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Steep Slide In Oil Prices Sending Energy Stocks Lower

Thursday, August 02, 2018

Sector Commentary

Energy stocks are set to open well into negative territory, tracking weaker broader futures, amid the two-pronged threat of escalating trade wars and the recent steep slide in oil prices. WTI crude oil prices have shaved off over 4% in the last 2 ½ sessions. Meanwhile, the normal deluge of earnings will attract investor focus today. Mizuho Securities initiated coverage of independent refiners as well after the close of the session yesterday.

Oil prices fell for a third day on Thursday, following a surprise increase in U.S. crude inventories that added to existing concern about the rapid rise in global crude supply. Saudi Arabia, Russia, Kuwait and the United Arab Emirates have increased production, as agreed at a meeting in June, to help to compensate for an anticipated shortfall in Iranian crude supplies once U.S. sanctions come into force later this year. "There's been a lot of bearish news over the last week. We've seen the OPEC July numbers increasing quite drastically month-on-month and along with that, Russian production back at pre-deal levels," ING commodities strategist Warren Patterson said.

Natural gas futures are marginally lower ahead of weekly inventory data. Consensus is calling for a build of 43 Bcf.

INTERNATIONAL INTEGRATEDS

Reuters - BP has started discharging about 1 million barrels of Angolan crude to a Chinese independent refiner, after holding the oil on water for two months due to slowing demand from private refiners.

Press Release - Gazprom's exports of natural gas to Poland increased by 6.6 percent over the first seven months of this year.

Morgan Stanley downgraded Royal Dutch Shell to ‘Equal Weight’ from ‘Overweight’.

U.S. E&PS

(Late Wednesday) Press Release - For the three months ended June 30, 2018, AnteroResources reported a GAAP net loss of $136 million, or $(0.43) per diluted share, compared to a net loss of $5 million, or $(0.02) per diluted share, in the prior year period. Adjusted net income was $6 million, or $0.02 per diluted share, compared to a $13 million loss, or $(0.04) per diluted share, in the prior year period. Stand-Alone adjusted net loss was $2 million compared to a loss of $17 million in the prior year period. Adjusted EBITDAX was $405 million, a 26% increase compared to $321 million in the prior year period, and Stand-Alone Adjusted EBITDAX was $335 million, a 25% increase compared to $267 million in the prior year period. Second quarter 2018 results include settled marketing derivative losses of $16 million.

(Late Wednesday) Press Release - Apache reported earnings of $195 million or $0.51 per diluted common share for the second quarter of 2018.

Press Release - Approach Resources generated $15.3 million of EBITDAX (non-GAAP). Its net loss for second quarter 2018 was $9.1 million, or $0.10 per diluted share, on revenues of $30.3 million. Excluding the decrease in the fair value of our commodity derivatives of $2.9 million, adjusted net loss (non-GAAP) for second quarter 2018 was $6.8 million, or $0.07 per diluted share. EBITDAX (non-GAAP) for second quarter 2018 was $15.3 million.

Press Release - Concho Resources reported net income for second-quarter 2018 of $137 million, or $0.92 per diluted share, compared to net income of $152 million, or $1.02 per diluted share, for second-quarter 2017. Adjusted net income (non-GAAP), which excludes non-cash and unusual items, for second-quarter 2018 was $185 million, or $1.24 per diluted share, compared with adjusted net income for second-quarter 2017 was $77 million, or $0.52 per diluted share.

Press Release - ConocoPhillips announced it has entered into an agreement to sell its interests in the Barnett shale play to Lime Rock Resources for approximately $230 million plus net customary adjustments. Proceeds from this transaction will be used for general corporate purposes.

(Late Wednesday) Press Release - For the second quarter of 2018, Gulfport Energy reported net income of $111.3 million, or $0.64 per diluted share, on revenues of $252.7 million. For the second quarter of 2018, EBITDA was $268.0 million and cash flow from operating activities before changes in operating assets and liabilities was $183.8 million.

(Late Wednesday) Press Release - Halcón Resources generated total revenues of $55.4 million for the second quarter of 2018. The Company reported a net loss available to common stockholders of $(16.3) million or a net loss per basic and diluted share of $(0.10) for the same period.

(Late Wednesday) Press Release - Laredo Petroleum announced its 2018 second-quarter results, reporting net income attributable to common stockholders of $33.5 million, or $0.14 per diluted share. Adjusted Net Income, a non-GAAP financial measure, for the second quarter of 2018 was $58.9 million, or $0.25 per diluted share. Adjusted EBITDA, a non-GAAP financial measure, for the second quarter of 2018 was $152.5 million. Please see supplemental financial information at the end of this news release for reconciliations of non-GAAP financial measures.

