Oil Extends Gains on Positive Economic Forecasts, Lower U.S. Output
02.27.2021 - NEWS

February 27, 2021 [Nasdaq] – Energy stocks are set to extend their market leadership this morning, backed by further gains in the crude complex while the major index futures are lower as investors sold high-flying technology stocks on valuation concerns ahead of Federal Reserve Chairman Jerome Powell’s testimony in Congress today.

 

SECTOR COMMENTARY:

Rising bond yields have sparked worries of rapidly rising inflation which provide support to cyclical sectors such as energy, but negatively impact growth stocks. Meanwhile, a handful of producers, services, and pipelines reported 4Q earnings which should dictate price action among those sub-groups. Energy stocks are set to extend their market leadership this morning, backed by further gains in the crude complex while the major index futures are lower as investors sold high-flying technology stocks on valuation concerns ahead of Federal Reserve Chairman Jerome Powell’s testimony in Congress today. Rising bond yields have sparked worries of rapidly rising inflation which provide support to cyclical sectors such as energy, but negatively impact growth stocks. Meanwhile, a handful of producers, services, and pipelines reported 4Q earnings which should dictate price action among those sub-groups.

Oil prices continue to move higher, underpinned by the easing of COVID-19 lockdowns around the world, positive economic forecasts and lower output as U.S. supplies were slow to return after a deep freeze in Texas shut down crude production. “Vaccine news is helping oil, as the likely removal of mobility restrictions over the coming months on the back of vaccine rollouts should further boost the oil demand and price recovery,” said UBS oil analyst Giovanni Staunovo. Goldman Sachs and Bank of America expect Brent to climb to $70 in the second quarter, while Morgan Stanley anticipates its rise to $70 by some time during the third quarter. Also adding to the upside are expectations of another draw in crude stocks this week by analysts’ ahead of tonight’s API data and a weaker US dollar.

Natural gas futures are down 2%, adding to yesterday’s declines as forecasts continue to trend warmer.

US INTEGRATEDS

According to Reuters, Exxon Mobil began restarting its 560,500 barrel-per-day (bpd) Baytown, Texas, refinery after it was shut by extreme cold weather, said a company spokesman.

INTERNATIONAL INTEGRATEDS

According to Reuters, Brazil’s oil sector regulator ANP does not see President Jair Bolsonaro’s appointment of a new Petrobras CEO altering the country’s policy of opening up the domestic refinery market to private investment, ANP director-general Rodolfo Saboia said.

According to Reuters, Repsol will propose to shareholders a conditional distribution of fixed amount of 0.30 euros gross per share charged to free reserves.

In line with its business model for the development of its renewables business, Total, through Total Quadran – its 100% renewable electricity production subsidiary in France, farms down respectively to Banque des Territoires and Crédit Agricole Assurances half of its equity in two portfolios of renewable projects. Crédit Agricole Assurances acquires a 50% stake in a portfolio consisting of 9 wind farms (103 MW) and 44 solar power plants (182 MW) for a total capacity of 285 MW (100%). Banque des Territoires takes a 50% stake in a portfolio consisting of 8 solar farms located in New Caledonia with a total capacity of 53 MW (100%).

According to Reuters, Total SE was raising steam production at its 225,500 barrel-per-day Port Arthur, Texas, refinery as it works to restart after shutting down on Feb. 15 following loss of steam supply, said sources familiar with plant operations.

CANADIAN INTEGRATEDS

No significant news.

U.S. E&PS

Cimarex Energy reported net income for fourth quarter 2020 of $24.7 million, or $0.25 per share, compared to a net loss of $384.1 million, or $3.87 per share, in the same period a year ago. For the full year, Cimarex reported a net loss of $1,967.5 million, or $19.73 per share, compared to 2019 net loss of $124.6 million, or $1.33 per share. Both fourth quarter and full year results were negatively impacted by a non-cash charge related to the impairment of oil and gas properties. Fourth quarter 2020 adjusted net income (non-GAAP) was $91.3 million, or $0.89 per share, compared to adjusted net income (non-GAAP) of $120.4 million, or $1.18 per share in the same period a year ago. Full year 2020 adjusted net income (non-GAAP) was $142.2 million, or $1.39 per share, compared to $448.8 million, or $4.46 per share in 2019.

