Oil Prices Slip, Looming Sanctions on Russian Oil Products Add Uncertainty Over Supply, Build in U.S. Fuel Stocks Suggests Sluggish Demand
SECTOR COMMENTARY:
Energy stocks are set to open lower, as the YTD 2023 rotation back into growth, technology, discretionary is set to persist and only strengthen. Stronger than expected earnings and expense management from Meta (Facebook parent) are set to fuel added gains in growth areas of the market, while holdings in energy continue to be used as a source of funds.
Earnings continue today across the sector, with several E&Ps releasing fourth quarter results and issuing 2023 production and capex guidance. The focus remains on total shareholder return and deploying excess free cash flow back into dividends, share repurchases, and debt reduction. However, the Federal Reserve’s recent indications of pulling back on rate hikes and providing language that inflation is abating is drawing capital back into risk areas of the market, namely growth, technology and discretionary.
Oil prices slipped on Thursday as looming sanctions on Russian oil products added uncertainty over supply and a build in U.S. fuel stocks suggested sluggish demand despite signs of global economic recovery. Both benchmarks plunged more than 3% overnight after U.S. government data showed a large build in oil stocks. A European Union ban on Russian refined products is set to take effect on Feb. 5, potentially dealing a blow to global supply. EU countries will seek a deal on Friday on a European Commission proposal to set price caps on Russian oil products after postponing a decision on Wednesday because of divisions among member states, diplomats said.
Natural gas futures are higher by 2%, trading around $2.50. Weekly inventory data due out later today is calling for a draw of 144 bcf.
BY SECTOR:
US INTEGRATEDS
No significant news.
INTERNATIONAL INTEGRATEDS
Equinor said European Union sanctions had prevented it from providing services and equipment to inspect the damaged Nord Stream gas pipelines last year, revealing for the first time why Norwegian assistance was not forthcoming.
Petrobras said it will hike prices of its aviation kerosene fuel (QAV) for distributors by 17.1%.
Shell plc announced the commencement of a $4 billion share buyback programme covering an aggregate contract term of approximately three months. The purpose of the programme is to reduce the issued share capital of the company. All shares repurchased as part of the programme will be cancelled. It is intended that, subject to market conditions, the programme will be completed prior to the company’s Q1 2023 results announcement, scheduled for May 4, 2023.
The Board of Shell plc announced an interim dividend in respect of the fourth quarter of 2022 of US$ 0.2875 per ordinary share.
Shell plc shareholders, compared with the third quarter 2022, mainly reflected higher LNG trading and optimisation results, favourable deferred tax movements, partly offset by lower realised oil and gas prices, and higher operating expenses. Fourth quarter 2022 income attributable to Shell plc shareholders also included net gains of $4.2 billion due to the fair value accounting of commodity derivatives, partly offset by charges of $1.9 billion related to the EU solidarity contribution and the UK Energy Profits Levy, and impairment charges of $0.7 billion. These gains and losses are included in identified items amounting to a net gain of $1.5 billion in the quarter. This compares with identified items in the third quarter 2022 which amounted to a net charge of $1.4 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 positive $0.9 billion.
TotalEnergies pulled its foreign staff from Iraq as it struggles to resolve challenges with Baghdad over a $27 billion cluster of major energy projects, three sources told Reuters.
TotalEnergies and Air Liquide announced their decision to create an equally owned joint venture to develop a network of hydrogen stations, geared towards heavy duty vehicles on major European road corridors. This initiative will help facilitate access to hydrogen, enabling the development of its use for goods transportation and further strengthening the hydrogen sector.
TotalEnergies said that it would raise by 15% the budget allocated to bonuses for some of its staff in France in view of its 2022 results.
Ecolite Biotech Manufacturing Sdn Bhd, a health and wellness company in Malaysia, has signed a long-term agreement with TotalEnergies to provide a 0.4 megawatt-peak (MWp) solar photovoltaic (PV) system to its facility in Malaysia. Ecolite is the subsidiary of Malaysia public-listed company Sunzen Biotech Berhad, specializes in animal health and nutrition. This system will power about 10% of the facility with renewable energy.
CANADIAN INTEGRATEDS
No significant news.
U.S. E&PS
Comstock Resources announced that its proved natural gas and oil reserves as of December 31, 2022 were estimated at 6.7 trillion cubic feet equivalent ("Tcfe"), which represents a 9% increase from total proved natural gas and oil reserves of 6.1 Tcfe as of December 31, 2021.
ConocoPhillips reported fourth-quarter 2022 earnings of $3.2 billion, or $2.61 per share, compared with fourth-quarter 2021 earnings of $2.6 billion, or $1.98 per share. Excluding special items, fourth-quarter 2022 adjusted earnings were $3.4 billion, or $2.71 per share, compared with fourth-quarter 2021 adjusted earnings of $3.0 billion, or $2.27 per share. Special items for the current quarter were primarily driven by impairment of certain aged, suspended wells and corporate expenses.
CANADIAN E&PS
No significant news.
OILFIELD SERVICES
ChampionX Corporation announced fourth quarter of 2022 and full year 2022 results. For the fourth quarter of 2022, revenue was $985.9 million, net income attributable to ChampionX was $67.9 million, and adjusted EBITDA was $178.8 million. Income before income taxes margin was 8.9%, and adjusted EBITDA margin was 18.1%. Cash provided by operating activities was $195.1 million, and free cash flow was $168.6 million.
Core Laboratories N.V. reported fourth quarter 2022 revenue of $127,600,000. Core's operating income was $15,600,000, with diluted earnings per share ("EPS") of $0.14, all in accordance with U.S. generally accepted accounting principles ("GAAP"). The financial results for the fourth quarter of 2022 include a non-cash adjustment of $1,900,000, decreasing stock compensation expense associated with performance share awards that vested during the quarter. Operating income, ex-items, a non-GAAP financial measure, was $14,700,000, yielding operating margins of 12%, and EPS, ex-items, of $0.20. A full reconciliation of non-GAAP financial measures is included in the attached financial tables.
DRILLERS
No significant news.
REFINERS
No significant news.
MLPS & PIPELINES
Magellan Midstream Partners reported net income of $187 million for fourth quarter 2022, compared to $244 million for fourth quarter 2021. The 2022 results were negatively impacted by a $58 million non-cash charge for the impairment of our investment in the Double Eagle pipeline joint venture.
Enbridge worked to restore full service on the southern (T-South) mainline system of its British Columbia (BC) natural gas pipeline following an unplanned outage.
CIBC upgraded TC Energy to Outperformer from Neutral.
BofA Global Research initiated New Fortress Energy with a Buy rating.
MARKET COMMENTARY
Nasdaq futures jumped as Meta Platforms surged after announcing rigorous cost controls, while a dovish message from Federal Reserve Chair Jerome Powell boosted bets of a softer landing for the U.S. economy. European shares climbed, led by tech and real-estate stocks, with the focus squarely on the European Central Bank's interest rate decision. Chinese stocks closed lower as investors awaited further signs of recovery in the pandemic-hit Chinese economy. Gold rose to a nine-month high on a subdued dollar. After market close, Apple, Alphabet, Amazon, Qualcomm and Gilead Sciences are scheduled to release their quarterly reports.
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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