Crude Slips on Larger-Than-Expected U.S. Inventories Build, Oversupply Fears
SECTOR COMMENTARY
Energy stocks are lower while broader index futures point to a sizeable decline on news that the White House officials are projecting between 100,000 and 240,000 virus deaths in the U.S. The market will be awaiting manufacturing PMI and ISM manufacturing data later today and ADP data today showed an influx of jobless claims. Shares of Whiting Petroleum are plummeting in the pre-market on news of a Chapter 11 restructuring and BP cut its 2020 capex by 25% with production guidance lowered by 70K boed.
Crude oil is reversing yesterday’s gains as a bigger-than-expected rise in U.S. inventories and a widening rift within OPEC heightened oversupply fears. According to the API, U.S. crude inventories rose by 10.5 million barrels last week, far exceeding forecasts for a 4 million barrel build-up. The bearish mood in the market was also fueled by a rift within OPEC as Saudi Arabia and other members of OPEC were unable to come to an agreement on Tuesday to meet in April to discuss sliding prices. Adding to the downward pressure, sources told Reuters that top U.S. officials have for now put aside a proposal for an alliance with Saudi Arabia to manage the global oil market.
Natural gas futures are rallying from overnight lows as lower temperature forecasts for the first two weeks of April are expected to limit heating demand in the Northeast while cooling demand should pick up a bit in the Southeast.
INTERNATIONAL INTEGRATEDS
Reuters - BP cut its 2020 spending plan by 25% and will reduce output from its U.S. shale oil and gas business in the face of the collapse in oil prices triggered by the corononavirus outbreak, it said. "This may be the most brutal environment for oil and gas businesses in decades," CEO Bernard Looney said in a statement. The London-based company said it plans to spend $12 billion this year, joining its peers that have announced cuts of around 20% in annual spending on average. BP had previously said its 2020 spending would be "at the lower end" of a $15 to $17 billion range. That will include a $1 billion reduction in investment in its shale business, known as BPX, where production can be switched on and off relatively quickly, representing a 50% drop from 2019 investment levels. BP became a leading shale producer following the $10.5 billion acquisition of BHP's onshore U.S. assets in late 2018. BPX output will drop by around 70,000 barrels of oil equivalent per day (boepd) in 2020, around 14% lower than its 2019 output of 499,000 boepd. BP's overall oil and gas production is also expected to fall. BP will also reduce capital spending on its refining and marketing, or downstream, business by $1 billion.
Reuters - Petrobras will cut its oil production by 200,000 barrels per day, the Brazilian state-controlled oil company said in a securities filing. It also said it was adjusting its refineries production but did not specify by how much its fuel production would be cut. Petrobras and its subsidiaries are also cutting costs, the filing said.
(Late Tuesday) Press Release - Petrobras reported that it has started the opportunity disclosure stage (teaser), regarding the sale of its remaining stake (10%) in Nova Transportadora do Sudeste S.A. (NTS).
U.S. E&PS
Press Release - Apache provided an update regarding the cost savings associated with its previously announced organizational redesign. Apache now expects to deliver an annualized G&A and LOE cost reduction in excess of $300 million, up from an original target of $150 million. Approximately $225 million of the identified savings, which includes the impact of severance and reorganization costs, will be achieved in 2020.
Press Release - Whiting Petroleum and certain subsidiaries announced that they had commenced voluntary Chapter 11 cases under the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. The Company has more than $585 million of cash on its balance sheet and will continue to operate its business in the normal course without material disruption to its vendors, partners or employees. Whiting currently expects to have sufficient liquidity to meet its financial obligations during the restructuring without the need for additional financing.
CANADIAN E&PS
(Late Tuesday) Press Release - Oceaneering International announced that it is confirming its first quarter 2020 guidance. However, consequent to the emerging global public health threat caused by the COVID-19 virus and the sudden collapse of crude oil pricing, Oceaneering also announced that it is withdrawing its full-year 2020 financial guidance. Additionally, Oceaneering expects to lower its organic capital expenditures for 2020 to between $60 million and $80 million and reduce its Unallocated Expenses to an average per quarter in the upper $20 million range.
