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Weekly Energy Market Review

Weekly Energy Market Review

Energy Market Summary for the week ending August 4, 2017:
  • US dollar catches a bounce on decent jobs report
  • Canadian dollar takes a hit on weak trade data, dragged lower by energy exports
  • US markets power to new record highs while TSX moves above 200-day moving average
  • Integrated and refining stocks post a decent week
  • Producers and service stocks drag energy sector lower
  • WTI touches US$50 and retreats as traders hit the sell button
  • Canadian light and heavy differentials begin to widen
  • Natural gas prices continue to fall from July highs, declining another 6% this week.
QUICK LINKS
MARKET OVERVIEW
CURRENCIES & BONDS

A decent June payrolls report and improvement in hourly earnings helped boost the US dollar and bond yields on Friday. For the week, longer duration bond yields (10+ years) fell while short term yields rose slightly.

Among this week's notable Canadian economic data:

  • A 4.1% decline in energy and petroleum products was blamed for a 1% m/m decline in June's Industrial Product Price Index. Gasoline prices fell 4% while diesel prices tumbled 6.1%. The Raw Materials Price Index also fell 3.7% in June, led lower by a 9.3% drop in crude products, the biggest decline since January 2016.
  • Canada posted a $3.6 billion trade deficit in June, up from a $1.4 billion deficit the previous month. Exports of energy products declined 9.2% to $7.3 billion. Exports of crude oil and bitumen fell 7.4% to $4.6 billion, the fourth consecutive monthly decline due to lower oil prices and lower export volumes.

The weak trade data dragged Canadian bond yields lower. The loonie fell 1.5% for the week.

OIL & GAS PRICES (USD)

Brent and WTI ended the week roughly unchanged despite another positive US inventory report on Wednesday. The light and heavy oil discounts on Canadian crude bumped up slightly as the 350,000 bbl/day Mildred Lake facility prepares to return to full production rates in the next few weeks.

Natural gas prices continued to retreat this week, falling another 6%. Henry Hub is down over 10% from the highs of July while Alberta's AECO "C" gas prices have declined almost 24% for the same period.

 

WEEKLY US INVENTORY REPORT

AUG 2, 2017

CRUDE STOCKPILES POST FIFTH WEEKLY DECLINE ON BIG DRAWDOWNS IN GULF COAST

 
What's moving energy markets this week:

FACTOR
IMPACT
SUMMARY
GEOPOLITICS
NEUTRAL
Fresh sanctions on Russia and the threat of oil sanctions against Venezuela still hang over oil markets. Reaction is muted for now as a full US embargo against Venezuelan oil imports is seen as unlikely.
USD INDEX
▼ BEARISH
After three consecutive weekly declines, the US dollar caught a small bounce this week on better than expected payroll and wage data released Friday.
SUPPLY
NEUTRAL

Production out of the Lower 48 region rose by another 25,000 bbl/day last week. However, the rise in rig counts appear to be slowing. Globally, OPEC production likely reached another record high of 33 million bbl/day this month.

DEMAND
▲ BULLISH
Gasoline demand remains strong in the US, hitting a record 9.842 million bbl/day last week.
SENTIMENT
▼ BEARISH
WTI briefly touched US$50 earlier in the week but was unable to hold as traders sell their positions. Brent was also unable to crack US$53 a barrel.
EQUITY MARKETS

US markets powered to fresh record highs this week, including the NYSE, S&P 500 and Dow large caps. UK and European exchanges also had a good week, helping the FTSE All World Index hit another record high.

The TSX also gained almost 1% this week, moving above its 200-day moving average.

SECTORS

ENERGY SECTOR PERFORMANCE

Commodities stocks weighed on both Canadian and US exchanges, leaving the energy and materials sectors to end the week flat to lower.

TSX heavy weights, including Canadian Natural Resources (CNQ), Suncor (SU) and Imperial Oil (IMO) were some of the best performers on the TSX energy sector this week. Mid cap producers and service stocks dragged the index lower.

On the S&P 500, independent refiners and integrated energy stocks had a good week. Producers and service stocks ended the week mostly lower.


