Oil Prices Continue Slide as Low Chinese Demand Outweighs Possible Russian Oil Ban
The energy sector is poised for a mixed to lower start, weighed down by mild weakness in the crude complex while major equity futures dipped after a slew of underwhelming earnings reports, while investors braced for a big interest rate hike by the Federal Reserve this week to tame surging prices.
Earnings season also continued to heat up with the producers and integrateds taking center stage while the services began to taper off with the offshore drillers reporting. On top of posting their highest quarterly profit in more than a decade, BP also announced an increased share buyback while shale players Devon Energy, Diamondback Energy and Coterra Energy reported sharp increases in profit that topped estimates but held production plans steady as they stressed a focus on shareholder returns.
WTI and Brent crude oil futures turned lower this morning, sliding as concerns about the demand outlook due to prolonged COVID lockdowns in China outweighed support from a possible European oil embargo on Russia over its actions in Ukraine. Beijing, reporting dozens of new cases daily, is mass-testing residents to avert a lockdown similar to Shanghai's over the past month. The capital's restaurants were closed for dining in and some apartment blocks were sealed shut. The European Commission is expected to finalize today work on the next package of EU sanctions against Russia, which would include a ban on buying Russian oil. Next in focus will be the latest round of U.S. inventory and supply reports.
Natural gas futures continued to trend higher for the third-straight session, surging a further ~6.5% as the country transitioned from colder to warmer temperatures which could increase cooling demand, while expectations of higher demand for U.S. liquefied natural gas also buoyed prices.
BY SECTOR:
US INTEGRATEDS
Chevron U.S.A., through its Chevron New Energies division, Talos Energy, through its Talos Low Carbon Solutions division, and Carbonvert announced a memorandum of understanding for an expanded joint venture to develop the Bayou Bend CCS offshore carbon capture and sequestration hub currently held by Talos and Carbonvert.
Chevron U.S.A., a subsidiary of Chevron, and Bunge North America, a subsidiary of Bunge, announced the creation of Bunge Chevron Ag Renewables LLC, signaling the close of their previously announced transaction. The new company will develop renewable fuel feedstocks leveraging Bunge’s expertise in oilseed processing and farmer relationships and Chevron’s expertise in fuels manufacturing and marketing.
INTERNATIONAL INTEGRATEDS
bp boosted its share buyback programme after net profit soared to its highest in more than a decade on strong oil and gas trading results, as the energy company took a $24 billion charge after exiting its operations in Russia. The non-cash writedown of its stakes in Rosneft and two other joint ventures pushed bp into a headline loss of $20.4 billion in the quarter. The charge was slightly lower than bp's initial estimates of $25 billion. bp's underlying replacement cost profit, the company's definition of net earnings, reached $6.2 billion in the first quarter, far exceeding analysts' expectations for a $4.49 billion profit. bp said it would boost its quarterly share repurchases to $2.5 billion before the end of the second quarter after its surplus cash flow rose to more than $4 billion.
bp expects to pay up to 1 billion pounds ($1.25 billion) in taxes in Britain on its 2022 profits, it said.
bp intends to invest up to £18 billion in the UK’s energy system by the end of 2030, demonstrating bp’s firm commitment to the UK, and helping the country to deliver on its bold ambitions to boost energy security and reach net zero.
bp does not expect any let off in oil prices in the near term as the volume of Russian oil impacted by Western sanctions was expected to double, Chief Executive Officer Bernard Looney said.
Great Lakes Dredge & Dock announced that Empire Offshore Wind, a joint venture between Equinor and bp, have chosen Great Lakes in consortium with Van Oord to perform the subsea rock installation work for the Empire Wind I and II wind farms in the East Coast of the United States. Empire Wind I and II are expected to provide over 2 Gigawatts (GW) of renewable energy to the State of New York.
Petrobras increased its jet fuel prices in several cities starting on Sunday, data published on the firm's website showed.
Shell, a minority shareholder in the German PCK Schwedt refinery operated and majority-owned by Russia's Rosneft, will take on more responsibility for the site in case of supply disruptions, a local German minister said.
Reuters reported that TotalEnergies' 240,000 barrels per day Leuna refinery in Germany is set to continue to import Russian crude oil via the Druzhba pipeline at least throughout May, according to two sources with knowledge of the matter.
CANADIAN INTEGRATEDS
Imperial Oil announced the terms of its substantial issuer bid pursuant to which the company will offer to purchase for cancellation up to $2,500,000,000 of its common shares. Subject to obtaining certain exemptive relief under applicable securities laws in Canada and the United States, the Offer will proceed by way of a modified Dutch auction that includes the ability for shareholders to participate via a proportionate tender. The modified Dutch auction procedure will have a tender price range from $62.00 per Share to $78.00 per Share. All amounts are in Canadian dollars.
