Oil Rebounds After Two-Day Loss

SECTOR COMMENTARY:

Energy stocks are set to rebound from the first two down sessions of 2023, with oil prices bouncing higher also after recent losses.  Broader markets are set to open lower, which could keep energy equity prices muted and short-lived today, as stronger than expected jobs data released this morning continues to be viewed negatively from equity participants given the Fed’s monetary tightening policy.  Sector corporate news flow is picking up, with several companies issuing interim fourth quarter updates and the commencement of the Goldman Sachs Energy Conference in Miami. 

Oil rebounded over 2% on Thursday after posting the biggest two-day loss for the start of a year in three decades with the shutdown of a U.S. fuel pipeline providing support, though economic concerns capped gains. Big declines in the previous two days were driven by worries about a global recession, especially since short-term economic signs in the world’s two biggest oil consumers, the United States and China, looked weak.

U.S. natural gas futures dropped about 5% to a 10-month low on Thursday on forecasts for warmer-than-normal weather to continue into late January. That should keep heating demand low during what is usually the coldest part of the year and allow utilities to pull less gas from storage than usual in coming weeks.

BY SECTOR:

US INTEGRATEDS

Chevron U.S.A., a subsidiary of Chevron, closed its previously announced acquisition of full ownership of Beyond6, LLC and its nationwide network of compressed natural gas stations from Mercuria Energy Trading and Beyond6 founder Andrew West.

Reuters reported that a shipping channel snafu is slowing Chevron’s efforts to load tankers at one of its four Venezuelan joint ventures and bring heavy crude to the United States.

Exxon Mobil signaled another strong operational profit of about $15.4 billion in its fourth quarter, pushing it toward a record take for all of 2022. The largest U.S. oil producer indicated in a securities filing a cooling from its massive profits from the prior quarters. But preliminary operational results confirmed 2022 was Exxon’s best financial year with profits of around $58 billion. Formal earnings are due on Jan. 31. Operational results from pumping oil and gas, its largest business, retreated about $2.3 billion from the record $12.4 billion in the third quarter as crude prices fell.

INTERNATIONAL INTEGRATEDS

Equinor and RWE said they planned to develop an industrial value chain for the production and use of low-carbon hydrogen, allowing Germany to reduce its reliance on coal power and thus cut CO2 emissions.

The Telegraph reported that Shell has delayed the payment of taxpayer energy bill support payments to thousands of its customers, sparking criticism over its role in the cost of living crisis.

CANADIAN INTEGRATEDS

Canada’s largest oil sands producers signed an agreement with the Alberta government allowing them to assess the geology of an underground carbon storage site, a step in their plan to tackle greenhouse gas emissions, the companies said. The Pathways Alliance, consisting of six companies representing 95% of Canada’s oil sands production, is proposing a carbon capture and storage (CCS) hub that will gather and store emissions from 14 oil sands projects in northern Alberta by 2030. The Pathways Alliance includes Canadian Natural Resources, Suncor Energy, Cenovus Energy, Imperial Oil, ConocoPhillips Canada and Meg Energy.

U.S. E&PS

Denbury provided an update that it experienced an estimated negative production impact of 1,100 to 1,300 barrels of oil equivalent per day in the fourth quarter of 2022 due to production downtime associated with late December 2022 winter storms in the Company’s Rocky Mountain and Gulf Coast regions. As of January 5, 2023, most of the impacted production has been restored.

EOG Resources announced that the company has joined the Oil and Gas Methane Partnership 2.0 (OGMP 2.0), UNEP’s flagship oil and gas reporting and mitigation program.

Magnolia Oil & Gas announced preliminary fourth quarter 2022 estimated oil and gas production volumes in the range of 73 to 74 Mboe per day, compared to the midpoint of the Company’s earlier guidance of 78 Mboe per day. Two factors led to the production variance compared to previous guidance. Despite the impact of these items in the fourth quarter, Magnolia’s production has since recovered with volumes currently exceeding 80 Mboe per day. The Company’s 2023 guidance remains unchanged, and Magnolia expects to generate full-year 2023 production growth of 10 percent compared to last year, at current product prices.

Evercore ISI resumed coverage on Marathon Oil with an Outperform rating.

Occidental Petroleum provided a financial and operational update. During the fourth quarter of 2022, Occidental completed its $3 billion share repurchase program and took steps to further improve its balance sheet. Following the third quarter 2022 earnings call, Occidental repaid approximately $940 million of debt and retired $450 million of notional interest rate swaps for approximately $170 million in cash. During fiscal year 2022, Occidental repaid over $10.5 billion of debt, including over $1.1 billion in the fourth quarter, reducing the face value of its debt to below $18 billion. Occidental has now retired all outstanding interest rate swaps. The late December 2022 North American Winter Storm Elliott resulted in third party and company operated downtime, primarily related to compression, that impacted Occidental’s domestic onshore operations. While normal operations have resumed, average Permian and Rockies production in the fourth quarter of 2022 is expected to be impacted by a combined 10 Mboe per day (thousands of barrels equivalent per day).

