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Oil Slips as Record U.S. Output Overshadows OPEC Production Cuts

Thursday, February 28, 2019

SECTOR COMMENTARY

Energy stocks are set to open marginally in negative territory as moderately lower S&P futures and oil prices should influence the group early on. Meanwhile, the earnings deluge continues with numerous producers and oilfield service providers releasing fourth quarter and full year results, along with 2019 guidance.

Oil prices are slightly lower amid the backdrop of U.S.-China trade negotiations and as economic data for China continued to show a softening of their economy. "Further evidence of a slowdown in China hit risk sentiment," said Jasper Lawler, head of research at futures brokerage London Capital Group.

Natural gas futures are higher by nearly 1% ahead of weekly inventory data. Analysts expect a drawdown of 172 Bcf.

US INTEGRATEDS

Press Release - ExxonMobil said it has made a natural gas discovery offshore Cyprus in the Eastern Mediterranean at the Glaucus-1 well. The well, located in Block 10, encountered a gas-bearing reservoir of approximately 436 feet (133 meters). The well was safely drilled to 13,780 feet (4,200 meters) depth in 6,769 feet (2,063 meters) of water. Based on preliminary interpretation of the well data, the discovery could represent an in-place natural gas resource of approximately 5 trillion to 8 trillion cubic feet (142 billion to 227 billion cubic meters). Further analysis in the coming months will be required to better determine the resource potential.

Press Release - Genel Energy announced that approval has been given by the Kurdistan Regional Government ('KRG') regarding the acquisition of stakes from Chevron in the Sarta and Qara Dagh blocks, in the Kurdistan Region of Iraq. The acquisitions have now closed and Genel therefore has 30% equity in the Sarta PSC, with Chevron holding 50% and the KRG the remaining 20%. Final investment decision relating to Sarta phase 1A development has now been taken.

INTERNATIONAL INTEGRATEDS

(Late Wednesday) Reuters - Petroleo Brasileiro reported its first annual profit in five years as it swung to a net profit in the fourth quarter, although one-time provisions and writedowns led it to miss estimates. In a securities filing, Petrobras, as the company is known, said fourth-quarter net income rose to 2.102 billion reais ($564 million), compared with a loss of almost 5.5 billion reais in the same period a year earlier.

Press Release - Repsol posted net income of 2.341 billion euros in 2018, a 10% increase from the 2.121 billion earned in 2017 and the highest in eight years. This was achieved with average Brent oil prices at 71 dollars per barrel last year, compared with more than 111 dollars in 2011. Adjusted net income, which specifically measures the progress of Repsol's businesses, also increased 10% to 2.352 billion euros, exceeding the 2.131 billion recorded in the previous year. The company plans to raise the dividend to one euro per share in 2020, with a total repurchase of the shares issued in the Repsol Flexible Dividend program. All of this positions its shareholder compensation among the highest in the sector.

(Late Wednesday) Reuters - Royal Dutch Shell and PetroChina joint venture Arrow Energy was granted leases for a A$10 billion ($7.2 billion) project to develop Australia's biggest coal seam gas resource. The Queensland government said it had granted 14 leases to Arrow Energy for the Surat project, which holds 5 trillion cubic feet (140 billion cubic metres) of gas. Arrow agreed in December 2017 to a 27-year deal to sell output from Surat to the Queensland Curtis LNG (QCLNG) project run by Shell.

(Late Wednesday) Reuters - Royal Dutch Shell reported unit upset at Martinez, California refinery.

(Late Wednesday) Reuters - Royal Dutch Shell said the operations normal after small release at its Deer Park, Texas facility. Shell operates a 275,000 barrel-per-day (bpd) joint-venture refinery at its Deer Park facility.

(Late Wednesday) Reuters - Total was returning a diesel hydrotreater to production on Wednesday after completing a planned overhaul at its 225,500 barrel per day (bpd) Port Arthur, Texas, refinery. The 30,000 bpd Diesel Hydrotreater 3 was near returning to full production as Total works to also restart the 35,000-bpd continuous catalytic reformer, the sources said. The 74,000 bpd ACU-2 crude distillation unit (CDU) and associated 50,000 bpd Vacuum Distillation Unit-1 are expected to restart along with the reformer.