U.S. E&PS
Coterra Energy reported first-quarter 2022 financial and operating results. On October 1, 2021, Coterra announced that the merger involving the Company, which was formerly named Cabot Oil & Gas Corporation, and Cimarex Energy Co., was completed. Referenced results for the three months ended March 31, 2021 reflect only legacy Cabot. Referenced results for the three months ended March 31, 2022 reflect the combined Company. Net income for first-quarter 2022 totaled $608 million, or $0.75 per share; adjusted net income (non-GAAP) for first-quarter 2022, excluding non-recurring items, was $818 million, or $1.01 per share.
Devon Energy reported net earnings of $1.0 billion, or $1.48 per diluted share, in the first quarter of 2022. Adjusting for items analysts typically exclude from estimates, the company’s core earnings were $1.88 per diluted share.
Devon Energy announced its board of directors declared a fixed-plus-variable dividend of $1.27 per share based on the company’s first-quarter financial performance. This record payout represents a 27 percent increase from the previous quarter. The dividend is payable on Jun. 30, 2022 to shareholders of record at the close of business on Jun. 13, 2022. The company also expanded its share-repurchase authorization by 25 percent to $2.0 billion. This increased authorization extends the program through May 4, 2023. As of the end of April, Devon repurchased 19.1 million shares at a total cost of $891 million.
Diamondback Energy's first quarter 2022 net income was $779 million, or $4.36 per diluted share. Adjusted net income (a non-GAAP financial measure) was $929 million, or $5.20 per diluted share. Diamondback announced that the Company's Board of Directors declared a base cash dividend of $0.70 per common share for the first quarter of 2022 payable on May 23, 2022, to stockholders of record at the close of business on May 12, 2022. The Company's Board of Directors also declared a variable cash dividend of $2.35 per common share for the first quarter of 2022 payable on May 23, 2022, to stockholders of record at the close of business on May 12, 2022.
CANADIAN E&PS
MEG Energy reported its first quarter 2022 operational and financial results. Record funds flow from operating activities and adjusted funds flow were $587 million ($1.87 per share). Record bitumen production volumes were 101,128 barrels per day (bbls/d). Operating expenses net of power revenue were $8.98 per barrel, including non‐energy operating costs of $4.74 per barrel. Power revenue offset energy operating costs by 38%, resulting in energy operating costs net of power revenue was $4.24 per barrel.
OILFIELD SERVICES
Baker Hughes has launched a new subsea wellhead technology, the MS-2 Annulus Seal, to save substantial operational rig costs by helping lower overall wellhead installation costs due to reduced rig trips. The new integrated sealing solution, globally launched and exhibited at the 2022 Offshore Technology Conference in Houston, has already been adopted by multiple customers in North and South America.
Fluor announced that the U.S. Army Corps of Engineers (USACE) Engineering and Support Center selected the company for a position on the Facility Repair & Renewal Multiple Award Task Order (MATOC) VI contract. The indefinite-delivery/indefinite-quantity contract has a combined value not to exceed $450 million during the 5-year period of performance.
Granite Construction announced that it has entered into an agreement to repurchase $50 million of its common stock in an accelerated share repurchase transaction with Bank of Montreal. Granite is expected to fund the ASR using available cash on hand.
Martin Marietta Materials reported results for the first quarter ended March 31, 2022. The Building Materials business achieved record first-quarter products and services revenues of $1,077.0 million, a 25.7 percent increase. Across all end-use markets, the business experienced healthy underlying demand with shipment levels commensurate with seasonal first-quarter trends. Pricing increased across all product lines. Product gross profit of $137.0 million decreased 7.6 percent amid volatile energy costs and broader inflation headwinds. First-quarter organic aggregates shipments increased 2.5 percent, reflecting growing public and private product demand at the onset of the construction season. Organic pricing increased 6.5 percent, or 4.6 percent on a mix-adjusted basis.
EnergySource Minerals announced a new round of investment led by SchlumbergerNew Energy and TechMet Ltd. The Schlumberger New Energy investment includes a strategic partnership to accelerate the deployment of the ILiAD lithium extraction platform and integrate it into the front end of the process used by NeoLith Energy, a Schlumberger New Energy venture. The platform has been piloted at demonstration scale for over 6 years on a variety of real-world brines. Schlumberger will scale up testing at NeoLith Energy's pilot plant in Nevada and deploy it at a global scale.
TechnipFMC has been awarded an additional contract and received notice to proceed by ExxonMobil affiliate Esso Exploration and Production Guyana Limited for its Yellowtail development in the Stabroek Block offshore Guyana. The newly announced significant flexibles contract covers six risers which are qualified for high pressure and high temperature. The Company has also been given full notice to proceed with the previously announced contract for the subsea production system (SPS), following ExxonMobil’s final investment decision in April.
