Crude Falls on Demand Concerns Amid Rising COVID-19 Cases
SECTOR COMMENTARY
The energy sector is set to kick of the final trading day of the 2Q’20 lower, weighed down by weakness in the crude complex and major equity futures which fell amid renewed concerns that new virus infections could slow the pace of business re-openings and simmering U.S.-China tensions after reports that the U.S. was beginning to eliminate Hong Kong’s special status. With little sector news or economic data this morning, the markets will be paying close attention to headlines coming out of Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin testimonies before the House Financial Services Committee later today.
WTI crude oil futures are down over 1.5% this morning, line with Brent, falling due to fuel demand recovery concerns amid rising COVID-19 cases and a possible return of Libyan oil production. Libya's NOC hopes oil production will resume after international talks to end a blockade by eastern-based forces in the civil war, which has stopped almost all energy exports for six months. The API industry supply report after the close today will act as the next major catalyst. A preliminary Reuters poll showed analysts expect U.S. crude oil stockpiles fell from record highs last week and gasoline inventories decreased for a third straight week.
Natural gas futures extended their rally higher and are up a further ~3.5% this morning, backed by forecasts calling for warmer weather over the next two weeks that should stir demand. The EIA Natural Gas Monthly comes this afternoon with updated April data including dry gas production.
INTERNATIONAL INTEGRATEDS
(Late Monday) Reuters - Alaskan officials approved BP’s sale of its oil and gas leases in the state to closely held Hilcorp Energy Co. as part of a previously announced $5.6 billion deal.
(Late Monday) Reuters - Petrobras said that its platforms P-74, P75, P-76 and P-77 located in the Buzios oil field achieved record production levels on June 27, totalling 664,000 bpd and 822,000 boed. Petrobras said the Buzios field is the largest deepwater oil field in the world.
Reuters - Royal Dutch Shell said it will write down the value of its assets by up to $22 billion after lowering its long-term outlook on oil and gas prices. The move is part of the Anglo-Dutch company's wide review of operations after CEO Ben van Beurden in April laid out plans to reduce greenhouse gas emissions to net zero by 2050. Shell, whose current market capitalisation is $126.5 billion according to Refinitiv data, said it will take an aggregate post-tax impairment charge in the range of $15 to $22 billion in the second quarter. The world's largest fuel retailer also said it expected a 40% fall in fuel sales in the second quarter due to a sharp fall in consumption as a result of coronavirus-related travel restrictions around the world.
Reuters - Saudi Aramco sets July propane price at $360/MT.
Press Release - Shell reported second quarter 2020 update note. On the Integrated Gas, production is expected to be between 880 and 910 thousand barrels of oil equivalent per day and LNG liquefaction volumes are expected to be between 8.1 and 8.5 million tonnes. Upstream production is expected to be between 2,300 and 2,400 thousand barrels of oil equivalent per day. Although this production range is higher compared with the outlook previously provided, it has had a limited impact on earnings in the current macro environment. Oil Products Refinery utilisation is expected to be between 67% and 71%. Chemicals manufacturing plant utilisation is expected to be between 75% and 79%. Corporate segment earnings excluding identified items are expected to be a net expense at the lower end of the $800 to $875 million range for the second quarter. This excludes the impact of currency exchange rate effects.
CANADIAN INTEGRATEDS
No significant news.
U.S. E&PS
(Late Monday) Press Release - Chesapeake Energy announced that the U.S. Bankruptcy Court for the Southern District of Texas has approved the Company's motions seeking a variety of "first-day" relief, including authority to pay owner royalties, employee wages and benefits, and certain vendors and suppliers in the ordinary course for goods and services provided.
(Late Monday) Press Release - Chesapeake Energy was notified by the New York Stock Exchange of its determination to commence proceedings to delist the Company's common stock and to suspend trading of the Company's common stock due to the Company's decision to voluntarily file for reorganization under Chapter 11 of the Bankruptcy Code.
(Late Monday) Reuters - Chesapeake Energy sought bankruptcy court approval to cancel $311 million in pipeline contracts, setting up a battle with U.S. regulators and operators including Energy Transfer LP, according to court filings.
Credit Suisse terminated coverage on Chesapeake Energy.
Raymond James dropped coverage on Chesapeake Energy.
Reuters - ConocoPhillips has deployed a low-code platform called Mendix to cut costs and increase efficiency, making it the first major oil and gas producer to use such technology across the company, Mendix said in a statement on Tuesday. Mendix, owned by German technology firm Siemens, allows companies to create in-house systems without hiring outside developers as minimal or no coding knowledge is required.
TD Securities upgraded EQT to ‘Buy’ from ‘Hold’.