Cimarex Energy announced its projected 2021 total capital investment (including midstream capital) of $650 – 750 million. In 2021, oil production is projected to average 75 – 81 thousand barrels of oil (MBbls) per day, up two percent at the midpoint from 2020 levels. Total equivalent production is expected to average 235 – 255 thousand barrels of oil equivalent (MBOE) per day. Oil production in the first quarter of 2021 is expected to average 65 – 69 MBbls per day. First quarter total production is expected to average 205 – 225 MBOE per day. First quarter guidance includes an estimated five to seven percent negative impact on production volumes due to downtime associated with recent weather conditions in the Permian and Mid-Continent regions.

Diamondback Energy announced financial and operating results for the fourth quarter and full year ended December 31, 2020. Diamondback’s fourth quarter 2020 net loss was $739 million, or $4.68 per diluted share. Adjusted net income (a non-GAAP financial measure) was $130 million, or $0.82 per diluted share. Fourth quarter 2020 net loss includes a non-cash impairment charge of $1,022 million as a result of the lower SEC Pricing because of the sharp decline in commodity prices. In addition, the Company announced pending all-stock acquisition of QEP Resources and acquisition of all leasehold interests and related assets of Guidon Operating. Guidon acquisition is expected to close on February 26, 2021. Diamondback also announced that the Company’s Board of Directors approved a 6.7% increase to the Company’s annual dividend to $1.60 per share from $1.50 previously and declared a cash dividend of $0.40 per common share for the fourth quarter of 2020 payable on March 11, 2021, to stockholders of record at the close of business on March 4, 2021.

Kosmos Energy announced that, subject to market conditions, it intends to offer $400 million aggregate principal amount of senior notes due 2028. Kosmos intends to use the net proceeds from the offering to repay outstanding indebtedness under its revolving credit facility and commercial debt facilities and for general corporate purposes.

Goldman Sachs upgraded Kosmos Energy to ‘Buy’ from ‘Neutral’.

Laredo Petroleum announced its fourth-quarter and full-year 2020 financial and operating results. For the fourth quarter of 2020, the Company reported a net loss attributable to common stockholders of $165.9 million, or $14.18 per diluted share, which includes a non-cash full cost ceiling impairment charge of $109.8 million. Adjusted Net Income, a non-GAAP financial measure, for the fourth quarter of 2020 was $37.8 million, or $3.22 per adjusted diluted share. Adjusted EBITDA, a non-GAAP financial measure, for the fourth quarter of 2020 was $120.0 million. For full-year 2020, the Company reported a net loss attributable to common stockholders of $874.2 million, or $74.92 per diluted share, which includes a non-cash full cost ceiling impairment charge of $889.5 million. Adjusted Net Income for full-year 2020 was $134.3 million, or $11.47 per adjusted diluted share, and Adjusted EBITDA was $506.9 million.

Laredo Petroleum published its inaugural ESG and Climate Risk Report, covering data for 2019 operations. Establishment of key emissions reduction targets: a 20% reduction in GHG intensity by 2025, zero routine flaring by 2025 and a reduction of methane emissions to less than 0.20% of produced natural gas by 2025.

Marathon Oil reported a fourth quarter 2020 net loss of $338 million, or $0.43 per diluted share, which includes the impact of certain items not typically represented in analysts’ earnings estimates and that would otherwise affect comparability of results. The adjusted net loss was $98 million, or $0.12 per diluted share. Net operating cash flow was $418 million, or $428 million before changes in working capital. Marathon Oil reported full year 2020 net loss of $1,451 million, or $1.83 per diluted share, which includes the impact of certain items not typically represented in analysts’ earnings estimates and that would otherwise affect comparability of results. Adjusted net loss was $919 million, or $1.16 per diluted share. Net operating cash flow was $1,473 million, or $1,416 million before changes in working capital.

Occidental announced a net loss attributable to common stockholders for the fourth quarter of 2020 of $1.3 billion, or $1.41 per diluted share, and an adjusted loss attributable to common stockholders of $731 million, or $0.78 per diluted share. Fourth quarter after-tax items affecting comparability of $581 million included a loss of $820 million related to the sale of non-core assets in the Permian Basin.

CANADIAN E&PS

Scotiabank upgraded Crescent Point Energy to Sector Outperform from Sector Perform.

