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Sector Earnings Reports Amid Low Oil Prices Set Energy Stocks Higher

Thursday, November 01, 2018

Sector Commentary

Energy stocks are set to open modestly higher amid a host of data points including numerous sector earnings reports, a sizeable deal in the E&P patch, and higher broader index futures pared against lower oil prices.

Apache, Noble Energy, Matador Resources, W&T Offshore, Noble Corp, Suncor and Marathon Petroleum were just a few of the many reporting earnings this morning and last night.

Additionally, Encana Corporation and Newfield Exploration Company announced that they have entered into a definitive agreement whereby Encana will acquire all of the outstanding shares of common stock of Newfield in an all-stock transaction valued at approximately $5.5 billion. Encana also stated it intends to raise its dividend by 25% and expand its share buyback program to $1.5 billion, post-closing.

Oil prices are lower by roughly half a percent amid rising supply and concerns around global activity. Natural gas futures are higher, briefly touching a 9-month high amid cooling weather forecasts and ahead of weekly inventory data forecast to show stocks rose by 51 bcf.

US INTEGRATEDS

(Late Wednesday) Press Release - The Board of Directors of Chevron declared a quarterly dividend of one dollar and twelve cents ($1.12) per share, payable December 10, 2018, to all holders of common stock as shown on the transfer records of the Corporation at the close of business November 16, 2018.

INTERNATIONAL INTEGRATEDS

Press Release - BP has completed its $10.5bn (£8.2bn) deal to buy BHP Billiton's US shale business. A new unit, BPX Energy, will include the newly acquired shale fields and BP's existing collection of assets in the Lower 48 shale basin of the US, run as a separate entity since 2015. BP said that the deal would complete without a rights issue.

(Late Wednesday) Reuters - Petroleo Brasileiro SA will sell its 50 percent stake in a Nigerian oil and gas exploration venture to a consortium led by top oil trader Vitol for $1.53 billion, the latest step in the state-controlled oil company's debt reduction drive. The other 50 percent stake in Petrobras Oil and Gas BV, also known as Petrobras Africa, is owned by Brazilian investment bank BTG Pactual, which in a filing confirmed a Reuters report that it would likely hang on to its portion after previously mulling a sale.

Press Release - Royal Dutch Shell announced the commencement of trading in the second tranche of its share buyback programme previously announced on July 26, 2018. The company’s intention is to buy back at least $25 billion of its shares by the end of 2020, subject to further progress with debt reduction and oil price conditions. On October 19, 2018 the company completed the first tranche of its share buyback programme. In aggregate between July 26, 2018 and October 19, 2018, the company repurchased 60,844,806 A ordinary shares for an aggregate consideration of $2 billion.

Press Release - The Board of Royal Dutch Shell announced an interim dividend in respect of the third quarter of 2018 of US$0.47 per A ordinary share and B ordinary share, equal to the US dollar dividend for the same quarter last year. Details relating to the third quarter 2018 interim dividend It is expected that cash dividends on the B Shares will be paid via the Dividend Access Mechanism from UK -sourced income of the Shell group.

Press Release - Royal Dutch Shell reported cash flow from operating activities for the third quarter 2018 was $12.1 billion, which included negative working capital movements of $2.6 billion, compared with $7.6 billion in the third quarter 2017, which included negative working capital movements of $1.3 billion. Excluding working capital movements, cash flow from operations of $14.7 billion mainly reflected increased earnings and higher dividends received.

CANADIAN INTEGRATEDS

(Late Wednesday) Press Release - Suncor Energy reported third quarter 2018 operating earnings of $1.557 billion ($0.96 per common share), compared to $867 million ($0.52 per common share) in the prior year quarter. Net earnings were $1.812 billion ($1.12 per common share) in the third quarter of 2018, compared to $1.289 billion ($0.78 per common share) in the prior year quarter. During the third quarter of 2018, Suncor continued to return significant cash to shareholders through dividends of $582 million and, under Suncor’s normal course issuer bid which commenced on May 4, 2018, repurchased and cancelled $889 million of its own shares.