TSX ENERGY STOCKS
TSX 300 ENERGY STOCKS

Second quarter results at Canadian Natural Resources (CNQ) were much better than expected, as its recent acquisition of Shell's Athabasca Oil Sands (AOSP) assets helped boost its bottom line. Oil and gas production rose 16.5% to 913,171 boe/day, helped by a 27% increase in crude oil production. Cash flow from operations jumped 84% to $1.73 billion. Full-year capital spending is now expected to be $180 million lower than previous guidance, to a range of $4.3 to $4.7 billion.

Quarterly profits tripled at Enbridge (ENB) thanks to its recent acquisition of Spectra Energy. Earnings rose to $919 million, up from $301 million for the same quarter last year but slightly less than analysts were expecting. Wildfires in central BC, unplanned maintenance and hydrostatic testing on Line 5 were blamed for the shortfall on its liquids pipelines. The company says it has $31 billion of "secured capital" projects on the books through 2020, with $7 billion worth of growth projects coming online by the end of this year. CEO Al Monaco says he expects to grow the dividend 10-12% through 2024.

Quarterly revenues at Pembina Pipeline (PPL) rose 13.5% y/y to $1.17 billion. The company transported 1.96 million boe/day of liquids, up 9% from the previous year. Pembina says it plans to boost its dividend by 5.9% after it closes on its takeover of Veresen. 

Veresen (VSN) also reported Q2 results this week. Net income more than doubled to $24 million, helped by a strong performance from its Alliance Pipeline.

Precision Drilling (PD) reported better-than-expected quarterly results this week, helped by stronger demand in North America and the Middle East. The company reported a net loss of $36.1 million on revenues $276 million.

Secure Energy Services (SES) reported a net loss of $13.5 million in the second quarter, down from a loss of $20.7 million for the same quarter last year. The company also closed on its acquisition of Ceiba Energy Services this week. Ceiba provides water disposal and oil treatment services in western Canada.

Baytex Energy (BTE) swung to a profit in the second quarter as oil and gas sales rose 40% to $274 million. The company produced 72,812 boe/day, weighted 79% liquids, up 4% from the previous year. 2017 guidance on operating expenses were reduced by 4% to $10.75-$11.25/boe while capital spending plans were cut by about $20 million to a range of $310 to $330 million.

Parkland Fuel (PKI) reported a second quarter loss of $1.4 million. Revenues rose 15% y/y to $1.8 billion. The company delivered 2.6 billion litres of fuel and petroleum in the quarter, up 4% from Q1. Parkland says it expects to close on its acquisition of Chevron's Canadian retail stations and the Burnaby Refinery by the end of this year.

Profits jumped 47% at Gibson Energy (GEI) in Q2, thanks to a strong showing from its infrastructure business unit. The company also announced plans to divest its Environmental Services business in the US.

Net income at Whitecap Resources (WCP) rose to $44.5 million in the second quarter, up from a loss of $28 million the previous year. Production averaged 56,266 boe/day, inline with guidance. The company produced 56,266 boe/day in Q2 up 39% from the previous quarter. The company says it has no plans to cut its 2017 capital budget just yet.

Second quarter profits at Crew Energy (CR) improved to $21.9 million, up from a $16.9 million loss for the same quarter last year. Q2 production dipped to 20,468 boe/day due to unplanned outages on a third-party pipeline. Funds from operations increased 33% to $21.4 million.

Funds from operations increased 36% y/y at Seven Generations Energy (VII). Production jumped 41% to 165,200 boe/day, weighted 59% liquids. For the full year, the company expects to produce 175,000 to 180,000 boe/day.

Trilogy Energy (TET) reported a net income of $24.8 million in the second quarter, up from $7.7 million for the same time last year. Production fell to 21,669 boe/day, down 14% from Q1 due to divestitures, pipeline outages and natural well declines. The company expects to produce an average of 24,000 bbl/day this year.

ARC Resources (ARC) reported second quarter net income of $124 million as production dipped 1% to 113,410 boe/day. The company also announced the start of it Dawson Phase III facility in the middle of June. 

