Crude Extends Gains on U.S.-Iran Conflict
SECTOR COMMENTARY
Energy stocks are poised for a mixed to higher start, tracking strength in the underlying commodities while broader index futures extended Friday’s sharp declines as Middle East tensions remain higher which should keep a lid on gains. In sector news, Scotiabank issued rating changes to a handful of oilfield service operators, reiterating a bullish stance on the pressure pumping sub-group citing modest improvement in demand should drive improving supply/demand dynamics.
Oil prices on both sides of the Atlantic extended Friday’s strong gains amid worries the conflict between the U.S. and Iran could disrupt the world’s oil supply. Iran said over the weekend it will no longer honor the 2015 nuclear agreement following the U.S. killing of General Qassem Soleimani. President Trump also vowed to hit 52 Iranian targets if Iran retaliates for the killing for Soleimani, sparking further concerns. Brent futures are now above $70 a barrel, while WTI futures touched $64.72, the highest level since April. "The situation brings lots of uncertainty and geopolitical tea-leaf reading on reactions. While the closure of the Strait of Hormuz remains a very unlikely event, the deterioration in Iraq bears supply risks," said Norbert Rucker, head of economics at Swiss bank Julius Baer. "Geopolitics tend to be a temporary force on oil markets and we believe this time is no different. We raise our near-term forecast to $65 per barrel, and maintain a neutral view."
Natural gas futures are up ~1.5% in morning trading after closing Friday near its lowest levels since August. Futures are supported by gains in the crude complex despite weather forecasts for above seasonal temperatures for most of January which should limit heating demand.
U.S. INTEGRATEDS
(Late Friday) Press Release - On December 30, 2019, Inge G. Thulin tendered his resignation from the Board of Directors of Chevron, effective January 1, 2020. Mr. Thulin resigned due to time and logistics conflicts and not as a result of a disagreement with Chevron.
(Late Friday) Reuters - ExxonMobil's fourth quarter operating results will decline from a year ago due to weakness in chemicals and refining, according to a regulatory filing and analyst comments. Some analysts slashed earnings projections to about 50 cents per share, down from the average earlier estimate of 71 cents, according to Refinitiv IBES. The estimates exclude gains from asset sales.
INTERNATIONAL INTEGRATEDS
Wells Fargo upgraded BP to ‘Overweight’ from ‘Equal Weight.’
(Late Friday) Reuters - Petroleo Brasileiro SA Petrobras filed prospectus with U.S. SEC for resale of 734.2 million common shares by selling shareholder.
U.S. E&PS
Guggenheim Securities initiated coverage of Concho Resources at ‘Buy.’
Press Release - Laredo Petroleum announced that it is commencing cash tender offers and consent solicitations for any or all of its outstanding (i) $450 million aggregate principal amount of 5 5/8% senior unsecured notes due January 2022 and (ii) $350 million aggregate principal amount of 6 1/4% senior unsecured notes due March 2023, subject to certain conditions.
Press Release - Laredo Petroleum announced that it intends, subject to market conditions, to publicly offer $450 million in aggregate principal amount of senior unsecured notes due 2025 and $450 million in aggregate principal amount of senior unsecured notes due 2028 in a registered underwritten offering for a total of $900 million.
Press Release - Laredo Petroleum announced year-end reserve estimates and annual production for 2019. Highlights include: Exceeded both oil and total production guidance for full-year 2019, producing an average of 28.4 thousand barrels of oil per day and 80.9 thousand barrels of oil equivalent per day in full-year 2019, increases of 2% and 19% versus full-year 2018, respectively; Grew proved oil reserves by 17 million barrels, an increase of 27% versus year-end 2018; Grew total proved reserves by 55 million BOE to 293 million BOE, an increase of 23% versus year-end 2018.
Press Release - Occidental Petroleum provided an update on its execution against key strategic and financial initiatives designed to maximize shareholder value following the close of its acquisition of Anadarko Petroleum on August 8, 2019. With the recently announced sale of $565 million of Houston and Woodlands real estate assets to the Howard Hughes Corporation, Occidental continues to make progress towards meeting its $15 billion divestiture target. Occidental retired $2 billion of 2021 bank term loans in the fourth quarter of 2019 with proceeds from asset divestitures and free cash flow. In addition, Occidental increased its 2020 volume of hedged oil production by 50,000 barrels of oil per day (BOPD) to 350,000 BOPD representing a significant portion of 2020 oil production. The incremental oil hedges were structured as three-way costless collars to provide enhanced cash flow in a low oil-price environment while preserving significant upside in higher price scenarios. For every $1 increase in oil prices, Occidental’s free cash flow increases by $260 million per annum. In a low oil-price environment, Occidental’s 2020 hedging program enhances cash flow to support its dividend during the post-acquisition transitional period.