U.S. E&PS

(Late Wednesday) Press Release - Antero Resources reported a GAAP net loss of $154 million, or $0.49 per diluted share for the three months ended September 30, 2018, compared to a net loss of $135 million, or $0.43 per diluted share, in the prior year period. Non-GAAP Adjusted Net Income was $77 million, or $0.24 per diluted share, compared to a $9 million, or $0.03 per diluted share, in the prior year period. Non- GAAP Stand-Alone Adjusted Net Income was $73 million, or $0.23 per diluted share, compared to $5 million, or $0.01 per diluted share, in the prior year period.

(Late Wednesday) Press Release - Apache reported earnings of $81 million or $0.21 per diluted common share for the third quarter of 2018. Apache’s third-quarter earnings were $244 million or $0.63 per share.

Raymond James upgraded Chesapeake Energy to ‘Outperform’ from ‘Underperform’.

(Late Wednesday) Press Release - Chesapeake Energy announced that it is notifying holders of its 2.25% Contingent Convertible Senior Notes due 2038 that they have the option, pursuant to the terms of the Notes, to require Chesapeake to purchase on December 15, 2018 all or a portion of such holders' Notes. The repurchase price is equal to 100% of the aggregate principal amount of the Note, together with accrued but unpaid interest thereon, up to but not including the Repurchase Date, provided that interest payable on December 15, 2018 will be paid to the holders in whose names the Notes are registered at the close of business on December 1, 2018, the record date prior to the Repurchase Date.

Bernstein upgraded Concho Resources to ‘Outperform’ from ‘Market Perform’.

(Late Wednesday) Press Release - Eclipse Resources reported revenue for the three months ended September 30, 2018 totaled $130.1 million, compared to $91.5 million for the three months ended September 30, 2017. Net Income for the three months ended September 30, 2018 was $4.0 million, or $0.01 per share, compared to Net Loss of ($16.7) million, or $(0.06) per share, for the three months ended September 30, 2017. Adjusted Net Income (Loss) for the three months ended September 30, 2018 was $11.1 million, or $0.04 per share, compared to $(5.8) million, or $(0.02) per share, for the three months ended September 30, 2017.

(Late Wednesday) Press Release - Halcón Resources announced it has entered into a definitive agreement to sell all of its water infrastructure assets across the Delaware Basin to a private company for up to $325 million in cash, subject to customary closing conditions and adjustments. $200 million of the purchase price is payable in cash upon closing, with an additional $125 million payable on a deferred basis over a five year period based on meeting certain annual incentive thresholds.

(Late Wednesday) Press Release - HighPoint Resources reported a net loss of $29.4 million, or $0.14 per diluted share for the third quarter of 2018. Adjusted net income for the third quarter of 2018 was $2.3 million, or $0.01 per diluted share. EBITDAX for the third quarter of 2018 was $78.0 million.

(Late Wednesday) Press Release - Jones Energy reported a net loss of $35.4 million for the three months ended September 30, 2018, of which a net loss of $35.0 million, or $7.16 per share, is attributable to common shareholders. This compares to a net loss of $83.0 million, of which a net loss of $66.8 million, or $18.27 per share, was attributable to common shareholders for the three months ended September 30, 2017. During the third quarter of 2018 Jones Energy’s Board of Directors approved and implemented a 1-for-20 reverse stock split for the Company’s Class A and Class B Common Stock, which had previously been approved by common stockholder vote at the Company’s Annual Meeting in May 2018. On October 15, 2018 the Company’s Board of Directors declared a contingent dividend on the Preferred Stock under the same terms, payable in Class A common stock on November 15, 2018 to holders of record as of November 1, 2018, including the requirement that the Dividend Valuation Price of the stock must meet the required Floor Price, which has been adjusted for the Company’s 1-for-20 reverse stock split, in order to be paid. If the dividend is not paid, the Company will have used three of its five permitted dividend non-payments without penalty and the right to receive the dividend will again accrue for holders of Preferred Stock.

