Oil Prices On Track For Monthly Gains

FRIDAY, JULY 31, 2020

SECTOR COMMENTARY

Energy stocks are set to open the final trading session of July mixed to higher, backed by gains in the underlying commodities and U.S. stock index futures which jumped overnight following blowout earnings from major technology firms. Traders will be digesting a flurry of earnings as a handful of producers, services, and pipeline operators report this morning.

Shares of Exxon Mobil are lower by about 2% after the company reported a loss of $1.1 billion during the second quarter amid “global oversupply and COVID-related demand impacts.” It was the companies second straight quarter of losses. Meanwhile, shares of Chevron also fell more than 2% in premarket trading after the company reported an $8.3 billion loss in the second quarter as the pandemic “significantly reduced demand.”

Oil prices rose in overnight trading and are on track for monthly gains, benefiting from a weaker dollar which continued to be hit by concerns over the recovery of the U.S. economy as the coronavirus ravages economic output. "Global stimulus and a weak dollar will continue to support oil prices as historically oil is seen as a hedge against inflation," said Keshav Lohiya, CEO of consultancy Oilytics. Brent September and RBOB August contract expire this afternoon.

Natural gas futures are up by 1%. Tropical storm Isaias has become a hurricane with sustained winds at 80 mph and is expected to skirt Florida then move up the East Coast. The EIA Natural Gas Monthly hits later today with updated May production, consumption and trade data.

US INTEGRATEDS

Reuters - Chevron reported an $8.3 billion loss on asset writedowns from plummeting fuel prices, a forced exit from Venezuela and expenses tied to thousands of jobs cuts.

Press Release - Argentina’s highest court unanimously rejected the plaintiffs’ final bid to enforce a fraudulent $9.5 billion Ecuadorian judgment against Chevron. This is the latest in a string of legal victories in Chevron’s global defense against the Ecuadorian judgment—found by U.S. courts to be the product of fraud, bribery, and corruption, and held unenforceable as a matter of international law by an international arbitral tribunal in The Hague.

Press Release - Exxon Mobil announced an estimated second quarter 2020 loss of $1.1 billion, or $0.26 per share assuming dilution. Results included a positive noncash inventory valuation adjustment from rising commodity prices of $1.9 billion, or $0.44 per share assuming dilution. Capital and exploration expenditures were $5.3 billion, nearly $2 billion lower than first quarter reflecting previously announced spend reductions.

INTERNATIONAL INTEGRATEDS

(Late Thursday) Reuters - Petroleo Brasileiro posted a loss of 2.7 billion reais ($524 million) in the second quarter, with lower oil prices offsetting record export volumes to China. In a securities filing, Petrobras, as the firm is known, said its cash generation, or EBITDA, was 24.99 billion reais between April and June, compared with 18.87 billion reais in the same period last year. That compares to a Refinitiv consensus estimate of 20.9 billion reais.

CANADIAN INTEGRATEDS 

Reuters - Imperial Oil posted a second-straight quarterly loss on Friday, hit by lower crude prices and refining margins as the COVID-19 pandemic dented demand for fuel and related products. The Calgary, Alberta-based posted a loss of C$526 million ($391.86 million), or 72 Canadian cents per share, for the second quarter ended June 30, compared with a profit of C$1.21 billion, or, C$1.57 per share, last year. Imperial's quarterly average production for the quarter stood at 347,000 barrels of oil equivalent per day (boepd) down from 400,000 boepd a year earlier.

Press Release - Imperial Oil declared a quarterly dividend of 22 cents per share on the outstanding common shares of the company, payable on October 1, 2020, to shareholders of record at the close of business on September 4, 2020.

U.S. E&PS

(Late Thursday) Press Release - Cabot Oil & Gas reported financial and operating results for the second quarter of 2020. Second quarter 2020 net income was $30.4 million, or $0.08 per share, compared to $181.0 million, or $0.43 per share, in the prior-year period. Second quarter 2020 adjusted net income (non-GAAP) was $18.0 million, or $0.05 per share, compared to $150.6 million, or $0.36 per share, in the prior-year period. Second quarter 2020 EBITDAX (non-GAAP) was $136.9 million, compared to $311.1 million in the prior-year period.