CANADIAN E&PS

No significant news.

OILFIELD SERVICES

Fluor announced that it was selected by Hellas Gold Single Member S.A., a wholly-owned subsidiary of Eldorado Gold Corp., to provide engineering, procurement and construction management (EPCM) services for its Skouries gold-copper mining project located within the Halkidiki Peninsula of Greece. Fluor booked its share of the $845 million project investment value in the fourth quarter of 2022.

DRILLERS

Patterson-UTI Energy reported that for the month of December 2022, the Company had an average of 132 drilling rigs operating in the United States. For the quarter ended December 31, 2022, the Company had an average of 131 drilling rigs operating in the United States.

Precision Drilling provided a series of positive announcements including: 1) 2022 debt repayment and year-end liquidity update; 2) capital allocation framework update; and 3) operations update for drilling activity, Alpha technologies and EverGreen environmental solutions. Precision reduced total debt by $106 million in 2022, exceeding its $75 million debt reduction goal. Precision is well on track to achieve its long-term goal of repaying over $400 million in debt and reaching a sustained Net Debt to Adjusted EBITDA leverage ratio of below 1.5 times by the end of 2025. Given its strong free cash flow outlook, the Company now expects leverage between 1.25 and 1.75 times by the end of 2023 and will look to exceed its long-term debt reduction targets on both an absolute level and as a multiple of Adjusted EBITDA. Precision will also continue to allocate 10% to 20% of free cash flow before debt principal repayments toward the return of capital to shareholders. During 2022, Precision repurchased and cancelled 130,395 common shares under its Normal Course Issuer Bid. Precision continues to experience strong customer demand for drilling services, Alpha technologies and EverGreen environmental solutions and expects its Canadian and U.S. fourth quarter field margins to exceed our previous guidance and continue trending upward in 2023.

Transocean announced contract awards or extensions for five of its drilling rigs. Together, the fixtures represent approximately $488 million of firm backlog.

REFINERS

Delek US Holdings announced the 2023 capital spending budget of approximately $350 million on a consolidated basis. Growth capital is largely allocated toward expanding the gathering business in the Permian basin. Sustaining capital includes a planned turnaround at the Tyler Refinery in the first half of 2023.  

Wells Fargo downgraded Delek US Holdings to Underweight from Overweight.

Marathon Petroleum has received notification of an unsolicited mini-tender offer by TRC Capital Investment Corp. (TRC) to purchase up to 1,500,000 shares, which is less than 1% of MPC’s outstanding common stock, at a price of $105.00 per share in cash. TRC’s offer price is approximately 4.33% lower than the closing price of MPC’s common stock on December 16, 2022, the last trading day prior to its stated commencement of the offer. MPC is not associated in any way with TRC or its mini-tender offer. MPC recommends that shareholders not tender their shares in response to TRC’s unsolicited offer because the price of $105.00 is below the current market price for MPC’s shares.

MLPS & PIPELINES

Enterprise Products Partners L.P. announced that the board of directors of its general partner declared a quarterly cash distribution to be paid to Enterprise common unitholders with respect to the fourth quarter of 2022 of $0.49 per unit, or $1.96 per unit on an annualized basis. Enterprise repurchased $120 million of its common units in the open market during the fourth quarter of 2022 for a total of $250 million of common units repurchased in 2022. Inclusive of these purchases, the partnership has utilized 37 percent of its authorized $2.0 billion buyback program.

Plains All American Pipeline, L.P. and Plains GP Holdings announced the appointment of Blake Fernandez as Vice President, Investor Relations. Roy Lamoreaux, who served previously as Vice President, Investor Relations, Communications and Government Relations has assumed the role of Vice President, Communications, Sustainability and Public Affairs. Fernandez and Lamoreaux report to Chris Herbold, Sr. VP Finance and Chief Accounting Officer, who in addition to overseeing these functions and all Accounting activities, also has responsibility for Equity Capital Markets, Tax and Commodity Risk Management.

Scorpio Tankers announced that (i) it has purchased its common shares in the open market, (ii) the President of the Company, Robert Bugbee, has purchased call options on the common shares of the Company, (iii) it has received a commitment for a new credit facility and (iv) the Company will participate in at least six investor events during the first quarter of 2023. Recently, the Company purchased 415,062 of its common shares in the open market at an average price of $51.35 per share as part of the Company’s securities repurchase program. The Company has received a commitment from a group of European financial institutions for a credit facility of up to $225.0 million. The credit facility will be used to finance 11 MR product tankers and two LR2 product tankers. The credit facility has a final maturity of five years from the signing date and bears interest at SOFR plus a margin of 1.975% per annum.

MARKET COMMENTARY

U.S. stock index futures were muted after the Federal Reserve’s December meeting minutes showed the central bank’s commitment to taming inflation. European stock indexes were weighed down by drugmakers. Chip-related stocks lifted Japan’s Nikkei index. Gold prices slipped from a seven-month peak while the dollar steadied.

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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