Berenberg initiated Kosmos Energy at ‘Buy’.

(Late Wednesday) Press Release - Matador Resources reported third quarter 2018 adjusted net income (a non-GAAP financial measure) of $55.7 million, or $0.48 per diluted common share, a sequential increase of 21% from $46.1 million in the second quarter of 2018, and a year-over-year increase of 213% from $17.8 million in the third quarter of 2017.

Press Release - Noble Energy reported third quarter net income attributable to Noble Energy of $227 million, or $0.47 per diluted share. Net income including non-controlling interest was $248 million. Excluding the impact of items not typically considered by analysts in formulating estimates, the Company generated adjusted net income and adjusted net income per share attributable to Noble Energy for the quarter of $129 million, or $0.27 per diluted share.

(Late Wednesday) Press Release - Newfield Exploration reported revenues for the third quarter of $711 million and net income of $224 million, or $1.11 per diluted share. Earnings were impacted by an unrealized derivative gain of $20 million, or $0.10 per share. After adjusting for the effects of the unrealized derivative gain, net income would have been $204 million, or $1.01 per share.

Press Release - Sanchez Energy reported that total revenue during third quarter 2018 was $277.7 million, a 50 percent increase compared to third quarter 2017. The company reported net income of $5.6 million for third quarter 2018, which includes a non-cash mark-to-market hedging gain of $3.5 million and $31.8 million in realized hedging losses resulting from settlement of commodity derivatives during the quarter. This compares to the company’s reported net income of $35.8 million for third quarter 2017. The company’s Adjusted Loss attributable to common stockholders (a non-GAAP financial measure) for third quarter 2018 was $12.7 million.

(Late Wednesday) Press Release - SRC Energy reported revenues of $161.0 million for the three months ended September 30, 2018. Net income was $62.6 million or $0.26 per diluted share for the three months ended September 30, 2018.

(Late Wednesday) Press Release - WildHorse Resource Development announced that the Board of Directors has declared an aggregate quarterly dividend of $6.756 million or $15.53 per share on its 435,000 shares of 6.0% Series A Perpetual Convertible Preferred Stock. WRD elected to pay the dividend in cash. The dividend is for the period beginning on August 1, 2018 to October 31, 2018 and was paid to holders of record on October 15, 2018.

(Late Wednesday) Press Release - W&T Offshore reported revenues for the third quarter of 2018 were $153.5 million, up $43.2 million, or 39% compared to the third quarter of 2017. Net income for the third quarter of 2018 was $46.3 million, or $0.32 per share compared to a net loss of $1.3 million or $0.01 loss per share in the third quarter of 2017.

(Late Wednesday) Press Release - WPX Energy reported third-quarter oil volumes of 83,400 barrels per day, up 3 percent vs. the most recent quarter and 54 percent higher than a year ago. Quarterly oil revenues eclipsed half a billion dollars for the first time in company history. WPX reported an unaudited third-quarter 2018 net loss from continuing operations available to common shareholders of $6 million, or a loss of $0.01 per share on a diluted basis. The loss primarily was driven by $139 million of non-cash pre-tax net losses associated with its hedge book resulting from higher forward oil prices. Adjusted net income from continuing operations in third-quarter 2018 was $29 million, or income of $0.07 per share.

CANADIAN E&PS

Press Release - Canadian Natural Resources announced its Board of Directors has declared a quarterly cash dividend on its common shares of C$0.335 (thirty-three and one half cents) per common share. The dividend will be payable January 1, 2019 to shareholders of record at the close of business on December 10, 2018.

Press Release - Canadian Natural Resources reported net earnings of $1,802 million were realized in Q3/18, an increase of $820 million and $1,118 million over Q2/18 and Q3/17 levels, respectively. Adjusted net earnings in Q3/18 of $1,354 million were achieved, a $75 million increase over Q2/18 and an increase of $1,125 million over Q3/17 levels.