U.S. E&PS

(Late Wednesday) Press Release - Apache reported a loss of $381 million or $1.00 per diluted common share during the fourth-quarter 2018. When adjusted for certain items that impact the comparability of results, including primarily the impact of asset impairments in the North Sea, Gulf of Mexico, Anadarko Basin, and Egypt, Apache's fourth-quarter income totaled $119 million, or $0.31 per share. Net cash provided by operating activities in the fourth quarter was $1 billion, and adjusted EBITDAX was $1.1 billion.

(Late Wednesday) Press Release - Bonanza Creek Energy reported GAAP net income of $106.1 million, or $5.15 per diluted share, and $168.2 million, or $8.16 per diluted share, for the three and twelve months ended December 31, 2018, respectively. During the fourth quarter of 2018, the Company reported Wattenberg average daily sales of 17.7 Mboe per day, which increased 5% from the third quarter 2018, driven by high-intensity completion designs and consistently low gathering system pressures on the Company's RMI system.

(Late Wednesday) Press Release - California Resources reported net income attributable to common stock (CRC net income) of $346 million, or $7.00 per diluted share, for the fourth quarter of 2018. Adjusted net income for the fourth quarter of 2018 was $26 million, or $0.53 per diluted share. For the full year of 2018, CRC net income was $328 million, or $6.77 per diluted share. Adjusted net income for the full year of 2018 was $61 million, or $1.27 per diluted share.

(Late Wednesday) Press Release - Gulfport reported net income of $134.0 million, or $0.78 per diluted share for the fourth quarter of 2018, on oil and natural gas revenues of $416.0 million. For the fourth quarter of 2018, EBITDA was $303.2 million and cash flow from operating activities before changes in operating assets and liabilities was $218.1 million. Adjusted net income of $78.2 million, or $0.46 per diluted share.

(Late Wednesday) Press Release - Jones Energy reported total operating revenues for the three months ended December 31, 2018 were $53.9 million as compared to $54.5 million for the three months ended December 31, 2017. For the fourth quarter ended December 31, 2018, the Company reported a net loss of $1,235.5 million, or a net loss of $239.73 per share attributable to common shareholders, compared to fourth quarter of 2017 net income of $41.6 million, or net income of $10.17 per share attributable to common shareholders.

(Late Wednesday) Press Release - PDC Energy reported net income for the fourth quarter of 2018 was $178.9 million, or $2.71 per diluted share, and includes a fourth quarter impairment of $264.2 million related to non-focus area Delaware Basin leaseholds. Adjusted net loss for the fourth quarter of 2018 was $146.7 million, or $2.22 per diluted share, compared to adjusted net income of $130.9 million, or $1.98 per diluted share, for the same 2017 period.

(Late Wednesday) Press Release - W&T Offshore reported net income of $138.8 million, or $0.96 per share for the fourth quarter of 2018. Excluding primarily a $55.3 million unrealized commodity derivative gain and a $47.1 million non-cash gain on debt refinancing, the Company’s Adjusted Net Income was $32.0 million, or $0.22 per share.

CANADIAN E&PS

(Late Wednesday) Press Release - Canacol Energy announced that during the year ended December 31, 2018, the Corporation recorded increases in certain reserve categories as a result of the drilling and completion of exploration locations at Cañahuate-3 on the Esperanza natural gas block, Breva-1 on the VIM-21 natural gas block, and Pandereta-3 and Chirimia-1 on the VIM-5 natural gas block, all in the Lower Magdalena Valley basin, Colombia. Reserve replacement of 232% based on calendar 2018 gross conventional natural gas reserve additions of 95 Bcf. Increased by 11% since December 31, 2017, totaling 559 Bcf at December 31, 2018, with a before tax value discounted at 10% of US$ 1.5 billion, representing both CAD$ 11.65 per share of reserve value, and CAD$ 9.37 per share of 2P net asset value (net of US$298 million of net debt).

Press Release - Encana announced its 2019 capital investment program. The outlook is aligned with Encana’s strategy which returns cash to shareholders through disciplined investments to profitably grow liquids in its Core 3 plays.

Press Release - Encana reported net earnings of $1.03 billion, or $1.08 per share for the fourth quarter 2018. Non-GAAP operating earnings for the fourth quarter were $305 million, or $0.32 per share. Cash from operating activities for the fourth quarter was $559 million. Non-GAAP cash flow was $540 million, an increase of more than 20 percent when compared to fourth quarter of 2017. Demonstrating its commitment to return capital to shareholders, Encana has increased its dividend by 25 percent. On February 27, 2019, the Board declared a dividend of $0.01875 per share payable on March 29, 2019 to common shareholders of record as of March 15, 2019.