Reuters - Chaparral Energy reported on July 29, co, agent & some lenders entered into second amendment to limited forbearance agreement. Lenders agreed, during forbearance period, to forbear from exercising remedies under credit agreement for default/event of default.

(Late Thursday) Press Release - ConocoPhillips said it expects production curtailments in the current quarter to be roughly half as much as last quarter and will restore most of its output by the end of September, after the oil and gas producer slashed about a third of its output in April as oil prices plunged 41%.

(Late Thursday) Press Release - Denbury Resources announced it has taken the next step to implement its “pre-packaged” plan to eliminate the Company’s $2.1 billion of bond debt, consistent with the terms of its previously announced Restructuring Support Agreement. As announced on July 29, 2020, Denbury entered into an RSA with funded debtholders holding 100% of the Company’s revolving credit facility loans, approximately 67.2% of its second lien notes and approximately 70.8% of its convertible notes. As contemplated by the RSA, Denbury and its subsidiaries have voluntarily filed petitions for reorganization under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the “Court”). Denbury expects to continue normal course operations throughout the Court-supervised process.

Press Release - Northern Oil and Gas announced that it has entered into definitive agreements to acquire producing properties, wells in process and acreage in the core of the Williston Basin from multiple counterparties. In addition, the Company has entered into exchange agreements with holders of its Senior Notes due 2023 and its Series A Preferred Stock. Northern has acquired or entered into agreements to acquire non-operated interests for approximately 400 net acres, 0.7 net producing wells, 1.9 net wells in process and 1.0 net undrilled locations from undisclosed Sellers. These assets are primarily operated by Conoco, Continental Resources and WPX Energy and located in McKenzie, Mountrail and Dunn counties. The bulk of the wells in process are expected to come online in the summer of 2021. All acquisition and development capital in 2020 remains within Northern’s previously stated capital budget.

Press Release - Rogers announced financial results for the second quarter of 2020. Net sales of $191.2 million decreased 3.8% versus the prior quarter, due to the impact of COVID-19 on demand across most markets. GAAP operating margin of 11.0% increased by approximately 220 basis points sequentially. Adjusted operating margin of 15.4% increased by approximately 410 basis points versus the prior quarter. GAAP earnings per share were $0.78, compared to earnings per share of $0.71 in the first quarter of 2020. The sequential improvement in GAAP earnings resulted from improved gross margin, partially offset by higher SG&A and tax expense. On an adjusted basis, earnings were $1.13 per diluted share compared to adjusted earnings of $0.92 per diluted share in the prior quarter.

(Late Thursday) Press Release - SM Energy announced operating and financial results for the second quarter 2020 and provided updates to its 2020 operating plan. Second quarter 2020 net loss was ($89.3) million, or ($0.79) per diluted common share. This compared with net income of $50.4 million, or $0.45 per diluted common share, in the comparable prior year period. The current period included a gain on extinguishment of debt of $227.3 million that was more than offset by a loss on fair value change in derivatives (net of realized gains) and lower production revenue. For the first half of 2020, net loss was ($501.1) million, or ($4.43) per diluted common share, down ($3.30) per diluted common share compared with the prior year period.

Press Release - Southwestern Energy announced financial and operating results for the second quarter ended June 30, 2020. For the quarter ended June 30, 2020, Southwestern Energy recorded a net loss of $880 million, or ($1.63) per diluted share, including $655 million of non-cash impairments and a $229 million non-cash loss on unsettled mark-to-market derivatives. This compares to net income of $138 million, or $0.26 per diluted share in the second quarter of 2019. Adjusted net income (loss) (non-GAAP), which excludes the non-cash items noted above, was a $1 million loss, or ($0.00) per diluted share in the second quarter of 2020, compared to adjusted net income of $40 million, or $0.08 per diluted share for the prior year period. The decrease in adjusted net income (loss) was primarily related to a 47% decrease in average realized price, partially offset by $120 million in cash settled derivative gains in 2020 and a $31 million decrease in depreciation, depletion and amortization expense. Adjusted EBITDA (non-GAAP) was $106 million, net cash provided by operating activities was $94 million and net cash flow (non-GAAP) was $87 million.

