April 02, 2020 [Nasdaq – Published on March 30, 2020] – WTI crude oil futures are off ~6%, faring better then Brent which is down ~8%, as heightened fears that the global coronavirus shutdown could last months and demand for fuel could further decline in an oversupplied market.

Sector Commentary

Energy stocks are set to open mixed to lower, tracking further declines in the underlying commodities and as broader index futures edged higher despite investors bracing for another volatile week. Over the weekend, President Trump extended the stay-at-home guidelines until the end of April, leaving investors again guessing at the growing economic impact.

WTI crude oil futures are off ~6%, faring better then Brent which is down ~8%, as heightened fears that the global coronavirus shutdown could last months and demand for fuel could further decline in an oversupplied market. Earlier in the session, WTI dipped below $20 a barrel and Brent touched its lowest level in 18 years. “Global oil demand is evaporating on the back of COVID-19-related travel restrictions and social distancing measures,” said UBS oil analyst Giovanni Staunovo.
 
“In the near term, oil prices may need to trade lower into the cash cost curve to trigger production shut-ins to start to prevent tank tops to be reached,” he added. Additionally, Texas RRC Commissioner Ryan Sitton said Saturday some Texas producers are starting to get letters from pipeline operators asking for oil production cuts because they are out of storage. Rapidly falling demand for crude oil may soon have pipeline operators with full storage tanks seeking legal protection for events out of their control.

Natural gas futures are also under pressure this morning, tracking weakness in the crude oil markets and despite above-seasonal weather forecasts for most of the United States which should boost cooling demand.
 

International Integrateds

Reuters – Royal Dutch Shell is restarting units at its Pernis oil refinery in the Netherlands following a power outage on Saturday, a spokesman for the oil major said on Monday. “The Pernis site is currently in the process of restarting the impacted units and restoring its electrical facilities,” he said. A power outage on March 28 evening caused multiple unit shutdowns at the 404,000 barrel per day refinery, Europe’s largest.

(Sunday) Press Release – Advanced Petrochemical Co. announced in a bourse filing, on March 27, the signing of a partnership agreement between its subsidiary, Advanced Global Investment, and SK Gas Petrochemical, a unit of SK Gas Co. Under the agreement, the newly-incorporated Advanced Polyolefins will build and operate propane dehydrogenation (PDH) and polypropylene (PP) complex with a design capacity of 843,000 metric tons per annum of propylene and 800,000 metric tons per annum of polypropylene in Jubail Industrial City.
 
AGIC will own 85% equity stake in the JV, financed by Advanced, while the remaining 15% will be owned by SKGP. Meanwhile, the SAR 6.75 billion ($1.8 billion) project will be 25% financed by equity from shareholders and the remaining 75% of the joint stock firm through credit facilities. Construction works are expected to begin in 2021 and will be supplied with propane (main feedstock) from Saudi Aramco on a long-term basis.
 
(Sunday) Reuters – Saudi Aramco Total Refining & Petrochemical posted FY net loss after Zakat and tax 641.6 million riyals versus profit of 446.9 million riyals year ago; FY sales 39.46 billion riyals versus 44.57 billion riyals year ago; and FY saw decrease in refining and petrochemical margins.
 

U.S. E&PS

Press Release – Devon Energy provided updates to its 2020 capital expenditure outlook and hedge position. Based on current market conditions, Devon has elected to further reduce its capital expenditures by an additional $300 million for the full-year 2020. The revised capital outlook of approximately $1 billion represents a reduction of nearly 45 percent compared to the company’s original 2020 capital budget.
 
The $300 million of incremental capital reductions will be driven by the deferral of activity in the Eagle Ford, improved capital efficiencies in the Delaware Basin and lower service-cost pricing attained across the company’s asset portfolio. With the revised capital plan, Devon now expects to fund its 2020 capital program within operating cash flow at current strip pricing. Beyond the spending cuts announced today, Devon is prepared to further reduce capital activity should commodity prices remain weak to protect its financial strength.
 
(Late Friday) Press Release – Laredo Petroleum announced that on March 26, 2020, it received formal notice from the New York Stock Exchange that the average closing price of the Company’s common stock over the prior 30-consecutive trading day period was below $1.00 per share, which is the minimum average share price for continued listing on the NYSE.
 
Laredo intends to notify the NYSE of its intent to cure the deficiency and return to compliance with the NYSE continued listing requirements within the six-month cure period. During the cure period, Laredo’s shares of common stock will continue to trade on the NYSE, subject to compliance with other continued listing requirements.

(Late Friday) Reuters – Lonestar Resources announced that it will delay filing of annual report on form 10-K for year ended December 31, 2019 due to circumstances related to COVID-19.

