Weekly Energy Market Review

Weekly Energy Market Review

Energy Market Summary for the week ending November 10, 2017:
  • Oil prices power higher on geopolitical tensions
  • Backwardation eases on WTI futures curve
  • US natgas prices spike higher on colder weather
  • Short-term yields continue to rise
  • TSX ekes out record high
  • Energy stocks post another positive week
  • Enbridge drags on the TSX and touches 20-month low.
QUICK LINKS
MARKET OVERVIEW
CURRENCIES & BONDS

According to Statistics Canada, real GDP contracted 3.7% in Alberta and 0.5% in Saskatchewan in 2016, the second consecutive annual decline for both provinces. The best performing provinces last year were BC and Ontario, gaining 3.5% and 2.5%, respectively, driven by an active housing market. Nationally, real GDP expanded 1.4% last year.

Expectations for tax cuts in the US have been deferred to 2019 at best, including lower corporate taxes and minor adjustments to personal taxes. US bond yields trended higher this week, particularly short term yields. The yield curve touched a new low before recovering at the end of the week.

The USD retreated this week, partially blamed on a modest recovery in the Euro and British pound.

OIL & GAS PRICES (USD)

Oil prices had another spectacular week, continuing on the gains since the beginning of October. The Brent/WTI spread has widened to almost US$7/bbl. Short-term backwardation has eased on the WTI futures curve, now moving back into contango over the next 5 months.

Henry Hub Natural gas prices also staged a nice break-out on expectations for colder weather through the remainder of November. Unfortunately, AECO gas prices continue to be weak, falling about 5% from last week.

In this month's Short Term Energy Outlook, the US Energy Information Administration (EIA) says it expects Brent to average US$53/bbl this year, rising to US$56 next year, an increase of US$2 and US$4 from September's forecast. Expectations for the WTI discount have also been revised higher from US$2 to about US$5 per barrel. The EIA sees oil production hitting an average of 9.9 million bbl/day in 2018, surpassing the record high of 9.6 million in 1970.

Barclays raised its Q4 forecast for Brent by US$6 to US$60 a barrel. The banks expects prices to average US$55 a barrel in 2018, a US$3 increase from its previous forecast.

US crude oil inventories unexpectedly rose over 2 million barrels last week as production increased to a multi-decade high of over 9.6 million bbl/day. Gasoline and distillate inventories continue to decline on strong demand.

The number of oil rigs in service rose on both sides of the border this week, rising by 9 in the US to 738, and by 8 in Canada to 108.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

NOV 8, 2017

CRUDE INVENTORIES UNEXPECTEDLY RISE AS PRODUCTION INCREASES AND EXPORTS COLLAPSE

 

China's crude oil imports inexplicably declined in October to just 7.3 million bbl/day, from a near record-high of 9 million bbl/day in September. Imports are now the lowest since October 2016 but remain almost 8% higher than the same time last year.

Saudi Arabia says it plans to cut exports by another 120,000 bbl/day in December from November levels. According to Bloomberg, the Saudis exported about 7 million bbl/day last month.

What's moving energy markets this week:

FACTOR
IMPACT
SUMMARY
GEOPOLITICS
▲ BULLISH
Tensions are running high among OPEC members as the Saudi crown prince ordered the arrest of several dozen fellow princes and ministers and continues to accuse Iran of supporting terrorist activities in Yemen and Lebanon.
USD INDEX
▲ BULLISH
The USD retreated on a stronger Euro and delayed expectations for tax cuts south of the border, now pushed back to 2019.
SUPPLY
▼ BEARISH
In this week's 2017 World Oil Outlook, OPEC is predicting an explosion in shale oil output, rising to about 9 million bbl/day by 2030. US production also hit a three decade high this week of over 9.6 million bbl/day. Markets await two November oil market reports next week as well as the IEA's 2017 World Energy Outlook.
DEMAND
▼ BEARISH
OPEC lowered its 2019 demand forecast to 33.10 million bbl/day, 600,000 bbl/day lower than last year's forecast. Chinese imports have declined dramatically from the highs of September but are still 8% higher than the same time last year.
SENTIMENT
▲ BULLISH
Oil markets hit record net long positions earlier this week, including Brent, WTI, gasoline and heating oil.
EQUITY MARKETS

US markets hit record highs earlier in the week, before declining on Thursday and Friday. The S&P 500 posted its first weekly loss in almost two months. This week also marked the 1-year anniversary of Donald Trump's election. The S&P 500 has posted 61 record highs since then and gained about 21%.

The TSX managed to eke out a small gain, closing the week at an another all-time high. Global markets largely retreated from their record highs this week. Japan's Nikkei continues to outperform, spiking higher once again.