CANADIAN E&PS
Press Release - Paramount Resources is pleased to announce that it has successfully completed amendments to its senior secured revolving bank credit facility with the unanimous support of its nine-bank syndicate. The amendments include a full waiver of the Senior Secured Debt to Consolidated EBITDA covenant until the third quarter of 2021 and a reduction of the Consolidated EBITDA to Consolidated Interest Expense covenant from 2.50x to 1.75x for the fourth quarter of 2020 (on a trailing 12-month basis) and for the first two quarters of 2021 (on a current quarter basis).
(Late Monday) Press Release - Peyto Exploration & Development announced an operational update, amended credit and note purchase agreements, and reaffirms its 2020 capital guidance supported by the Company’s sustainable business model. Spring breakup conditions were unusually wet in the Edson area due to the above average winter snowfall and colder temperatures that drove frost deeper into the ground. Despite these challenges, Peyto was able to drill 11 new wells (10.3 net), complete 8 wells (7.5 net) and bring on production 9 wells (8.5 net) so far in the second quarter. In addition, the Company has 5 wells (4.3 net) drilled and awaiting completion. The Company expects to drill 29 gross wells (27.5 net) in the first half of 2020. Current production is consistent with the first quarter at approximately 78,500 boe/d.
TD Securities upgraded Peyto Exploration & Development to ‘Hold’ from ‘Reduce’.
Press Release - TORC Oil & Gas is pleased to announce the Company's credit facility has been confirmed at $425 million, with the borrowing base determination dates under the credit agreement to be amended to May and November annually, from April and October. TORC has received formal lender commitments from all syndicate members and expects credit documentation to be completed by July 3, 2020.
OILFIELD SERVICES
Simmons Energy downgraded Forum Energy Technologies to ‘Neutral’ from ‘Overweight’.
Press Release - KBR announced it has been awarded a $42.5 million task order to support technical training product development for the Naval Air Systems Command (NAVAIR). KBR was awarded this recompete task order under the Department of Defense Information Analysis Center's (DoD IAC) multiple-award contract by the USAF Installation Contracting Center.
Press Release - Schlumberger is providing the following disclosure pursuant to L. 225-102-3 of the French Commercial Code, which requires disclosures of certain payments made by Schlumberger Limited and its consolidated subsidiaries to governments for the year ended December 31, 2019 relating to “extractive industries” as defined by, and required under, the FCC. The following schedules disclose the payments made by the Company in 2019 to governments in Bolivia, Georgia, Morocco, the United Kingdom and the United States in connection with Schlumberger’s extractive activities under the FCC, including its operation of sand and barite mines.
REFINERS
Cowen downgraded HollyFrontier to ‘Underperform’ from ‘Market Perform’.
MLPS & PIPELINES
Press Release - Enterprise Products Partners announced that one of its affiliates has executed a long-term agreement with Marubeni Corporation to supply polymer grade propylene from the partnership’s second propane dehydrogenation plant, which is currently under construction. Marubeni Corporation is a major Japanese integrated trading and investment business conglomerate and the world’s largest olefins trader. PDH 2 will have the capacity to upgrade 35,000 barrels per day of propane into 1.65 billion pounds per year (25,000 BPD) of PGP. PDH 2 is being built at Enterprise’s complex near Mont Belvieu, Texas. The facility is expected to begin service in the second quarter of 2023. Upon completion, Enterprise will have total capacity to produce up to 11 billion pounds per year of PGP, the largest PGP production complex in the world. This complex has the capability to produce approximately 8 billion pounds per year of PGP from its seven propylene fractionators and 3 billion pounds of PGP per year from its two PDH facilities. These plants, using two processes, provide operational flexibility and reliability.
(Late Monday) Reuters - Chesapeake Energy sought bankruptcy court approval to cancel $311 million in pipeline contracts, setting up a battle with U.S. regulators and operators including Energy Transfer LP, according to court filings.
MARKET COMMENTARY
U.S. stock futures traded lower as rising coronavirus cases in the country weighed on sentiment, after major indexes surged in the previous session on hopes of a stimulus-backed economic rebound. Asian stocks ended higher, tracking Wall Street’s rally and supported by positive factory activity data from China. European equity markets were weak and UK shares fell on worse-than-expected GDP numbers. The dollar was slightly higher. Oil prices dropped on possible return of Libyan oil production. Gold prices edged up on safe-haven demand.
NASDAQ ENERGY TEAM THOUGHT LEADERSHIP
- 1/8/20 – CNBC’s Squawk Alley: Oil market reaction to US-Iran tensions
- 1/8/20 – Bloomberg Day Break – Steady escalation of US-Iran tensions
- 12/5/19 – Bloomberg Balance of Power – OPEC's Limited Efficacy
- 9/17/19 - Oil's New Risk Premium Discussion on CNBC TV
- 9/16/19 - Discussion on Bloomberg TV about Impact of Abqaiq Attack
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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