TETRA Technologies announced first quarter 2022 results. First quarter 2022 revenue of $130 million was up 68% year on year and up 15% sequentially from the fourth quarter of 2021. Net income before discontinued operations was $7.7 million, including the benefit of $1.1 million of mark-to-market gains from TETRA's equity ownership in CSI Compressco LP and including $564,000 of non-recurring credits, net of charges. This compares to a net loss before discontinued operations of $703,000 in the fourth quarter, including $891,000 of non-recurring charges and expenses. Net income per share from continuing operations was $0.06 in the first quarter compared to a net loss per share from continuing operations in the fourth quarter of $0.01.
USA Compression Partners, LP announced its financial results for the first quarter 2022. Total revenues were $163.4 million for the first quarter 2022, compared to $157.5 million for the first quarter 2021. Net income was $3.3 million for the first quarter 2022, compared to $0.4 million for the first quarter 2021.
DRILLERS
Noble reported first quarter 2022 results. Contract drilling services revenue for the first quarter of 2022 totaled $195 million compared to $192 million in the fourth quarter of 2021. Marketed fleet utilization was 75 percent in the three months ended March 31, 2022 compared to 77 percent in the fourth quarter of 2021. Contract drilling services costs for the first quarter were $166 million, down from $183 million in the fourth quarter of 2021. Adjusted EBITDA for the three months ended March 31, 2022 was $27 million compared to $12 million in the fourth quarter of 2021. Capital expenditures totaled $45 million in the first quarter, which includes $11 million of client reimbursable investments.
Transocean reported a net loss attributable to controlling interest of $175 million, $0.26 per diluted share, for the three months ended March 31, 2022. First quarter 2022 results included net favorable non-cash item of $8 million, or $0.02 per diluted share, related to discrete tax items. After consideration of this net favorable item, first quarter 2022 adjusted net loss was $183 million, $0.28 per diluted share, compared to $126 million, $0.19 per diluted share, in the fourth quarter of 2021. Contract drilling revenues for the three months ended March 31, 2022 decreased sequentially by $35 million to $586 million, primarily due to decreased dayrate for two rigs and two fewer calendar days in the first quarter.
Valaris reported first quarter 2022 results. Revenues increased to $318 million in the first quarter 2022 from $306 million in the fourth quarter 2021. Excluding reimbursable items, revenues increased to $291 million in the first quarter from $283 million in the fourth quarter primarily due to higher utilization for the jackup fleet and higher average day rates for the other segment, partially offset by lower utilization for the floater fleet. Net loss was $40 million in the first quarter 2022 compared to net income of $28 million in the fourth quarter 2021. Adjusted EBITDA decreased to negative $31 million in the first quarter from $3 million in the fourth quarter. Adjusted EBITDAR decreased to $31 million in the first quarter from $40 million in the fourth quarter.
REFINERS
CVR Energy announced net income of $94 million, or 93 cents per diluted share, on net sales of $2.4 billion for the first quarter of 2022, compared to a net loss of $39 million, or 39 cents per diluted share, on net sales of $1.5 billion for the first quarter of 2021. First quarter 2022 EBITDA was $278 million, compared to first quarter 2021 EBITDA of less than $1 million. CVR Energy also announced a first quarter 2022 cash dividend of 40 cents per share. The dividend, as declared by CVR Energy’s Board of Directors, will be paid on May 23, 2022, to stockholders of record as of May 13, 2022. CVR Partners announced that the Board of Directors of its general partner declared a first quarter 2022 cash distribution of $2.26 per common unit, which will be paid on May 23, 2022, to common unitholders of record as of May 13, 2022.
Delek US Holdings announced financial results for its first quarter ended March 31, 2022. Delek US reported a first quarter 2022 net income of $6.6 million, or $0.09 per share, versus net loss of $(70.0) million, or $(0.95) per share, for the quarter ended March 31, 2021. On an adjusted basis, Delek US reported Adjusted net income of $42.9 million, or $0.58 per share, for the first quarter 2022. This compares to Adjusted net loss of $(80.2) million, or $(1.08) per share, in the prior year. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") was $172.8 million for the first quarter compared to Adjusted EBITDA of $12.6 million in the prior year.
Marathon Petroleum reported net income attributable to MPC of $845 million, or $1.49 per diluted share, for the first quarter of 2022, compared with a net loss of $242 million, or $(0.37) per diluted share, for the first quarter of 2021. Adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) was $2.6 billion in the first quarter of 2022, compared with $1.6 billion for the first quarter of 2021. The first quarter of 2021 includes $332 million of adjusted EBITDA from discontinued operations.