Press Release - Marathon Oil reported second quarter 2018 net income of $96 million, or $0.11 per diluted share, which includes the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. Adjusted net income was $126 million, or $0.15 per diluted share. Net operating cash flow was $767 million, or $849 million before changes in working capital.

Press Release - Matador Resources reported second quarter 2018 adjusted net income was $46.1 million, or $0.41 per diluted common share, a sequential increase of 18% from $39.1 million in the first quarter of 2018, and a year-over-year increase of 321% from $10.9 million in the second quarter of 2017.

(Late Wednesday) Press Release - SM Energy reported second quarter of 2018 adjusted net income of $16.8 million, or $0.15 per diluted common share, up from an adjusted net loss of ($35.5) million, or ($0.32) per diluted common share, in the second quarter of 2017.

(Late Wednesday) Press Release - W&T Offshore reported revenues for the second quarter of 2018 were $149.6 million, up $26.3 million, or 21.3% compared to the second quarter of 2017. Oil and NGLs sales made up 83.8% of revenues, compared to 75.1% in the second quarter of 2017. Our realized crude oil price was $67.09 per barrel, up 50.6% from second quarter 2017. Operating income for the second quarter of 2018 was $48.5 million, an increase of 47.4% or $15.6 million, over the second quarter of 2017.

(Late Wednesday) Press Release - WilliamsCos reported second-quarter 2018 Adjusted income per share of $0.17, a 31 percent increase over second-quarter 2017 Adjusted income per share of $0.13. It reported second-quarter 2018 adjusted EBITDA of $1.11 billion, a $3 million decrease from second-quarter 2017. Effective with the first quarter of 2018, Williams increased its regular dividend from $0.30 per share to $0.34 per share.

Press Release - WPX Energy reported an unaudited second-quarter 2018 net loss from continuing operations available to common shareholders of $83 million, or a loss of $0.21 per share on a diluted basis. The loss was driven by $154 million of net losses associated with its hedge book resulting from higher forward oil prices, along with a $71 million loss on extinguishment of debt.

CANADIAN E&PS

Raymond James upgraded ARC Resources to ‘Strong Buy’ from ‘Outperform’.

(Late Wednesday) Press Release - ARC Resources reported second quarter 2018 funds from operations of $204.4 million ($0.58 per share) increased $3.4 million ($0.01 per share) from first quarter 2018 funds from operations of $201.0 million ($0.57 per share). First half 2018 funds from operations of $405.4 million ($1.15 per share) increased 17 per cent, on a per share basis, relative to first half 2017 funds from operations of $347.0 million ($0.98 per share), with improved oil and liquids pricing and increased production levels contributing to higher funds from operations.

(Late Wednesday) Press Release - Athabasca Oil reported operating income of $30.9 million and top tier netbacks of $28.64/boe.

Press Release - Canadian Natural Resources reported net earnings of $982 million were realized in Q2/18, an increase of 68% over Q1/18 levels, and adjusted net earnings of $1,279 million were achieved, a 45% increase over Q1/18 levels. The company generated record quarterly funds flow from operations of $2,706 million in Q2/18, increases of $383 million and $980 million from Q1/18 and Q2/17 levels respectively. Canadian Natural declared a quarterly cash dividend on common shares of $0.335 per share payable on October 1, 2018.

Press Release - MEG Energy realized adjusted funds flow from operations of $18 million for the second quarter of 2018, compared to $55 million in the second quarter of 2017, and $83 million in the first quarter of 2018.

Press Release - Obsidian Energy reported that funds flow from operations for the second quarter of 2018 was $32 million, a decrease of nine percent from the first quarter of 2018. FFO gains from higher oil prices were offset by realized risk management losses, volatile crude oil differentials and lower production.

(Late Wednesday) Press Release - Whitecap Resources generated funds flow for the quarter of $196.5 million ($0.47 per share), an increase of 61% (42% per share) from Q2/17.

OILFIELD SERVICES

(Late Wednesday) Press Release - CGG announced Q2 2018 solid segment EBITDAs were in line with expectations IFRS: revenue at $314m, OPINC at $26m, net income at $49m Segment revenue at $338m, down 3% year-on-year.

Stifle Nicolaus downgraded Emerge Energy Services to ‘Hold’ from ‘Buy’.

(Late Wednesday) Press Release - Hornbeck Offshore Services recorded a net loss for the second quarter of 2018 of $(25.1) million, or $(0.67) per diluted share, compared to a net loss of $(19.5) million, or $(0.53) per diluted share, for the second quarter of 2017; and a net loss of $(38.7) million, or $(1.04) per diluted share, for the first quarter of 2018.

