, 2023. Holders who do not exercise their right to convert their Series N Shares into Series O Shares will retain their Series N Shares.

Energy Transfer reported financial results for the quarter ended September 30, 2023. Energy Transfer reported net income attributable to partners for the three months ended September 30, 2023 of $584 million. For the three months ended September 30, 2023, net income per common unit (basic) was $0.15 per unit. Adjusted EBITDA for the three months ended September 30, 2023 was $3.54 billion compared to $3.09 billion for the three months ended September 30, 2022.

Targa Resources reported third quarter 2023 financial results. Third quarter 2023 net income attributable to Targa Resources Corp. was $220.0 million compared to $193.1 million for the third quarter of 2022. The Company reported adjusted earnings before interest, income taxes, depreciation and amortization, and other non-cash items  of $840.2 million for the third quarter of 2023 compared to $768.6 million for the third quarter of 2022. The Company reported distributable cash flow and adjusted free cash flow for the third quarter of 2023 of $602.2 million and $8.6 million, respectively.

Williams announced its unaudited financial results for the three and nine months ended September 30, 2023. GAAP net income of $654 million, or $0.54 per diluted share (EPS) – up 10% vs. 3Q 2022. Adjusted net income of $547 million, or $0.45 per diluted share (Adjusted EPS). Adjusted EBITDA of $1.652 billion – up $15 million from 3Q 2022. Increased midpoint for full-year 2023 guidance to $6.7 billion Adjusted EBITDA.

Truist Securities downgraded ONEOK to Hold from Buy.

MARKET COMMENTARY

U.S. stock index futures climbed after the Federal Reserve left rates on hold as expected with Chair Jerome Powell hedging on possible end of tightening campaign, with investors awaiting Apple’s earnings update after the closing bell. Also on the radar are the U.S. weekly jobless claims numbers and factory orders data scheduled later in the day. A surge in the real estate and technology stocks boosted European shares, while Nikkei ended higher driven by chip-related shares. Oil gained as risk appetite returned to financial markets. Gold prices edged up, supported by a retreat in the dollar.

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