OILFIELD SERVICES

Helix Energy Solutions Group reported net income of $4.2 million, or $0.03 per diluted share, for the fourth quarter 2020 compared to $8.1 million, or $0.05 per diluted share, for the fourth quarter 2019 and $24.5 million, or $0.16 per diluted share, for the third quarter 2020. Adjusted EBITDA was $35.3 million for the fourth quarter 2020 compared to $33.3 million for the fourth quarter 2019 and $52.7 million for the third quarter 2020. For the full year 2020, Helix reported net income of $22.2 million, or $0.13 per diluted share, compared to $57.9 million, or $0.38 per diluted share, for the full year 2019. Adjusted EBITDA for the full year 2020 was $155.3 million compared to $180.1 million for the full year 2019.

TechnipFMC announced that its subsidiary, FMC Wellhead Equipment Sdn. Bhd., has been awarded a substantial contract by PETRONAS Carigali Sdn. Bhd., a subsidiary of PETRONAS, for the provision of front-end engineering design, and integrated engineering, procurement, construction, installation and commissioning of subsea production system, umbilicals, risers and flowlines (iEPCI) for the Limbayong Deepwater Development Project.

DRILLERS

Transocean reported a net loss attributable to controlling interest of $37 million, $0.06 per diluted share, for the three months ended December 31, 2020. Fourth quarter 2020 results included net favorable items of $172 million, or $0.28 per diluted share, as follows: $137 million, $0.22 per diluted share, gain on retirement of debt; and $37 million, $0.06 per diluted share, related to discrete tax items, partially offset by: $2 million of other net unfavorable items. After consideration of these net favorable items, fourth quarter 2020 adjusted net loss was $209 million, $0.34 per diluted share.

REFINERS

CVR Energy announced a fourth quarter 2020 net loss of $67 million, or 67 cents per diluted share, on net sales of $1.1 billion, compared to net income of $44 million, or 44 cents per diluted share, on net sales of $1.6 billion for the fourth quarter of 2019. Fourth quarter 2020 EBITDA was $1 million, compared to fourth quarter 2019 EBITDA of $142 million. For full-year 2020, the Company reported a net loss of $256 million, or $2.54 per diluted share, on net sales of $3.9 billion, compared to net income for full-year 2019 of $380 million, or $3.78 per diluted share, on net sales of $6.4 billion. Full-year 2020 EBITDA was a negative $7 million, compared to $880 million for 2019.

According to Reuters, Marathon Petroleum began restarting a crude distillation unit at its 585,000-barrel-per-day Galveston Bay Refinery in Texas City, Texas, as the refinery recovers from the effects of severe cold weather a week ago, said sources familiar with plant operations. In addition to the 225,000-barrel-per-day CDU, Marathon is also restarting a 112,500-bpd vacuum distillation unit and the 140,000-bpd gasoline-producing fluidic catalytic cracker.

According to Reuters, a hydrocracker at PBF Energy’s 182,200 barrel-per-day Delaware City, Delaware, refinery will be shut next week for repairs, according to a source familiar with the matter. The repairs will take approximately 35 days, the source said.

According to Reuters, Valero Energy was boosting production on the restarted small crude distillation unit and the coker at its 335,000 barrel-per-day (bpd) Port Arthur, Texas, refinery, said sources familiar with plant operations. The AVU-147 CDU was operating at 83% of its 150,000-bpd capacity, the sources said. The 100,000-bpd coker was raising production in parallel with the CDU.

MLPS & PIPELINES

Crestwood Equity Partners reported its financial and operating results for the three months ended December 31, 2020. Fourth quarter 2020 net income was $27.8 million, compared to net income of $47.2 million in fourth quarter 2019. Full-year net loss was $15.3 million, compared to net income of $319.9 million in 2019. Fourth quarter 2020 Adjusted EBITDA was $165.1 million, compared to $149.0 million in the fourth quarter 2019. Full-year Adjusted EBITDA was $580.3 million, compared to $526.5 million in 2019, an increase of 10% year-over-year.