SECTORS

A mixed bag in performance across the sectors this week, with defensive stocks posting a nice rally. More offensive financial and industrial sectors pulled back from all-time highs.

The energy sector ended the week higher, with Canadian stocks posting a 2% gain while US counterparts rose 1.1% for the week.

ENERGY SECTOR PERFORMANCE

On the TSX, energy service stocks were once again the worst performers this week. Refiners and midstream players underperformed the broader energy sector on the NYSE.

The US energy basket had a golden-cross this week, where the 10-week moving average exceeds the 40-week average. This is the first golden cross since April 2016.


TSX ENERGY STOCKS
TSX 300 ENERGY STOCKS

This week's notable Canadian energy news:

  • Pembina Pipeline (PPL) announced plans to spend $290 million building out infrastructure to process additional gas and condensate from Chevron's newly sanctioned East Kaybob shale development in central Alberta's Duvernay formation.
  • Keyera (KEY) announced plans to build the North Wapiti Pipeline System, adding another 150 MMcf/day of processing capacity for Montney producers located north of the Wapiti River. The $120 million expansion has an in-service date of sometime in the second half of 2019.
  • Canadian Natural Resources (CNQ) is forecasting a 17% increase in production next year, rising to 1.1 to 1.2 million boe/day, weighted about 75% liquids. Capital spending plans were reduced by $500 million to $4.3 billion.
  • According to Reuters, Cenovus Energy (CVE) is close to announcing a buyer for its Weyburn assets, reported to be worth at least $1 billion. Whitecap Resources (WCP) is rumoured to be a front-runner and has been raising funds to finance the acquisition.
  • Suncor Energy (SU) has launched an offering of US$750 million in senior unsecured notes due in November 2047 at a rate of 4.00%. The company says proceeds will be used to repay upcoming debt maturities and for general corporate purposes.
  • Husky Energy (HSE) has closed on the acquisition of the 50,000 bbl/day Superior Refinery in Wisconsin. Husky’s total downstream capacity now increases to 395,000 bbl/day. Husky and BP's Canadian subsidiary were also awarded one parcel offshore Newfoundland in the Jeanne d'Arc region for $15 million.

This week's notable third quarter earnings:

  • Net income at TransCanada (TRP) rose to $612 million in the third quarter while revenues declined 10% to $3.25 billion. The company says it is seeing strong demand for shipments on Keystone XL and expects to receive its final permit from Nebraska by the end of November. TRP also warned it will take a $1 billion impairment charge in Q4 on the cancellation of Energy East.
  • Inter Pipeline (IPL) reported record third quarter results this week. Funds from operations grew 27% to a $269 million in Q3 while net income increased 17% to $143 million. Total pipeline throughput volumes averaged 1,359,100 bbl/day. The company also raised its monthly dividend by 3.7% to $0.14 per share.
  • Third quarter net profits at Encana (ECA) declined 7% to $294 million. Cash flow from operations almost doubled from the same quarter last year, rising to $357 million. Total oil and gas production declined 16% to 284,000 boe/day. The declines were blamed on pipeline outages, Hurricane Harvey and sale of its Piceance assets.
  • Third quarter earnings and Keyera (KEY) declined 27% y/y to $38.5 million as cash flow from operations sank 41% to $80.7 million. Gas processing volumes increased 8% to 1.477 Bcf/day while liquids transport values rose 24% y/y to 186,000 bbl/day (gross).
  • Gibson Energy (GEI) reported a 19% increase in third quarter revenues, helped by a strong performance from its infrastructure business. Net losses for the quarter declined to $8.5 million, down from a loss of $30.7 million for the same quarter last year.
  • Third quarter net losses at Ensign Energy Services (ESI) widened to $36.6 million, versus a $33.7 million loss in Q3/2016. Revenues increased 29% y/y to $247 million. The company says it has seen higher demand for its services thanks to a modest recovery in oil and gas prices.
  • Net income at Enerplus (ERF) rose to $16.1 million in the third quarter, much improved over a $101 million loss reported the same time last year. Production declined 14% to 79,128 boe/day but sale prices rose 13% for the quarter. Full year guidance was reduced to about 84,000 boe/day.
  • Bellatrix Exploration (BXE) posted a $22.1 million Q3 loss, wider than a $13.9 million loss reported for the same time last year. Revenue declined 18% to $48.2 million due to a 38% drop in natural gas prices. Oil and gas output rose 9.6% to 37,710 boe/day while full-year guidance was left unchanged at about 36,000 boe/day.
  • Third quarter production at Tourmaline Oil Corp (TOU) rose 40% from Q3/2016 to 236,906 boe/day. Revenues increased 35% y/y to $411 million, while net earnings more than doubled to $251 million. The company expects to exit the year closer to 280,000 boe/day and plans to grow production by another 10% next year.
  • Birchcliff Energy (BIR) reported record quarterly production in the Q3, rising 20% to 65,276 boe/day. Funds from operations increased 55% y/y to $64.4 million. Net losses widened to $122 million, including a $132 million write-down on the sale of its Worsley Charlie Lake Light Oil Pool last August.
  • Third quarter revenues at Obsidian Energy (OBE) declined 28% to $98 million despite a 25% increase in funds from operations. Net losses narrowed considerably to $44 million. Total production declined 27% to 30,166 boe/day. The company says it expects to grow production 5% next year.
  • Pengrowth Energy (PGF) reported a net loss of $145 million in the third quarter, including a $127 million impairment charge on the sale of various non-core assets. Quarterly production averaged 35,072 boe/day while full year guidance was revised lower to a range of 41,500 to 43,500 boe/day.
  • Net income at Paramount Resources (POU) dropped to $223.5 million in Q3, while funds from operations rose to $45.3 million. Third quarter volumes averaged 49,023 boe/day, weighted 40% liquids. Q3 reflects 46 days of production from Apache Canada and 19 days of output from its Trilogy acquisition. For the month of October, the company expects output to rise to over 98,000 boe/day.
  • Third quarter revenues at Secure Energy Services (SES) grew 62% to $162.6 million. Revenues increased 53% to $614 million bringing net losses to $1.2 million in Q3, down from a $7.6 million loss reported for the same time last year. The company increased its monthly dividend by 6% to $0.0225 per share.
  • Third quarter revenues at Enerflex (EFX) increase 20% to $315 million. Quarterly bookings declined 47% from the same time last year to about $199 million. The company also boosted its quarterly dividend by 12% to $0.095 per share.
  • Third quarter revenues at CES Energy Solutions (CEU) increased to $261 million, up from $145 million for the same quarter last year. Net income swung to a profit of $19.4 million, up from a loss of $11.4 million in Q3/2016. The company says it remains "modestly optimistic" on activity in the near term.
  • Peyto Exploration (PEY) reported a 9% gain in third quarter revenues, rising to $177 million. Earnings almost doubled from the same time last year to $44.8 million. Q3 production rose 6% y/y to 102,000 boe/day.
  • ARC Resources (ARC) posted a net income of $48.5 million for the third quarter, up from $28.3 million for the same time last year. Funds from operations increased 7% y/y to $163.8 million while Q3 production hit a record 129,526 boe/day, up 14% from the previous quarter.
  • Painted Pony (PONY) reported a 134% increase in funds from operations in Q3, rising to $29.5 million. Net income increased 26% to $14.6 million while production averaged 42,353 boe/day for the quarter. The company says some natural gas production was shut-in due to low gas prices but current production is averaging closer to 60,000 boe/day
  • Net losses at Bonterra Energy (BNE) narrowed to $3.0 million in the third quarter, versus a loss of $5.8 million for the same time last year. Revenues were roughly unchanged at $46.3 million while Q3 production was also unchanged at 13,281 boe/day.
  • Third quarter net losses at Perpetual Energy (PMT) narrowed to $8.1 million, down from a $10.9 million loss in Q3/2016. Production averaged 10,330 boe/day in the third quarter, down 27% y/y. Revenues declined 10% y/y to $20 million.
  • Third quarter revenues at Blackpearl Resources (PXX) rose 1.6% y/y to $32.9 million. Total production declined 17% to 9,072 boe/day due to a maintenance shutdown at Onion Lake. Netbacks improved from $17.57 last year to $19.07 per barrel in Q3. 2018 capital spending is expected to be between $60 and $65 million, focused primarily on completing construction of Phase 2 of Onion Lake.

This week's new 52-week highs on the TSX include Calfrac Well Services (CFW), Canadian Natural Resources (CNQ), Freehold Royalties (FRU), Parex Resources (PXT), Pembina Pipeline (PPL), PrairieSky Royalty (PSK) and Suncor Energy (SU). Enbridge (ENB) hit a fresh 52-week low.


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

This week's notable US energy news:

  • In this week's 2018-2020 operational update, ConocoPhillips (COP) announced plans to spend about US$5.5 billion annually through the next 2 years and extend its share buyback program to US$1.5 billion annually, for a total of US$7.5 billion by 2020. The company is assuming WTI will stick around US$50.
  • Baker Hughes (BHGE) announced plans to buy back as much as US$3 billion in common shares of both BHGE and parent-company General Electric (GE), representing about 8% of outstanding shares. The company also says it plans to issue new debt, although timing and volumes were not disclosed.
  • Noble Energy (NBL) announced plans to sell 30,200 acres in Colorado for US$608 million. The divestiture includes about 4,100 boe/day of production.
  • Anadarko Petroleum (APC) has sold its Moxa gas-producing asset in Wyoming for US$350 million. The buyer was not disclosed.
  • Whiting Petroleum (WLL) implemented a 1-for-4 reverse stock-split this week, bringing the number of outstanding shares from 600 million to 225 million.