Press Release - Encana reported net earnings of $39 million. The company’s cash from operating activities was $885 million, up 148 percent year-over-year. On October 31, 2018, the Board of Directors declared a dividend of $0.015 per common share payable on December 31, 2018 to common shareholders of record as of December 14, 2018.

Press Release - Encana and Newfield Exploration Company announced that they have entered into a definitive agreement whereby Encana will acquire all of the outstanding shares of common stock of Newfield in an all-stock transaction valued at approximately $5.5 billion. In addition, Encana will assume $2.2 billion of Newfield net debt. The strategic combination will create a leading multi-basin company and has been unanimously approved by the Boards of Directors of both companies. Subject to receipt of regulatory and shareholder approvals by both companies, the transaction is expected to close in the first quarter of 2019.

Press Release - MEG Energy reported adjusted funds flow from operations were $116 million in the third quarter of 2018, compared to $83 million in the third quarter of 2017. The 40% increase reflects stronger benchmark crude oil prices and higher sales volumes, partially offset by realized net losses on commodity risk management contracts totaling approximately $88 million. With current cash reserves, higher commodity prices and lower anticipated levels of capital spending in 2019, MEG expects to hedge a substantially lower percentage of barrels in 2019.

Press Release - Whitecap Resources reported generated funds flow for the quarter of $205 million ($0.49 per share), an increase of 72% (53% per share) from Q3/17. Higher production volumes and realized prices in Q3/18 resulted in significantly higher funds flow.

OILFIELD SERVICES

Press Release - Fluor announced that it has been awarded an engineering, procurement and construction management contract by Teck for the Fording River South Active Water Treatment Facility in the Elk Valley, British Columbia, Canada. Fluor booked the undisclosed contract value in the third quarter of 2018.

(Late Wednesday) Press Release - Hornbeck Offshore Services reported revenues of $58.5 million for the third quarter of 2018, an increase of $4.8 million, or 8.9%, from $53.7 million for the third quarter of 2017; and an increase of $0.1 million from $58.4 million for the second quarter of 2018. The Company recorded a net loss for the third quarter of 2018 of $(31.2) million, or $(0.83) per diluted share, compared to a net loss of $(19.0) million, or $(0.51) per diluted share, for the third quarter of 2017; and a net loss of $(25.1) million, or $(0.67) per diluted share, for the second quarter of 2018.

(Late Wednesday) Press Release - ION Geophysical reported revenues of $47.2 million in the third quarter 2018, a 23% decrease compared to revenues of $61.1 million one year ago. ION's net loss was $7.5 million, or $(0.54) per share, compared to a net income of $4.9 million, or $0.41 per diluted share in the third quarter 2017. Excluding special items in the third quarter 2018, the Company reported an Adjusted net loss of $7.3 million, or $(0.52) per share.

Press Release - McDermott International announced a large contract award by Petrobras for a natural gas pipeline project in support of the client's Santos basin pre-salt field program. The contract covers the implementation of the ultra-shallow segment of the new Rota 3 gas export pipeline. The scope of work includes design and detailed engineering, procurement, construction and installation of six miles (10 kilometers) of a 24-inch rigid concrete coated pipeline from the already installed shallow water segment of this new pipeline system to the shore, including a horizontal directional drill, tie-in spools and pre-commissioning of the six mile (10 kilometers) pipeline. Overall project management and engineering will be performed by McDermott's team in Rio de Janeiro, with support from the Houston team.

(Late Wednesday) Press Release - SEACOR Holdings announced that it has completed the redemption of all of the remaining $147,351,000 aggregate outstanding principal amount of its 7.375% Senior Notes due 2019. The redemption price for the Notes was an amount equal to 103.801384% of the principal amount of the Notes, plus accrued and unpaid interest from the most recent payment date to the date of redemption.

