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Relentless Descent Of Energy Stocks As Oil Prices Struggle

Thursday, December 20, 2018

Sector Commentary

Energy stocks remain on track of their relentless descent as oil prices continue to struggle to find a bottom. Meanwhile, broader markets are set to gain this morning following yesterday’s steep sell-off, though market psyche remains extremely fragile across all risk assets amid a tightening Federal Reserve, ongoing U.S.-China trade disputes and associated tariffs, and the slide in oil prices.

A host of analyst rating changes were implemented across E&Ps, oilfield services and MLPs this morning, while the steady stream of operator 2019 budget and activity releases continued.

Oil futures continued to plunge this morning, with WTI and Brent reaching lows this morning of $45.82 and $54.64, respectively. Bearish sentiment in the commodity has reached a crescendo, as fears of oversupply, relentless machine-based momentum-selling, and worries of the demand side due to expectations of slower global growth in 2019 all weighed.

Natural gas futures are higher by over 4% ahead of weekly inventory data. Analysts expect a draw of 135 Bcf.

INTERNATIONAL INTEGRATEDS

Reuters - BP and SOCAR Turkey signed agreement to evaluate creation of joint venture to build and operate petrochemicals complex in Turkey. BP said proposed facility, in Aliaga in western Turkey, would produce 1.25 million tonnes a year (tpa) of purified terephthalic acid, 840,000 tpa of paraxylene and 340,000 tpa of benzene.

CANADIAN INTEGRATEDS

Press Release - Husky Energy plans to spend approximately $3.4 billion on its capital expenditure program in 2019 as it continues to invest in a deep portfolio of higher-margin, longer-life projects. This is about $300 million less than forecast at the Company’s Investor Day in May 2018, and includes capital spending reductions resulting from Alberta’s mandated oil production cuts. The Company retains further flexibility to reduce capital spending depending on market conditions.

U.S. E&PS

(Late Wednesday) Press Release - Comstock Resources announced that it has entered into an agreement with Shelby Shale to acquire an 88% interest in 6,124 gross acres (6,023 net) limited to Shelby's Haynesville shale rights in Harrison and Panola counties, Texas for $20.5 million. Comstock will pay the purchase price over a four year period by granting Shelby a 12% interest in each well drilled by Comstock on the acreage up to a total of $20.5 million in carried costs. Comstock has identified 33 (22.9 net) potential drilling locations on this acreage, including 27 (22.4 net) that would be operated by Comstock.

(Late Wednesday) Press Release - Parsley Energy provided an initial overview of its 2019 development program and also updated expectations for certain full-year 2018 results. Consistent with the Company's commitment to capital discipline and in response to recent commodity price trends, Parsley intends to reduce development activity in 2019 while still delivering healthy production growth. The Company estimates that capital expenditures of $1.35-$1.55 billion will translate to total production of 124-134 MBoe per day and oil production of 80-85 MBo per day in 2019, representing year-over-year production growth of approximately 20% on both measures. Parsley plans to deploy 12-to-14 development rigs and three-to-four frac spreads on average in 2019, down from a recent run-rate of 16 development rigs and five frac spreads. Parsley's baseline capital budget assumes a $50 WTI oil price in 2019 and a relatively static service cost environment. In this context, the Company would expect to outspend cash flow from operations by less than $250 million during 2019, representing a projected year-over-year decline of more than 50%.

KeyBanc started coverage of Diamondback Energy, Occidental Petroleum, PDC Energy, Pioneer Natural Resources, Parsley Energy and WPX Energy at ‘Overweight’.

KeyBanc started coverage of Berry Petroleum at ‘Sector Weight’.

OILFIELD SERVICES

Societe Generale downgraded Oceaneering International to ‘Hold’ from ‘Buy’.

Societe Generale upgraded Halliburton and Patterson-Uti Energy to ‘Buy’ from ‘Hold’.

Press Release - McDermott International announced that it has been awarded a sizeable* technology contract by HPCL Rajasthan Refinery Ltd. for the license and basic engineering design of two 490 KTA polypropylene plants in Pachpadra Tehsil, Barmer District, Rajasthan, India. The plants will use Lummus' proprietary NOVOLEN process reactors and proprietary NHP catalyst to produce a full range of leading polypropylene products for the Indian and regional markets.

Press Release - Oceaneering International announced that it has secured a three-year Provision of Inspection Enactment Services contract with Petrofac's Engineering and Production Services division in the Western Hemisphere, growing its asset integrity portfolio within the U.K. Continental Shelf (UKCS). Oceaneering will retain its existing contract on one of Petrofac's Duty Holder assets, while expanding its service scope to include two additional North Sea facilities.

Press Release - TechnipFMC has been awarded a significant Engineering, Procurement support and Construction management services contract by Neste for the expansion of their renewable products refinery in Singapore. This project will increase the overall Neste Singapore Refinery renewable products production by up to 1.3 million tons per year and includes TechnipFMC’s steam reforming technology. This expansion aims at meeting the market demand for renewable products. The production process is based on Neste’s proprietary NEXBTL state-of-the-art technology.

DRILLERS

Societe Generale downgraded Ensco, Noble and Rowan Companies to ‘Hold’ from ‘Buy’.

REFINERS

Jefferies upgraded Phillips 66 to ‘Buy’.

MLPS & PIPELINES

Jefferies upgraded DCP Midstream, Enlink Midstream LLC, Enlink Midstream Partners, Kinder Morgan, Magellan Midstream Partners, Phillips 66 Partners, Plains All American Pipeline, Plains GP Holdings and Targa Resources to ‘Buy’.

MARKET COMMENTARY

U.S. stock futures traded higher after ending down sharply on Wednesday as the Federal Reserve's forecast fell short of investors' hopes of a more dovish monetary policy. Global equities slumped, with fears of global economic slowdown weighing on the markets. The dollar fell on U.S. recession fears, while gold prices edged higher.

NASDAQ ENERGY TEAM THOUGHT LEADERSHIP


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