OILFIELD SERVICES
Press Release - ION Geophysical announced that written notice was received from the New York Stock Exchange that the Company is not in compliance with the continued listing standards set forth in Section 802.01B of the NYSE Listed Company Manual. ION is considered below criteria established by the NYSE for continued listing because its average market capitalization has been less than $50 million over a consecutive 30 trading-day period, and at the same time its last reported stockholders' equity was below $50 million. The Company's market capitalization was above $50 million prior to the precipitous stock market decline that was triggered by the COVID-19 pandemic. The Company intends to submit a plan that demonstrates its ability to bring the Company into conformity with the continued listing standards within 18 months. During the 18-month period, the Company's shares will continue to be listed and traded on the NYSE, subject to its continued compliance with the plan and other NYSE continued listing standards.
Press Release - Schlumberger has requested that all of its secondary listed registered shares (Swiss Security Number 555’100 / ISIN AN8068571086) with a nominal value of USD 0.01 shall be delisted from the Swiss stock exchange SIX. SIX Exchange Regulation AG has approved the companies’ application on 31 March 2020.
DRILLERS
(Late Tuesday) Press Release - Helmerich & Payne provided an update on its capital allocation policy as well as its capital expenditure and SG&A cost outlook for the remainder of fiscal 2020. The Company also announced the timing of its upcoming second fiscal 2020 quarterly conference call and webcast. As part of the Company’s commitment to long-term shareholder returns and at the same time maintaining its strong financial position, consistent with its previous announcement on March 23, 2020 that it was reviewing its capital allocation policy, the Company announced it intends to reduce the future quarterly dividends to $0.25 per share. The declaration and amount of any future dividends, and any future increase or decrease, is at the discretion of the Board of Directors and subject to the Company’s financial condition, results of operations, cash flows and other factors the Board deems relevant. H&P also reaffirms its commitment to pay the previously announced $0.71 per share dividend on June 1, 2020, to stockholders of record at the close of business on May 11, 2020.
BTIG downgraded Transocean from buy to neutral.
REFINERS
(Late Tuesday) Press Release - Delek US Holdings and Delek Logistics Partners announced an agreement for the dropdown of the Big Spring gathering system to Delek Logistics for total consideration of $100 million in cash and 5.0 million common units representing limited partnership interest in Delek Logistics. The transaction is effective March 31, 2020, and is expected to be immediately accretive to Delek Logistics' distributable cash flow per unit. These assets and services are projected to generate incremental annual earnings before interest, taxes, depreciation and amortization (EBITDA) of approximately $30 to $32 million.
MLPS & PIPELINES
(Late Tuesday) Press Release - Delek US Holdings and Delek Logistics Partners announced an agreement for the dropdown of the Big Spring gathering system to Delek Logistics for total consideration of $100 million in cash and 5.0 million common units representing limited partnership interest in Delek Logistics. The transaction is effective March 31, 2020, and is expected to be immediately accretive to Delek Logistics' distributable cash flow per unit. These assets and services are projected to generate incremental annual earnings before interest, taxes, depreciation and amortization (EBITDA) of approximately $30 to $32 million.
MARKET COMMENTARY
Wall Street futures sank, following stark predictions of a rising U.S. death toll and economic damage from the coronavirus outbreak. European shares tumbled on fears of a deep global recession. Japan’s Nikkei plummeted as investors braced for a potential lockdown of Tokyo, and sharp cuts in corporate earnings and dividend payouts. The dollar rallied against riskier currencies, while gold rose on safe-haven demand. Brent crude prices slid on oversupply concerns. ADP jobs report and ISM manufacturing PMI numbers are expected later in the day.
NASDAQ ENERGY TEAM THOUGHT LEADERSHIP
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- 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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