Weekly Energy Market Review

Weekly Energy Market Review

Energy Market Summary for the week ending July 28, 2017:
  • Continuing on the recent trend, money flowed out the US dollar this week and into commodities, particularly energy.
  • Oil prices rallied nicely, now up 15% from the lows of late June on renewed enthusiasm from OPEC, continued declines in US inventories and a weakening US dollar.
  • Western Canadian Select had a spectacular week, rising over 10% as the heavy oil discount falls below US$10/bbl.
  • Energy stocks were the best performers on the TSX. Cenovus (CVE +13%) and MEG Energy (MEG +28%) were the big winners on better-than-expected second quarter earnings. Midstream stocks retreated despite strong Q2 results from TransCanada (TRP -1.6%)
  • Energy stocks also helped power US markets to new record highs. Several E&Ps announced capital spending cuts due to lower-than-expected oil prices.

The US Federal Reserve kept interest rates unchanged this week but says it expects to start winding down its bond holdings "relatively soon" on signs of a strengthening US economy. The government agency holds about US$4.5 trillion in treasuries but did not provide a timetable for asset sales. US bond prices retreated this week as yields recovered slightly.

The International Monetary Fund (IMF) reduced its 2017 and 2018 growth forecast for the US economy to 2.1%, down from 2.3% and 2.5% respectively. The IMF says it has become less optimistic for stimulus spending and economic expansion under the Trump Administration.

In contrast, the IMF increased Canada's 2017 growth expectations from 1.9% to 2.5% on "buoyant domestic demand." However, growth is expected to fall back to 1.9% in 2018.

This week's notable Canadian economic data:

  • Average weekly earnings were $972 in May, unchanged from April but up 2% y/y. Professional and technical services workers continue to show signs of improvement, now up 4.9% for the year. Wages in Alberta rose 1.7% in May, the first increase since 2015.
  • Wholesale sales rose 0.9% to a record high of $61.6 billion in May. Alberta sales rose for the seventh time in the past eight months, now at $6.8 billion (+4.5%), the highest since April 2015.
  • GDP expanded 0.6% in May, the seventh consecutive monthly increase. Oil & gas extraction grew 7.6%, helped by a recovery in non-conventional extraction.

The US dollar continues to retreat, now sitting near it May 2016 lows, sending most global currencies higher again this week. The Euro hit a 2½-year high. However, the Swiss franc, which normally follows the Euro, suffered an unusual 2.4% decline blamed on Japanese bank traders.

The Canadian dollar broke above 80 cents, a new 2-year high.


A specular recovery in oil and gas prices this week thanks to OPEC's commitment to reduce exports, a declining US dollar and another week of inventory declines in the US.

WCS was the best performer, as the heavy oil discount dipped below US$10/bbl again this week. Edmonton condensate prices are also trading above par with WTI this week.



JULY 26, 2017

Crude stockpiles continue to fall, now down over 50 million barrels from March highs


All US markets hit record highs this week, helped by a lower greenback. Globally, markets were mixed, with the Nikkei, FTSE, DAX and the TSX retreating this week.



Energy stocks were the best performers this week on both the Canadian and US exchanges.


Suncor Energy (SU) reported a net profit of $435 million for the second quarter, including a forex gain of $278 million. Total production averaged 539,100 boe/day in Q2. Suncor also revised its 2017 guidance to reflect expectations for lower oil prices.

Imperial Oil (IMO) reported a $77 million loss for the second quarter, blamed on continued problems in its upstream operations. Q2 revenues rose 13% to $7 billion. Production rose to 331,000 boe/day, roughly unchanged from the same quarter last year. The company says it is taking corrective action to improve reliability issues at Kearl and plans to buy back $250 million in IMO shares during the third quarter.

Cenovus Energy (CVE) reported a surprise second quarter profit of $2.64 billion, including an after-tax revaluation gain of $1.8 billion on its purchase of oil and gas assets from partner ConocoPhillips and $279 million in forex gains. Production rose 65% to 436,929 boe/day, partially reflecting the acquisition of ConocoPhillips' assets. CEO Brian Ferguson says he expects to announce the sale of its Suffield and Pelican Lake assets in the third quarter and provide an update on Weyburn and Palliser by the end of the year. Ferguson hinted total divestitures might top $5 billion. Cenovus stock rose 13% this week.