(Late Wednesday) Press Release - Encana announced receipt of regulatory approvals for its planned $1.25 billion share buyback. On February 27, 2019, the Toronto Stock Exchange (TSX) accepted its notice of intention to renew its normal course issuer bid (NCIB) through which Encana may purchase up to 149,425,839 common shares during the 12-month period commencing March 4, 2019 and ending March 3, 2020. Encana has also entered into an automatic share purchase plan (ASPP) in relation to purchases made in connection with the NCIB to allow it to purchase common shares under the NCIB when Encana would ordinarily not be permitted to purchase shares due to regulatory restrictions and customary self-imposed blackout periods.

Press Release - Seven Generations reported 2018 adjusted funds flow of $1.67 billion or $4.60 per share, representing a per share increase of 36 percent compared to 2017.

2018 net income of $440 million, $1.21 per share. Operating income of $574 million, $1.58 per share, up 76 percent versus 2017. As of December 31, 2018, 7G’s trailing 12-month return on capital employed was 12.9 percent and its cash return on invested capital was 19.1 percent.

Press Release - Vermilion Energy reported fund flows from operations ("FFO") for Q4 2018 was $222 million ($1.46/basic share, down 15% from the previous quarter as higher production was more than offset by lower commodity prices. FFO in 2018 was $839 million ($5.96/basic share, an increase of 39% from the prior year (19% on a per share basis), due to higher production volumes and commodity prices, which were partially offset by $111 million of realized hedging losses. Net earnings in 2018 were $272 million ($1.93/basic share), representing a 336% increase over the prior year (271% on a per share basis). We generated a Return on Capital Employed ("ROCE") of 9%, compared to our 5-year average ROCE of 4%.

Press Release - Whitecap Resources achieved average production of 73,185 boe/d in Q4/18 compared to 59,707 boe/d in Q4/17, an increase of 23% (11% per debt-adjusted share). Average production for the full year was a record 74,415 boe/d compared to 57,450 boe/d in 2017, an increase of 30% (16% per debt-adjusted share). Generated funds flow of $704.4 million ($1.67 per share), an increase of 38% (23% per share) compared to the prior year. Higher production volumes and realized prices in 2018 resulted in significantly higher funds flow.

OILFIELD SERVICES

Press Release - Calfrac WellServices generated revenue of $498.9 million, an increase of 3 percent from the fourth quarter in 2017, resulting primarily from higher activity in Canada and larger job sizes in the United States. The company reported a net loss attributable to shareholders of Calfrac of $3.5 million or $0.02 per share diluted, compared to net income of $38.0 million or $0.26 per share diluted in 2017, which included a $76.3 million property, plant and equipment impairment reversal.

Press Release - KBR announced it has been awarded a pre Front End Engineering Design (Pre-FEED) contract by Mexico Pacific Limited (MPL) for a midscale LNG liquefaction project in Puerto Libertad on the Pacific coast of Mexico. Under the terms of the contract, KBR will provide a Pre-FEED and cost estimate for the project. This work will be performed by KBR utilizing the ConocoPhillips Optimized Cascade technology, leveraging the midscale LNG joint development work previously announced by KBR.

(Late Wednesday) Press Release - Petrofac reported net profit of US$64 million which was impacted by exceptional items and certain re-measurements of US$289 million (US$207 million was recognised in the first half of the year), of which approximately US$265 million were non-cash items. The Group's dividend policy targets a dividend cover of between 2.0x and 3.0x business performance net profit. In line with this policy, the Board is proposing a final dividend of 25.3 cents per share (2017: 25.3 cents). Together with the interim dividend of 12.7 cents per share (2017: 12.7 cents), this gives a total dividend for the year of 38.0 cents per share (2017: 38.0 cents). Dividends paid in 2018 were covered by free cash flow. The Company announced that Francesca Di Carlo will be appointed as a Non-executive Director with effect from the Annual General Meeting on 3 May 2019.

Press Release - TETRA Technologies announced consolidated fourth quarter 2018 earnings per share before discontinued operations attributable to TETRA stockholders of $0.04. This compares to a consolidated net loss of $0.06 per share before discontinued operations attributable to TETRA stockholders in the third quarter of 2018, and a consolidated net loss per share before discontinued operations attributable to TETRA stockholders of $0.22 in the fourth quarter of 2017.