(Late Friday) Press Release – Whiting Petroleum announced that it has taken proactive steps to ensure it has sufficient liquidity to fund ongoing operations by drawing $650 million on its credit facility. The additional funding provides the Company with more than enough liquidity to continue its daily business and satisfy obligations to its employees and vendors with minimal interruption as it considers all alternatives to maximize the value of the Company.
 

Oilfield Services

Press Release – For the first quarter, Black Hills is not expecting significant impacts to utility sales volumes due to the COVID-19 pandemic. The company continues to closely monitor loads, particularly in states that have implemented more restrictive stay-at-home executive orders or recommendations. The company is monitoring supply chains, lead times for key materials and large capital projects. To date, supply chains are operating with limited impact to availability of supplies and materials, and capital projects are ongoing without material disruption to schedules.
 
Contingency plans for potentially rescheduling projects are ongoing due to the impacts of COVID-19. Black Hills continues to maintain adequate liquidity to operate its businesses and fund its capital program. The company has shifted short-term funding from its commercial paper program to its $750 million revolving credit facility to take advantage of better pricing.
 
The company has no material upcoming debt maturities until late 2023, and as of March 27 has $455 million of liquidity which includes cash and available capacity on its revolving credit facility. The company continues to monitor the capital markets and intends to issue at least $300 million of long-term debt this year to help fund the company’s currently disclosed capital investment program.
 
(Late Friday) Press Release – Calfrac Well Services announced reductions to its 2020 capital program and North American operating footprint as a result of the rapid and unforeseen deterioration in business conditions resulting from the COVID-19 global pandemic and the oil price war among OPEC+ members. These global events have caused a significant decline in oil prices globally, resulting in reductions in the planned spending of many of Calfrac’s clients.
 
In response to the reduced demand for Calfrac’s services, the board of directors of Calfrac has approved a reduction of the Company’s previously announced 2020 capital program of approximately $100.5 million down to approximately $55.0 million. Calfrac has also reduced the number of crews being deployed in its North American operations from 19 fleets to nine, which will result in an aggregate reduction of approximately 40% of the Company’s North American workforce.
 
In addition, Calfrac’s board of directors and senior management have taken the following actions to reduce the Company’s fixed costs: Reduced Calfrac’s board compensation by 25%; Reduced Executive officer salaries by 10%; Eliminated retirement savings matching contributions, which previously represented up to 6% of base salary; Reduced staff employee salaries by 5 – 10%; Modified work schedules to provide increased flexibility to respond to fluctuating demand for the Company’s services, while reducing personnel costs; Reduced or eliminated several compensation programs and bonuses; and Restricted discretionary spending and suspended all non-emergency travel.

BOFA Global Research upgraded CGG to ‘Buy’ from ‘Neutral’ and PGS ASA to ‘Neutral’ from ‘Underperform’.
 

Refiners

Credit Suisse downgraded CVR Energy to ‘Underperform’ from ‘Neutral’. RBC Capital Markets upgraded Phillips 66 to ‘Outperform’ from ‘Sector Perform’.

Press Release – PBF Energy announced a number of decisive steps taken as part of a strategic plan for PBF to navigate current extraordinary and volatile markets. The company has taken the following aggressive steps to increase PBF’s flexibility and responsiveness: Entered into a letter of intent with Air Products and Chemicals to monetize five hydrogen plants for cash proceeds of $530 million, with a targeted transaction close in April.
 
PBF will enter into off-take arrangements for hydrogen on terms in line with similar arrangements in place throughout its refining system; Reducing Capital Expenditures by $240 million, a 35% reduction to our previous 2020 guidance, including the Martinez refinery, and a more than 45% reduction of our projected spend for the remainder of 2020.
 
We intend to satisfy all required safety, environmental and regulatory capital commitments; Lowering 2020 operating expenses by approximately $125 million, driven by a significant reduction in discretionary activities and third party services; Reducing corporate overhead expenses by over $20 million on an annual basis primarily through salary reductions. Specifically, the Board and Executive Leadership have reduced their compensation by 50%, while Chairman and CEO Thomas Nimbley’s salary has been reduced by 67%.
 
In addition, more than 50% of our corporate and non-represented employees have also reduced their salaries; and Suspending PBF’s quarterly dividend of $0.30 per share, anticipated to preserve approximately $35 million of cash each quarter to support the balance sheet.
 

MLPS & Pipelines

BofA upgraded Magellan Midstream Partners to ‘Buy’ from ‘Underperform’.
 

Market Commentary

Oil prices fell sharply, with U.S. crude briefly dropping below $20 and Brent hitting its lowest level in 18 years, on heightened fears that the global coronavirus shutdown could last months and demand for fuel could decline further. Wall Street futures see-sawed, as President Donald Trump extended his stay-at-home guidelines until the end of April. European shares fell. Japan’s Nikkei dropped over worries that Tokyo could face its first-ever lockdown. The dollar snapped a week of declines, rising against major currencies, while gold was steady.

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