TransCanada (TRP) reported blow-out second quarter results this week, beating all analysts expectations. Net income rose 140% to $881 million on revenues of $3.22 billion. The company also announced Open Season for additional volumes on Keystone XL and a $160 million expansion of its Canadian Mainline System this week. TransCanada also says it plans to boost its dividend by about 10% annually through 2020.

MEG Energy (MEG) reported a second-quarter operating loss of $36 million, despite record low operating costs and a 28% increase in bitumen realization prices. Production declined 13% y/y to 72,448 bbl/day due to maintenance turnaround activities at its Christina Lake operations. Full year production guidance was left unchanged at 80,000 to 82,000 bbl/day. MEG stock had a spectacular week, rising 28%.

Athabasca Oil Corp (ATH) reported a second quarter profit of $24.3 million, helped by higher oil prices and higher production. Total production more than tripled to 36,574 boe/day. The company also cut its 2017 capital budget by $15 million to $60 million.

Crescent Point Energy (CPG) posted a second quarter profit of $83.6 million, versus a loss of $226.1 million for the same quarter last year. The improvement was attributed to higher oil prices and higher production.

Second quarter earnings at Vermilion Energy (VET) rose to $48.3 million, up from $44.5 million in Q2/2016. Production rose 4% y/y to 67,240 boe/day. Effective July 2017, the company has discontinued its DRIP program.

Western Energy Services (WRG) reported a net loss of $16.6 million in the second quarter, narrower than a $24.2 million loss reported the same time last year. Operating revenues more than doubled to $30.5 million on higher utilization and improved pricing in Canada.

Texas investment firm Wilks Brothers boosted their stake in Calfrac Well Services (CFW) from 10% to 12% (or 16.4 million shares). Wilks Brothers also holds a 7.3% stake in Trican Well Service (TCW). Calfrac also reported a narrower net loss in the second quarter as revenues rose to $325 million, up from $151 million for the same time last year.

Interest-rate sensitive midstream stocks were the worst performers this week on the TSX. AltaGas (ALA) and Pengrowth Energy (PGF) hit 52-week lows this week.

Next week's notable second quarter earnings include CNRL (CNQ),  Enbridge (ENB), Pembina Pipeline (PPL), Baytex Energy (BTE), Gibson Energy (GEI) and Precision Drilling (PD).


QEP Resources (QEP) has agreed to sell its natural gas assets in Wyoming to privately held Pinedale Energy Partners for US$732 million. QEP says it will focus on liquids-rich, higher-margin assets. The company also reported a Q2 net income of US$45.4 million.

Seadrill (SDRL) shares tumbled this week after it warned it will likely need to file for Chapter 11 proceedings. The company also says its business operations are unaffected and it expects to be able to meet all its customer agreements.

Brookfield Business Partners (BBU) has reached an agreement to buy 60% of Teekay Offshore Partners (TOO), a subsidiary of Teekay Corp (TK) for US$750 million. Once the deal closes, Brookfield will appoint four of nine directors to the TOO's Board of Directors.

Exxon Mobil (XOM) reported a second quarter miss, blamed on reduced output from its African and Canadian operations. Q2 income doubled to US$3.35 billion. The company also reported an operating loss on its US shale business unit. Production dipped 1% to 3.9 million boe/day.

Chevron (CVX) reported better-than-expected second quarter results helped by a 10% increase in production and lower operating costs. Net income rose to US$1.45 billion, up form a US$1.5 billion loss for the same time last year. Chevron produced 2.89 million boe/day in Q2.

ConocoPhillips (COP) reported a second quarter loss of US$3.4 billion this week, more than triple the same quarter last year. Revenues rose almost 60% to US$8.9 billion. Production declined 8% to 1.4 million boe/day but the company says it expects strong growth from its shale properties over the next few years. ConocoPhillips says it expects to close on US$16 billion in asset sales in 2017 and plans buy back US$3 billion COP shares. The company also cut its full year 2017 capital spending budget by 4% to US$4.8 billion due to low oil prices. 