Birchcliff Energy (BIR) closed on the sale of various assets, including its Worsley Charlie Lake Light Oil Pool, for about $142 million. The divested assets produce about 3,600 boe/day. The company says proceeds will be used to reduce its debt load.

Enerflex (EFX) also closed on its previously announced acquisition of Mesa Compression's contract compression business.

Altagas (ALA) has signed a firmed contract with Japan's Astomos Energy to buy 600,000 tonnes/year of liquid propane gas (LPG) from its $500 million Ridley Island Propane Export Terminal, currently under construction near Prince Rupert, BC. 

Black Diamond stock (BDI) got slammed this week after the company lowered its earnings guidance and increased capital spending plans. BDI says it sees continued weakness in demand for accommodations in Western Canada and will therefore focus on growing its fleet outside of Alberta. Second quarter revenues narrowed to $7.8 million, down from $8.6 million for the same quarter last year.

Cenovus Energy stock (CVE) gained 4% on Friday after Reuters reported significant interest in the company's Suffield, Pelican Lake and Deep Basin assets. Suspected bidders include Canadian Natural Resources (CNQ), privately-owned ARC Financial, TransCanada (TRP), Enbridge (ENB), Keyera (KEY) and Inter Pipeline (IPL).

Imperial Oil (IMO), Pengrowth Energy (PGF), Peyto Exploration (PEY), Seven Generations (VII),  Precision Drilling (PD), Spartan Energy (SDP), Western Energy Services (WRG) and ARC Resources (ARX) all hit 52-week lows on the TSX this week.


S&P 500 ENERGY STOCKS
S&P 500 ENERGY STOCKS

Anadarko Petroleum (APC) has reached an agreement with the Government of Mozambique to design, build and operate the country's first onshore LNG plant. The facility will have a total capacity of 12 million tonnes per year. The company says is expects to make a final investment decision once it secures sufficient purchase agreements.

Valero Energy's (VLO) Mexican subsidiary signed several long term agreements to supply gasoline, diesel, and jet fuel to three of IEnova's marine terminals, one to be located in the Port of Veracruz and two located inland. IEnova is a subsidiary of Sempra Energy (SRE).

Jacobs Engineering (JEC) reached a deal to buy engineering-services firm CH2M for US$3.27 billion in cash and stock, including debt. Jacobs also announced it has renewed its EPCM contract for Royal Dutch Shell projects globally.

Penn Virginia (PVAC) has acquired various Eagle Ford assets from Devon Energy (DVN) for US$205 million in cash. Penn Virginia declared bankruptcy in the spring of 2016 but resumed operations in the fall after having secured new financing. Devon says the sale is all part of their master plan to divest US$1 billion in assets over the next year.

Devon Energy (DVN) reported a second quarter net income of US$425 million, much improved from a loss of US$1.57 billion in Q2/2016. Net production averaged 536,000 boe/day, slightly better than expected. Devon says it can cut its full-year E&P spending by US$100 million, to a range of US$1.9 to US$2.2 billion, without impacting production. A three-week maintenance turnaround at the Jackfish 2 SAGD facility will cut production by 15,000 bbl/day in the third quarter.

Quarterly operating revenues at Enbridge Energy Partners (EEP) slipped to US$597 million, down from US$621 million for the same time last year. Lower operating costs helped boost net income 11% y/y to U$197 million. The company also says it put its Bakken Pipeline into service at the beginning of June.

Chesapeake Energy (CHK) reported better-than-expected results this week, as revenues jumped 41% to US$2.3 billion. The company produced 527,600 boe/day in the second quarter, roughly unchanged from the previous year.

Marathon Oil (MRO) reported a second quarter net loss of US$139 million. Production rose 6% y/y to 349,000 boe/day, excluding Libya. Revenues dipped slightly to US$1.06 billion. The company cut its 2017 capital spending plans to a range of US$2.1 to US$2.2 billion, down from its previous guidance of US$2.4 billion.