(Late Wednesday) Press Release - Weatherford International announced it has completed the sale of four contracted drilling rigs in Algeria. The Company expects that the remaining two rigs will transfer within the following four weeks after relocating within Algeria. This will complete the sale of Weatherford's land drilling operations in Algeria, which in total includes six drilling rigs, 350 employees and contractors and associated customer contracts to ADES International Holding PLC for $60 million in cash. Proceeds are expected to be received in tranches with $40 million received upon sale of the contracted rigs and $10 million for each of the rigs to be relocated, subject to other customary adjustments agreed in connection with finalizing the overall transaction.

DRILLERS

(Late Wednesday) Press Release - Ensco reported a loss of $0.47 per share for fourth quarter 2018 compared to a loss of $0.49 per share in fourth quarter 2017. Revenues decreased to $399 million in fourth quarter 2018 from $454 million a year ago primarily due to lower utilization for the floater fleet, the sale of two rigs that operated in the year-ago period and a decline in the average day rate to $129,000 from $157,000 in fourth quarter 2017.

REFINERS

(Late Wednesday) Reuters - Valero Energy may boost production on the small crude distillation unit (CDU) at its 180,000 barrel per day (bpd) Memphis, Tennessee, refinery over the weekend. Valero on Saturday cut back production on the 80,000 bpd West CDU to change the catalyst on the 53,000 bpd Naphtha Hydrotreater, which is shut. The hydrotreater is scheduled to restart on Saturday.

MLPS & PIPELINES

Press Release - AltaGas achieved normalized EBITDA of $394 million for the fourth quarter of 2018 and $1.0 billion for the full-year 2018, in line with guidance, representing 27 percent year-over-year growth for the year ended December 31, 2018. Normalized Funds from Operations (FFO) of $255 million for the fourth quarter of 2018 and $657 million for the year ended December 31, 2018 represented an increase of approximately 7 percent for full-year 2018, slightly lower than guidance of approximately 10 percent growth, due to lower hydrology at the Northwest Hydro Facilities and the delay of cash distribution receipts from equity investments to early 2019. AltaGas' net loss applicable to common shares for the period was $502 million ($2.25 per share), mainly due to provisions for assets. Normalized net income for 2018 was $195 million or $0.88 per share.

Press Release - BP Midstream Partners reported net income attributable to the Partnership in the fourth quarter of $36.8 million (or $0.35 per unit). Full year results were $133.1 million (or $1.27 per unit). Adjusted EBITDA attributable to the Partnership in the fourth quarter was $43.0 million. Quarterly cash distribution: On January 17, 2019, the board of directors of the general partner of BPMP declared an increased quarterly cash distribution of $0.3015 per unit for the fourth quarter of 2018; an increase of $0.0390 over the Partnership’s minimum quarterly distribution. Distribution coverage ratio was 1.29 times for the fourth quarter and 1.21 for full year.

Press Release - Enterprise Products Partners announced that its Shin Oak natural gas liquids (“NGL”) mainline is now in service from Orla, Texas in Reeves County to its NGL fractionation and storage complex at the Mont Belvieu hub. The 24-inch diameter pipeline has an initial capacity of approximately 250,000 barrels per day (“BPD”) and provides takeaway capacity for growing NGL production from multiple basins, including the Permian, where NGL volumes are projected to nearly double within the next three years.

(Late Wednesday) Press Release - Western Gas Equity Partners and Western Gas Partners announced that at a special meeting of WES's unitholders held earlier today, WES's unitholders voted to approve and adopt the Contribution Agreement and Agreement and Plan of Merger, dated as of November 7, 2018, pursuant to which a wholly owned subsidiary of WGP will merge with and into WES, with WES continuing as the surviving entity and a subsidiary of WGP. Approximately 99.8% of the total WES units that were voted at the special meeting voted in favor of the Merger. With a quorum voting, the Merger Agreement and Merger were approved and adopted by the unitholders.

MARKET COMMENTARY

Wall Street futures were lower on reduced optimism over U.S.-China trade talks and as the U.S.-North Korea summit in Vietnam ended without a deal. European stocks traded lower, while Asian markets moved in the red on weak Chinese economic data. The euro gained against the dollar, while gold prices rose. Oil prices dipped as record U.S. output overshadowed OPEC-led production cuts. Gross domestic product and jobless claims data are scheduled on the economic calendar.

NASDAQ ENERGY TEAM THOUGHT LEADERSHIP


Nasdaq Advisory Services Energy Team Nasdaq's Advisory Services Tamar Essner
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