Marathon Petroleum (MPC) reported a net income of US$515 million in Q2, a 35.7% decline from the same quarter last year on higher expenses and lower refining margins. Revenues rose to US$18.4 billion, up from US$16.8 billion in Q2/2016. The company also raised its quarterly dividend by 11% to US$0.40 per share.

Whiting Petroleum (WLL) reported a Q2 loss of US$66 million, down from a net loss of US$301 million reported the same time last year. Production declined 16% to 112,660 boe/day. The company cut their 2017 capital budget by 14% to US$950 million. Whiting is the largest oil producer in North Dakota's Bakken shale region. This is the company's eight consecutive quarterly loss.

Second quarter losses at Hess (HES) widened to US$449 million, up from a loss of US$392 million for the previous year. Total production was reported at 294,000 boe/day for the quarter. Full year guidance was increased to a range of 305,000 to 310,000 boe/day while capital spending was reduced by 4% to US$2.15 billion.

Anadarko Petroleum (APC) posted a Q2 loss of US$415 million, down from US$692 million reported the same time last year. The company also cut its 2017 capital budget by US$300 million due to the recent decline in oil prices. CEO Al Walker says he has US$6 billion of cash on hand for future acquisitions, particularly in the midstream space. Anadarko produced 631,000 boe/day in the second quarter.

Valero Energy (VLO) reported a net income of US$548 million for Q2, a 33% decline from the previous year. Operating revenues rose to US$22.3 billion, up from US$19.6 billion in Q2/2016.

Halliburton (HAL) managed to eek out a net profit of US$28 million in the second quarter. Revenues rose 16% to US$5 billion on a 24% increase in its North American business segment, while international revenues rose 7%. The company says demand for oil field services in the US appears to be slowing. Halliburton has US$375 million in IOUs from Venezuela for services rendered in that country.

The "old" Baker Hughes (BHGE) reported a second quarter net loss of US$179 million on revenues of US$2.4 billion. The company says it saw improved activity in the US, Russia, Mexico, West Africa and Iraq, offsetting weakness in Canada and China. BHGE was the best performing stock in the S&P energy sector, rising almost 9%.

Notable second quarter earnings from across the pond this week:

  • Royal Dutch Shell (RDS.A) more than tripled its profits in the second quarter, helped by a strong showing from its refining operations. Excluding one-time items, net income more than doubled to US$3.6 billion. Quarterly profits rose 31% to US$1.55 billion.
  • French energy major Total (TOT) reported a net income of US$2 billion in Q2, helped by a strong showing in its E&P business segment. The company produced 2.5 million boe/day in the second quarter, up 3% from the same quarter last year.
  • Statoil (STO) reported a US$1.4 billion profit in Q2, on revenues of US$14.9 billion. The company produced almost 2 million boe/day in the second quarter and says it is on track to grow production by about 5% this year.

Marathon Petroleum (MPC) and Tesoro Petroleum (TSO) reached 52-week highs again on the S&P 500 this week while Exxon Mobil (XOM) and Range Resources (RRC) reached 52-week lows.

Next week's notable earnings in the US energy sector include Devon Energy (DVN), Phillips 66 (PSX) and Apache Corp (APA).



  • Anadarko Petroleum (NYSE:APC): Upgraded from Neutral to Buy at Mitsubishi UKL Financial Group.
  • ConocoPhillips (NYSE:COP): Upgraded from Neutral to Buy at Bank of America and UBS.
  • Encana (TSX:ECA): Upgraded from Sector Perform to Outperform at AltaCorp Capital.
  • Husky Energy (TSX:HSE): Upgraded from Sector Perform to Outperform at AltaCorp Capital.
  • Mullen Group (TSX:MTL): Upgraded from Sector Perform to Outperform at National Bank Financial.
  • Vermilion Energy (NYSE:VET): Upgraded from Sector Perform to Outperform at RBC.


  • BP (NYSE:BP): Downgraded from Buy to Hold at Societe Generale.
  • Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review

    Weekly Energy Market Review