Reuters reported that Valero Energy delayed until next year a major overhaul at its 195,000 barrel-per-day (bpd) McKee refinery in Sunray, Texas, said sources familiar with plant operations.
MLPS & PIPELINES
Delek Logistics Partners, LP announced its financial results for the first quarter 2022. For the three months ended March 31, 2022, Delek Logistics reported net income attributable to all partners of $39.5 million, or $0.91 per diluted common limited partner unit. This compares to net income attributable to all partners of $36.3 million, or $0.83 per diluted common limited partner unit, in the first quarter 2021. Net cash from operating activities was $47.9 million in the first quarter 2022 compared to $61.7 million in the first quarter 2021. Distributable cash flow was $51.7 million in the first quarter 2022, compared to $52.5 million in the first quarter 2021.
Enbridge announced that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series B or its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series C on June 1, 2022. As a result, subject to certain conditions, the holders of the Series B Shares have the right to convert all or part of their Series B Shares on a one-for-one basis into Series C Shares on June 1, 2022 and the holders of the Series C Shares have the right to convert all or part of their Series C Shares on a one-for-one bases into Series B Shares on June 1, 2022. Holders who do not exercise their right to convert their Series B Shares into Series C Shares will retain their Series B Shares and holders who do not exercise their right to convert their Series C Shares into Series B Shares will retain their Series C Shares.
Smartpipe Technologies announced that Enbridge has invested US$6.6 million in Smartpipe's innovative pipeline technology, designed to improve the safety and versatility of existing pipeline infrastructure.
Equitrans Midstream announced financial results for the first quarter 2022. The Company generated $105 million of net income and achieved $277 million of adjusted EBITDA. It also recorded 71% of total operating revenue from firm reservation fees.
Frontline Ltd. announced that Mr. Tor Svelland has resigned as a Director of the Company. Frontline announced the appointment of Mr. Ole B. Hjertaker as a Director of the Company. Frontline announced the appointment of Mr. Steen Jakobsen as a Director of the Company.
MPLX LP reported first-quarter 2022 net income attributable to MPLX of $825 million, compared to $739 million for the first quarter of 2021. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) attributable to MPLX was $1,393 million, compared with $1,352 million in the first quarter of 2021.
MPLX LP will advance projects focused on expansions and reducing bottlenecking, including on their crude and natural gas long-haul pipelines supporting the Permian and Bakken, the company said in its first quarter 2022 earnings release.
MPLX LP, WhiteWater Midstream, and a joint venture between Stonepeak Infrastructure Partners and West Texas Gas have reached a final investment decision to move forward with the expansion of the Whistler Pipeline after having secured sufficient firm transportation agreements with shippers. The Whistler Pipeline expansion will increase the mainline capacity from 2 billion cubic feet per day (Bcf/d) to 2.5 Bcf/d through the planned installation of three new compressor stations. The expansion is expected to be in service in September 2023.
Nordic American Tankers provided an update on activities for its suezmax vessels being able to load one million barrels each. In early April we fixed a ship over 12 days at USD 65,800 a day. In mid April it fixed a ship at USD 60,000 for 38 days. At the same time a contract was achieved for 22 days at USD 60,000. When ships are in good position, rates are currently about USD 50,000 per day.
Williams announced its unaudited financial results for the three months ended March 31, 2022. GAAP net income was $379 million, or $0.31 per diluted share. Adjusted net income was $499 million, or $0.41 per diluted share (Adjusted EPS) – up 16% and 17%, respectively, vs. 1Q 2021. Available funds from operations (AFFO) were $1.190 billion – up $161 million or 16% vs. 1Q 2021.
MARKET COMMENTARY
U.S. stock index futures slipped as investors remained nervous ahead of the Federal Reserve's policy decision this week. Upbeat earnings and gains in banking shares supported most European stocks, while UK's FTSE 100 dipped as a strong sterling weighed on export-oriented stocks. In Asia, equities were mostly steady in holiday-thinned trade, with both China and Japan markets shut, while in Hong Kong, stocks managed to hold onto most of their gains from the previous session with heavyweight HSBC rising after its largest shareholder called for a break-up. The dollar fell against a basket of major currencies before an expected Fed rate hike. In commodities, concerns over the demand outlook continued to weigh on oil prices and gold prices slipped. Earnings from American International Group and Starbucks will be in watch later in the day.
Nasdaq Advisory Services Energy Team is part of Nasdaq's Advisory Services – the most experienced team in the industry. The team delivers unmatched shareholder analysis, a comprehensive view of trading and investor activity, and insights into how best to manage investor relations outreach efforts. For questions, please contact Tamar Essner.
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