This week's third notable quarter earnings:

  • Andeavor (ANDV) reported third quarter earnings of US$551 million, including several one-time items related to inventory adjustments, environmental accrual and the integration of Western Refining. Operating income increased 30% y/y to US$164 million.
  • Net income at American Midstream Partners (AMID) improved to US$55.9 million in the third quarter, including proceeds from the sale of its Propane Marketing and Services segment. Total revenues improved 1.5% y/y to US$162.3 million while operating losses widened to US$20.6 million in Q3.
  • Teekay Offshore Partners (TOO) reported a 4% decline in third quarter revenues, falling to US$273 million. Net losses attributable to shareholders widened to US$317.5 million due to the write-down of six vessels and derivative losses.
  • TC Pipelines (TCP) reported a decline in third quarter earnings, falling 7% to US$54 million. TCP is a wholly-owned subsidiary of TransCanada (TRP).

Across the pond this week:

  • Statoil (STO) and partners announced plans to develop the Fram field in the North Sea. The project will increase oil and gas production from the field, at an estimated cost of NOK 1 billion (US$123 million).
  • Total (TOT) has purchased ENGIE's (CAC:ENGI) upstream LNG assets for US$1.49 billion and up to US$550 million in contingency payments. The acquisition boosts Total's LNG exports to about 40 million t/yr by 2020, making it the world's second largest LNG exporter with 10% of global marketshare.
  • A consortium of oil majors, including BP (BP), Royal Dutch Shell (RDS.A) and Statoil (STO) announced plans to collaborate with banks and trading houses to create a blockchain-based digital platform for energy trading. The new digital platform is expected to come online by the end of 2018.

This week's new 52-week highs on NYSE include Andeavor (ANDV), Cabot Oil & Gas (COG), Concho Resources (CXO), ConocoPhillips (COP), Marathon Petroleum (MPC) as well as ADRs BP (BP), Royal Dutch Shell (RDS.A), Statoil (STO) and Total (TOT).


UPGRADES & DOWNGRADES

UPGRADES

  • Eni (NYSE:E): Upgraded from Hold to Buy at HSBC Holdings. 
  • Pine Cliff Energy (TSX:PNE): Upgraded from Hold to Speculative Buy at Industrial Alliance Securities. 
  • Raging River Exploration (TSX:RRX): Upgraded from Market Perform to Outperform at Raymond James. 
  • WPX Energy (NYSE:WPX): Upgraded from Equal Weight to Overweight at Barclays. 

DOWNGRADES

  • Bellatrix Exploration (TSX:BXE): Downgraded from Outperform to Sector Perform at AltaCorp.
  • Cabot Oil & Gas (NYSE:COG): Downgraded from Buy to Hold at Drexel Hamilton.
  • ExxonMobil (NYSE:XOM): Downgraded from Hold to Reduce at HSBC.
  • Gibson Energy (TSX:GEI): Downgraded from Neutral to Sector Underperform at CIBC World Markets.
  • Marathon Oil (NYSE:MRP): Downgraded from Buy to Neutral at Citigroup.
  • Pengrowth Energy (TSX:PGF): Downgraded from Sector Perform to Underperform at RBC Dominion Securities.
  • Precision Drilling (NYSE:PDS): Downgraded from Sector Perform to Underperform at Scotiabank.
  • Royal Dutch Shell (NYSE:RDS.A): Downgraded from Buy to Hold at Societe Generale.
  • Statoil (NYSE:STO): Downgraded from Buy to Hold at HSBC.
  • Tamarack Valley Energy (TSX:TVE): Downgraded from Sector Perform to Underperform at RBC.
  • Trinidad Drilling (TSX:TDG): Downgraded from Buy to Hold at TD Securities.
UPDATED: EVERY WEEKEND
NOTES:
  • 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
  • CANADIAN EXCHANGE RATES REPRESENT END-OF-DAY CLOSE
  • SOURCES:
  • COMMODITY PRICES REFLECT NEAR MONTH CONTRACT FROM THE NYMEX/CME GROUP
  • EQUITY PRICES & SECTOR PERFORMANCE PROVIDED BY NYSE & TMX GROUP
  • CHARTPACKS COURTESY STOCKCHARTS.COM
  • Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review

    0