DRILLERS

(Late Wednesday) Press Release - Noble reported a net loss attributable to the Company for the three months ended September 30, 2018 of $82 million, or $0.33 per diluted share, on revenues of $279 million. Results for the third quarter included a discrete tax benefit totaling $25 million, or $0.10 per diluted share. Excluding the impact of the discrete tax benefit, the Company would have reported a net loss attributable to Noble Corporation of $107 million, or $0.43 per diluted share.

(Late Wednesday) Press Release - Precision Drilling announced that the U.S. Federal Trade Commission has granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) with respect to the pending acquisition of Trinidad Drilling. The termination of the waiting period under the HSR Act satisfies one of the conditions to the closing of the pending acquisition.

REFINERS

Press Release - Marathon Petroleum reported 2018 third quarter earnings of $737 million, or $1.62 per diluted share. Third quarter 2018 earnings included pre-tax charges of $49 million related to pension settlement and transaction costs, or approximately $0.08 per diluted share. This compares with $903 million, or $1.77 per diluted share, in the third quarter of 2017.

Press Release - Phillips 66 and Renewable Energy Group announced that planning is underway for the construction of a large-scale renewable diesel plant on the U.S. West Coast. The plant would utilize REG’s proprietary BioSynfining technology for the production of renewable diesel fuel. Planned feedstocks include a mix of waste fats, oils and greases, including regionally-sourced vegetable oils, animal fats and used cooking oil.

Credit Suisse upgraded Valero Energy to ‘Outperform’ from ‘Neutral’.

(Late Wednesday) Press Release - The Board of Directors of Valero Energy has declared a regular quarterly cash dividend on common stock of $0.80 per share. The dividend is payable on December 12, 2018, to holders of record at the close of business on November 20, 2018.

MLPS & PIPELINES

(Late Wednesday) Reuters - Enbridge responded to natural gas transmission pipeline incident in north of Prince George, B.C. The company expects to begin safely returning repaired segment of its natural gas pipeline near Prince George, B.C. to service within next 48 hours. Enbridge successfully completed repairs on section of its 36” natural gas pipeline that ruptured near Prince George, British Columbia on October 9. It has begun multi-hour process to return to service the natural gas pipeline near Prince George, British Columbia.

Press Release - Magellan Midstream Partners reported net income of $594.5 million for third quarter 2018 compared to $198.5 million for third quarter 2017. The 2018 results include a $353.8 million gain related to the sale of a portion of the partnership's ownership interest in BridgeTex Pipeline Company, LLC.

Press Release - MPLX reported record third quarter 2018 net income attributable to MPLX of $510 million compared with $216 million in the third quarter of 2017. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $937 million compared with $538 million in the second quarter of 2017.

Press Release - TransCanada announced net income attributable to common shares for third quarter 2018 of $928 million or $1.02 per share compared to net income of $612 million or $0.70 per share for the same period in 2017. Comparable earnings for third quarter 2018 were $902 million or $1.00 per share compared to $614 million or $0.70 per share for the same period in 2017. TransCanada's Board of Directors also declared a quarterly dividend of $0.69 per common share for the quarter ending December 31, 2018, equivalent to $2.76 per common share on an annualized basis.

(Late Wednesday) Press Release - TransCanada announced that it will move forward with a $1.5 billion expansion of its NOVA Gas Transmission Ltd. (NGTL) System to connect existing and new supply to incremental intra-basin market demand.

MARKET COMMENTARY

U.S. stock futures were higher, a day after the S&P 500 closed out its worst month in seven years. Strong corporate results pushed European shares higher. Stocks in China rose for the third straight day, while Japan's Nikkei bucked the trend and slipped following two days of big gains. In currencies, sterling's rally nudged the dollar off its recent peak. The pound jumped on reports that Britain and the European Union are close to a post-Brexit deal on financial services. Gold recovered from a three-week low hit in the previous session. Apple, MetLife and Starbucks are scheduled to report after market.

NASDAQ ENERGY TEAM THOUGHT LEADERSHIP


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