Gibson Energy announced its financial and operating results for the three months and fiscal year ended December 31, 2020. The distributable cash flow for the full year was $299 million, including $54 million in the fourth quarter, a $3 million or 1% decrease over full year 2019, due to a decreased contribution from the Marketing segment being largely offset by an increase in the Infrastructure segment. The Company maintained a strong financial position, with Net Debt to Adjusted EBITDA at December 31, 2020 of 2.8x, below the Company’s 3.0x – 3.5x target range, and remain fully-funded for all sanctioned capital Payout ratio on a trailing twelve-month basis of 66%, below the Company’s 70% to 80% target range.

Gibson Energy announced that its Board of Directors has approved a quarterly dividend of $0.35 per common share, an increase of $0.01 per common share, which will be payable on April 16, 2021, to shareholders of record at the close of business on March 31, 2021. This dividend is designated as an eligible dividend for Canadian income tax purposes. For non-resident shareholders, Gibson’s dividends are subject to Canadian withholding tax.

Holly Energy Partners reported financial results for the fourth quarter of 2020. Net income attributable to HEP for the fourth quarter was $51.3 million ($0.49 per basic and diluted limited partner unit) compared to $45.7 million ($0.43 per basic and diluted limited partner unit) for the fourth quarter of 2019. Revenues for the quarter were $127.5 million, a decrease of $4.2 million compared to the fourth quarter of 2019.Revenues for the year ended December 31, 2020, were $497.8 million, a decrease of $34.9 million compared to the year ended December 31, 2019.

Inter Pipeline confirmed that an affiliate of Brookfield Infrastructure Partners has commenced a conditional, unsolicited takeover bid to acquire all outstanding common shares of the Company not already owned by Brookfield. The Offer will be reviewed by the Company’s Special Committee of independent directors formed by the Board of Directors on February 18, 2021, and a response will be provided in due course. The Board has 15 days to provide shareholders with a recommendation regarding the Offer. Shareholders will be notified of the recommendation of the Board through a news release and Inter Pipeline’s Directors’ circular.

Kinder Morgan and Brookfield Infrastructure Partners jointly announced that they have agreed to sell a 25% minority interest in Natural Gas Pipeline Company of America to a fund controlled by ArcLight Capital Partners for $830 million. The proceeds will be shared equally between KMI and Brookfield Infrastructure. The value of the minority interest implies an enterprise value of approximately $5.2 billion for NGPL, which is approximately 11.2 times 2020 EBITDA. Upon closing, KMI and Brookfield Infrastructure will each hold a 37.5% interest in NGPL, and KMI will continue to operate the pipeline.

Martin Midstream Partners announced its financial results for the three months and year ended December 31, 2020. The Partnership had a net loss from continuing operations for the three months ended December 31, 2020 of $2.6 million, a loss of $0.06 per limited partner unit. The Partnership had net income from continuing operations for the three months ended December 31, 2019 of $6.6 million, or $0.14 per limited partner unit. The Partnership had a net loss from continuing operations for the year ended December 31, 2020 of $6.8 million, a loss of $0.17 per limited partner unit. The Partnership had net income from continuing operations for the year ended December 31, 2019 of $4.5 million, or $0.11 per limited partner unit. Revenues for the three months ended December 31, 2020 were $180.1 million compared to the three months ended December 31, 2019 of $241.9 million. Revenues for the year ended December 31, 2020 were $672.1 million compared to the year ended December 31, 2019 of $847.1 million.

ONEOK announced fourth quarter and full-year 2020 results and announced 2021 financial guidance. ONEOK reported full-year 2020 net income of $612.8 million, which includes noncash impairment charges of $644.9 million. Full-year 2020 adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) increased 6%, compared with the full year 2019. The Company provided higher 2021 earnings guidance, compared with full-year 2020 results: net income midpoint increase to $1.23 billion; diluted earnings per common share midpoint increase to $2.74; 12% increase of adjusted EBITDA midpoint to $3.05 billion; and more than 70% decrease of total capital expenditures to a midpoint of $600 million.

MARKET COMMENTARY

Wall Street futures fell ahead of the U.S. Federal Reserve Chairman Jerome Powell’s testimony to Congress later in the day. European equities dropped on bleak earnings report from companies, while most Asian shares edged higher as rising commodity prices boosted market expectations of an improved growth outlook. The dollar rose, weighing on gold prices. Oil prices advanced, helped by the likely easing of COVID-19 lockdowns around the world and positive economic forecasts.

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