Press Release - Western Midstream Partners and Occidental Petroleum announced the execution of several agreements that will enable WES to fully operate as a stand-alone business, consistent with WES's and Occidental's joint effort to establish WES as an independent midstream company. WES fully expects to continue its long-term and meaningful relationship with Occidental. These new agreements support WES's ongoing and focused pursuit of third-party growth opportunities and underscore the importance of WES's commitment to leverage its existing midstream infrastructure to attract additional Occidental and third-party volumes.
OILFIELD SERVICES
Scotiabank upgraded Halliburton, Liberty Oilfield Services, and Nextier Oilfield Solutions to ‘Sector Outperform’ from ‘Sector Perform.’
Press Release - KBR has won the first commercial contract for its K-PRO Propane Dehydrogenation (PDH) Technology which the company introduced in January 2019. This innovative and environmentally friendly technology will be utilized for a 600 kTA PDH plant by a client in Asia.
Press Release - Mitcham Industries announced that it has made two key additions to its technology development team. Andy Meecham has joined Mitcham in the newly-created position of Vice President and Chief Technology Officer. In this position, Mr. Meecham is responsible for directing all of Mitcham's research and development activities. This role includes identifying opportunities to expand product offerings from existing technologies as well as acquiring new technology through internal development, acquisition or partnering with others.
Scotiabank downgraded Oil States International and FTS International to ‘Sector Underperform’ from ‘Sector Perform.’
Press Release - Patterson-UTI Energy reported that for the month of December 2019, the Company had an average of 122 drilling rigs operating. For the three months ended December 31, 2019, the Company had an average of 123 drilling rigs operating.
Press Release - Superior Energy Services provided an update on fourth quarter 2019 activity. The Baker Hughes U.S. land rig count declined by 49 rigs from the week ending October 4, 2019 through the week ending December 27, 2019. This rig count decline is greater than what the Company expected, and the Company believes it is impacting the Company's industry generally. The industry slowdown will primarily impact the Company's drilling products and services segment results for the fourth quarter of 2019 and the Company now expects revenue in this segment to decrease by 10% to 15% sequentially lower than initial expectations of a 5% to 10% decline. Additionally, certain completion tools projects, which were anticipated to occur during the fourth quarter of 2019 have shifted to 2020. The Company now expects its technical solutions segment revenue to be approximately flat sequentially, which is lower than the Company's initial expectations of as much as a 10% increase.
Press Release - Superior Energy Services announced that its wholly owned subsidiary, SESI, L.L.C., has commenced an offer to exchange up to $500 million of its $800 million aggregate principal amount of outstanding 7.125% Senior Notes due 2021 for up to $500 million of newly issued 7.125% Senior Notes due 2021.
DRILLERS
Raymond James upgraded ProPetro Holdings to ‘Strong Buy’ from ‘Outperform.’
Scotiabank downgraded RPC and Valaris to ‘Sector Underperform’ from ‘Sector Perform.’
Raymond James upgraded RPC to ‘Outperform’ from ‘Market Perform.’
Raymond James downgraded Unit Corp to ‘Underperform’ from ‘Market Perform.’
REFINERS
Wells Fargo downgraded Delek US Holdings to ‘Equal Weight’ from ‘Overweight.’
MLPS & PIPELINES
Johnson Rice & Company suspended coverage of Enterprise Products Partners, Kinder Morgan, Magellan Midstream Partners, and Plains All American Pipeline.
Morgan Stanley initiated coverage in Enterprise Product Partners, Energy Transfer, and MLPX with ‘Overweight.’
Morgan Stanley initiated coverage in Enbridge, Magellan Midstream Partners, Plains All American Pipeline, Plains GP Holdings, Targa Resources and Williams Company with ‘Equal-weight.’
Morgan Stanley initiated coverage in Kinder Morgan, Oneok, and TC Energy with ‘Underweight.’
Press Release - Western Midstream Partners and Occidental Petroleum announced the execution of several agreements that will enable WES to fully operate as a stand-alone business, consistent with WES's and Occidental's joint effort to establish WES as an independent midstream company. WES fully expects to continue its long-term and meaningful relationship with Occidental. These new agreements support WES's ongoing and focused pursuit of third-party growth opportunities and underscore the importance of WES's commitment to leverage its existing midstream infrastructure to attract additional Occidental and third-party volumes.
MARKET COMMENTARY
U.S. stock futures dropped, mirroring European stocks and most Asian shares, as a flare-up of tensions in the Middle East dampened investors' appetite for riskier assets. Safe-haven asset gold was in demand, rising to near seven-year peak. With a gaping supply deficit, palladium surpassed the level of $2,000 to hit a record high. The dollar dipped. Oil prices extended gains on fears of global supply disruptions.
NASDAQ ENERGY TEAM THOUGHT LEADERSHIP
- 9/17/19 - Oil's New Risk Premium Discussion on CNBC TV
- 9/16/19 - Discussion on Bloomberg TV about Impact of Abqaiq Attack
- 7/1/19 - OPEC meeting discussion with CNBC TV
- 7/1/19 - Oil Market Geopolitics with Bloomberg TV
- 5/23/19 - Oil's New Bear Market Discussion with Bloomberg TV
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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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