Phillips 66 (PSX) reported second quarter earnings of US$550 million, an 11% increase from the previous year. Utilization rates averaged 98% in Q2. CEO Greg Garland also announced plans to cut "several hundred million" dollars from the company's 2017 full year capital budget.

Williams Company (WMB) reported a second quarter net income of US$81 million, up from a loss of US$405 million in Q2/2016. Cash flow dipped 3.4% to US$662 million. Subsidiary Williams Partners (WPZ) reported a second quarter net income of US$320 million. Q2 cash flow improved 4.5% y/y to US$776 million.

EOG Resources (EOG) posted a second-quarter net income of US$23 million, up from a net loss of $293 million for the same time last year. the company produced 334,700 bbl/day of liquids, up 25% from Q2/2016, and 1.01 Bcf/day of natural gas, down 8%.

HollyFrontier (HFC) reported better-than-expected Q2 results on higher production and a 29% increase in refining margins. The company produced 483,210 bbl/day of refined products, up 9% from the previous year. Net profits rose to US$57.8 million in Q2, up from a loss of $409.4 million last year.

Pioneer Natural Resources (PXD) reported second quarter revenues of US$1.63 billion, more than double the same time last year, bringing Q2 net income to US$233 million. The company cut its 2017 production guidance to the low end of its original estimate and reduced its capital budget by US$100 million to US$2.7 billion for the full year.

TC Pipelines (TCP), a subsidiary of TransCanada Pipelines, reported a net income of US$55 million in the second quarter, unchanged from the previous year.

Profits at BP (BP) declined in the second quarter due to a US$753 million write-down on abandoned exploration projects in Angola. Total revenues increased 21% y/y to US$57.4 billion. Upstream production rose almost 10% to 2.4 million boe/day. BP says it's on track to add 800,000 boe/day of new production by 2020.

Energy Transfer Partners (ETP) has sold a 32.44% stake in its Rover Pipeline Project to Blackstone Energy Partners and Blackstone Capital Partners for US$1.6 billion in cash.

Tesoro (TSO) formally changed its name to Andeavor (ANDV) this week. The stock hit a new 52-week high on the NYSE. Marathon Petroleum (MPC) and Royal Dutch Shell's ADR (RDS.A) also hit a new 12-month high.

Apache Corp (APA) and Range Resources (RRC) were some of worst performers this week, both hitting a 12-month low. Helmerich & Payne (HP), Noble Energy (NBL), Pioneer Natural Resources (PXD) also hit 52-week lows.


UPGRADES & DOWNGRADES

UPGRADES

  • Cabot Oil & Gas (NYSE:COG): Upgraded from Equal Weight to Overweight at Morgan Stanley.
  • Trinidad Drilling (TSX:TDG): Upgraded from Market Perform to Outperform at BMO.

DOWNGRADES

  • ENI (NYSE:E): Downgraded from Outperform to Neutral at Credit Suisse Group.
  • Rice Energy (NYSE:RICE): Downgraded from Overweight to Equal Weight at Stephens.
  • Seven Generations Energy (TSX:VII): Downgraded from Action List Buy to Buy at TD Securities.
  • Trinidad Drilling (TSX:TDG): Downgraded from Buy to Hold at Canaccord Genuity.
UPDATED: EVERY WEEKEND
NOTES:
  • COMMODITY PRICES REFLECT NEAR MONTH CONTRACT FROM THE NYMEX/CME GROUP
  • CRB = THOMSON REUTERS/CORECOMMODITY CRB INDEX
  • FTSE ALL WORLD INDEX = MARKET CAP WEIGHTED INDEX OF 47 COUNTRIES
  • TLT = iSHARES 20+ YEAR TREASURY BOND ETF
  • XBB = iSHARES CANADIAN UNIVERSE BOND INDEX ETF
  • SHARE PRICE CHANGES EXCLUDE DIVIDENDS
  • SOURCES:
  • EQUITY PRICES & SECTOR PERFORMANCE PROVIDED BY NYSE & TMX GROUP
  • CANADIAN EXCHANGE RATES PROVIDED BY THE BANK OF CANADA
  • Weekly Energy Market Review

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