(Late Wednesday) Press Release - ION Geophysical reported revenues of $24.7 million in the second quarter 2018, a 46% decrease compared to revenues of $46.0 million one year ago. ION's net loss was $25.9 million, or $(1.86) per share, compared to a net loss of $10.4 million, or $(0.88) per share in the second quarter 2017. Excluding special items in the second quarter 2018, the Company reported an Adjusted net loss of $23.4 million, or $(1.68) per share.

(Late Wednesday) Press Release - Secure Energy Services achieved adjusted EBITDA of $31.2 million during the second quarter of 2018, a 55% increase from the three months ended June 30, 2017. For the three and six months ended June 30, 2018, Secure's net loss of $6.9 million and $0.8 million improved from a net loss of $13.5 million and $10.1 million in the three and six months ended June 30, 2017.

DRILLERS

(Late Wednesday) Press Release - Parker Drilling announced results for the second quarter ended June 30, 2018, including a reported net loss of $23.8 million on revenues of $118.6 million. This equates to a loss of $2.56 per common share taking into account the 1-for-15 reverse stock split effective July 27, 2018, or a loss of $0.17 per common share on a pre-split basis.

REFINERS

Mizuho Securities initiated Andeavor, HollyFrontier, Phillips 66 and Valero Energy at 'Neutral'.

Mizuho Securities initiated Delek US Holdings, Marathon Petroleum and PBF Energy at 'Buy'.

Press Release - HollyFrontier reported second quarter net income attributable to HollyFrontier stockholders of $345.5 million or $1.94 per diluted share for the quarter ended June 30, 2018, compared to $57.8 million or $0.33 per diluted share for the quarter ended June 30, 2017. HollyFrontier also announced that its Board of Directors declared a regular quarterly dividend of $0.33 per share. The dividend will be paid on September 20, 2018 to holders of record of common stock on August 23, 2018.

Press Release - PBF Energy reported second quarter 2018 income from operations of $422.3 million as compared to loss from operations of $111.0 million for the second quarter of 2017. Excluding special items, second quarter 2018 income from operations was $264.3 million as compared to income from operations of $40.0 million for the second quarter of 2017. PBF Energy Inc. Declares Dividend The company announced today that it will pay a quarterly dividend of $0.30 per share of Class A common stock on August 30, 2018, to holders of record as of August 15, 2018.

MLPS & PIPELINES

Mizuho Securities initiated CVR Refining at ‘Buy’.

Stephens upgraded Energy Transfer Equity to ‘Overweight’ from ‘Equal Weight’.

Press Release - Energy Transfer Equity and Energy Transfer Partners announced that they have entered into a definitive agreement providing for the merger of ETP with a wholly-owned subsidiary of ETE in a unit-for-unit exchange. In connection with the transaction, ETE’s incentive distribution rights in ETP will be cancelled. The transaction, which was approved by the boards of directors and conflicts committees of both partnerships, is expected to close in the fourth quarter of 2018, subject to the approval by a majority of the unaffiliated unitholders of ETP and other customary closing conditions. ETE currently owns the general partner of ETP.

Press Release - TransCanada announced net income attributable to common shares for second quarter 2018 of $785 million or $0.88 per share compared to net income of $881 million or $1.01 per share for the same period in 2017. Comparable earnings for second quarter 2018 were $768 million or $0.86 per share compared to $659 million or $0.76 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 September 30, 2018, equivalent to $2.76 per common share on an annualized basis. Board of Directors declared a quarterly dividend of $0.69 per share for the quarter ending September 30, 2018 on TransCanada's outstanding common shares. The quarterly amount is equivalent to $2.76 per common share on an annualized basis.

Press Release - TransCanada announced that it has entered into an agreement to sell its 62 per cent share of the Cartier wind power facilities, and its related operating entities, to Innergex Renewable Energy Inc. for approximately $630 million. Located in Québec, the Cartier assets include five wind farms with a total generating capacity of 590 megawatts, of which TransCanada’s share is 365 megawatts.

(Late Wednesday) Press Release - Williams Partners reported second-quarter 2018 Adjusted EBITDA of $1.097 billion, a $7 million decrease from second-quarter 2017. Year-to-date, Williams Partners reported unaudited net income of $786 million, a $168 million decrease from the same period in 2017. For second-quarter 2018, Williams Partners generated $705 million in distributable cash flow attributable to partnership operations, compared with $698 million in DCF attributable to partnership operations for second-quarter 2017.

MARKET COMMENTARY

Wall Street futures slipped as fears of an escalating trade dispute between the United States and China triggered a fall in shares from Asian markets to Europe. The dollar index rallied, buoyed by safe-haven demand and the U.S. Federal Reserve's upbeat assessment of the economy. Gold prices were little changed. A busy corporate results calendar include updates from Symantec, CBS Corp, Western Union and Activision Blizzard after markets close.


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