CANADIAN E&PS

(Late Thursday) Press Release - ARC Resources reported its second quarter 2020 financial and operational results. ARC delivered strong financial and operational results during the three months ended June 30, 2020, bringing a major gas processing and liquids-handling facility on-stream to deliver record average daily production of 166,510 barrels of oil equivalent ("boe") (1) per day; generating funds from operations (2) of $150.2 million ($0.42 per share); and reducing net debt (2) by $118.6 million. ARC's low-cost operations were highlighted by a 20-year low operating expense of $3.32 per boe. ARC recognized a net loss of $43.5 million ($0.12 per share) during the three months ended June 30, 2020, compared to a net loss of $558.4 million ($1.58 per share) during the three months ended March 31, 2020.

(Late Thursday) Press Release - Surge Energy is pleased to announce its financial and operating results for the quarter ended June 30, 2020. While the COVID-19 crisis and the Saudi/Russia crude oil price war drove WTI crude oil prices to an average of US$27.85 per barrel in Q2/20, Surge was actually able to reduce net debt in Q2/20, as well as 1H/20. Surge realized over $15 million in hedging gains in the second quarter of 2020 pursuant to the Company's ongoing strategic hedging program, and $29 million in hedging gains during the first half of 2020. In addition, the Company has continued to execute on attractive crude oil hedges for 2021, as well as natural gas hedges for fall and winter 2020 and calendar 2021. With crude oil prices having increased more than 240 percent from the April 21, 2020 low of US$11.57 WTI per barrel, Surge began to bring curtailed production back on in June. Management's expectation is that, based on current oil prices, the Company will have virtually all curtailed production back on by mid-August. Surge's ability to restart production is not simply due to increasing oil prices, but also driven by field cost optimization work (i.e. lowering the break-even price for several of the Company's higher cost properties). Surge is currently participating in (or exploring) all applicable Government assistance programs relating to the COVID-19 pandemic. The Company has received $2.9 million for the Alberta Site Rehabilitation Program ("SRP"). Surge remains committed to its own internal ESG initiatives and currently expects to spend an additional $2 million in 2H/20 (over and above any grants received through the SRP).

OILFIELD SERVICES

Press Release - Baker Hughes announced that the Baker Hughes Board of Directors declared a cash dividend of $.18 per share of Class A common stock payable on August 21, 2020 to holders of record on August 10, 2020.

Stifel Nicolaus upgraded Cactus to ‘Buy’ from ‘Hold’.

Press Release - Tidewater announced revenue for the three and six months ended June 30, 2020, of $102.3 million and $218.7 million, respectively compared with $125.9 million and $248.0 million, respectively, for the three months and six months ended June 30, 2019. Tidewater also reported net losses for the three and six months ended June 30, 2020, of $110.6 million ($2.74 per share) and $129.1 million ($3.21 per share), respectively, compared with $16.0 million ($0.42 per share) and $37.7 million ($1.01 per share), respectively, for the three and six months ended June 30, 2019. Included in the net losses for the three and six months ended June 30, 2020 were impairment charges related to assets held for sale, affiliate credit losses, affiliate guaranteed obligation, and general and administrative severance expenses totaling $111.5 million and $121.8 million, respectively.

Press Release - U.S. Silica Holdings announced second quarter 2020 results, including a net loss of $32.4 million, or $(0.44) per basic and diluted share. The second quarter results were negatively impacted by $33.4 million, or $0.35 per share, of charges related to asset impairments, plant startup and expansion, facility closure costs, and other adjustments, resulting in adjusted EPS for the second quarter of $(0.09) per basic and diluted share.

DRILLERS 

(Late Thursday) Press Release - Dril-Quip reported operational and financial results for the second quarter of 2020. Consolidated revenue for the second quarter of 2020 was $90.4 million, down $5.6 million from the first quarter of 2020 and $13.4 million lower compared to the second quarter of 2019. The decrease in revenue sequentially and year-over-year was driven by negative impacts to production output, delays in rentals related to product installations, customer requests to extend deliveries and supply chain disruptions, all of which were attributed to the COVID-19 pandemic and the associated impacts on the global oil and gas markets.

REFINERS 

Press Release - PBF Energy reported second quarter 2020 income from operations of $620.8 million as compared to income from operations of $9.5 million for the second quarter of 2019. Excluding special items, second quarter 2020 loss from operations was $433.7 million as compared to income from operations of $191.5 million for the second quarter of 2019. PBF Energy's financial results reflect the consolidation of PBF Logistics LP (NYSE: PBFX), a master limited partnership of which PBF indirectly owns the general partner and approximately 48% of the limited partner interests as of quarter-end. The company reported second quarter 2020 net income of $413.0 million and net income attributable to PBF Energy Inc. of $389.1 million or $3.23 per share. This compares to net loss of $21.6 million, and net loss attributable to PBF Energy Inc. of $32.2 million or $(0.27) per share for the second quarter 2019.

Press Release - Phillips 66 announced a second-quarter 2020 loss of $141 million, compared with a loss of $2.5 billion in the first quarter of 2020. Excluding special items of $183 million in the second quarter, primarily a tax adjustment related to first-quarter impairments, the company had an adjusted loss of $324 million, compared with first-quarter adjusted earnings of $450 million.

MLPS & PIPELINES

Press Release - Enterprise Products Partners announced that its operating subsidiary, Enterprise Products Operating LLC (“EPO”), has priced a public offering of $1.25 billion aggregate principal amount of notes comprised of $250 million principal amount of senior notes due January 31, 2030 (“Reopened Senior Notes AAA”), and $1.0 billion principal amount of senior notes due February 15, 2052 (“Senior Notes DDD”).

Press Release - PBF Logistics announced second quarter 2020 net income attributable to the limited partners of $37.5 million, or $0.60 per common unit. During the quarter, the Partnership generated cash from operations of $61.0 million, EBITDA attributable to PBFX of $58.9 million, Adjusted EBITDA of $60.0 million and distributable cash flow of $47.0 million. Included in reported results for the second quarter are $1.1 million, or $0.02 per common unit, of expenses related to pending and non-consummated acquisitions, non-cash unit-based compensation and environmental remediation costs associated with the East Coast Terminals. The board of directors of PBF Logistics GP LLC, the Partnership's general partner, declared a regular quarterly cash distribution of $0.30 per common unit. The distribution is payable on August 26, 2020, to unitholders of record at the close of business on August 13, 2020.

Press Release - Phillips 66 Partners LP announced second-quarter 2020 earnings of $255 million, or $1.05 per diluted common unit. Cash from operations was $215 million, and distributable cash flow was $218 million. Adjusted EBITDA was $269 million in the second quarter, compared with $321 million in the prior quarter.

Press Release - Shell Midstream Partners reported net income attributable to the Partnership of $141 million for the second quarter of 2020, which equated to $0.32 per diluted common limited partner unit. Shell Midstream Partners also generated adjusted earnings before interest, income taxes, depreciation and amortization attributable to the Partnership of $192 million. The Board of Directors of our general partner previously declared a cash distribution of $0.46 per limited partner common unit for the second quarter of 2020. This distribution was consistent with the prior quarter, in line with previously disclosed guidance.

MARKET COMMENTARY

U.S. stock index futures were in the green as tech titans Apple, Amazon.com and Facebook managed to deliver impressive quarterly earnings despite the COVID-19 pandemic that has crushed the wider U.S. economy. European shares rose after bumper earnings from Wall Street's big tech names and Nokia eased investors' nerves. Asian shares turned lower amid the abysmal GDP data from the United States. The dollar index fell, while gold gained as investors sought refuge in the precious metal. Oil prices rose. 

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

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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