Weekly Energy Market Review
This week's Canadian economic data from Statistics Canada:
- Manufacturing shipments declined 0.3% in December to $55.5 billion, but was revised higher by 0.4% in November to 3.8%. December's declines were blamed mostly on a 4.1% decline in shipments of energy products.
- The number of Canadians receiving Employment Insurance (EI) benefits dipped 1.1% m/m in December to 500,100. Declines were seen mostly out of Quebec, Ontario and BC. Year-over-year, the number of EI recipients across Canada is now down 11.9%. The number of new EI claims increased 1.4% to 232,200.
This week's notable US economic data:
- The producer price index (PPI) rose more than expected in January, blamed on rising costs for gasoline and healthcare. Annually, PPI is now up 2.7%.
- Retail sales dipped 0.3% in January, blamed mostly on slower vehicle sales (-1.3%).
- The consumer price index (CPI) rose 0.5% in January, as energy prices gained 3.0%. The core index (ex-food and energy) increased 0.3% to 1.8% y/y.
- Industrial production dipped slightly in January on declines in mining and oil and gas extraction activities. The dip was blamed on abnormally cold winter weather.
The US dollar slid to a three year low again this week, before rebounding slightly on Friday. Despite expectations for higher interest rates (which should boost the greenback), recent declines in the dollar are being blamed on mounting deficits. The US national debt has now topped US$20 trillion, with another US$1 trillion expected to be added by the end of next year due to higher spending and recently enacted tax-cuts.
A weakening US dollar helped boost oil prices this week, recovering some of the losses from the last two weeks. Gasoline prices shot up 13%, reversing declines from the previous week. The heavy oil discount narrowed slightly to US$28 a barrel, helping Western Canadian Select gain over 10% for the week.
This week's supply/demand news:
- The International Energy Agency (IEA) raised its oil demand growth forecast in 2018 to 1.4 million bbl/day, up 100,000 bbl/day from its previous forecast, citing an improved global economic outlook. However, the Paris-based agency raised a red-flag on rapidly rising production out of the US, warning that global production will likely soon exceed demand.
- OPEC revised its expectations for world oil demand growth to 1.59 million bbl/day in 2018, up 60,000 bbl/day from its previous forecast. The cartel now says supply will increase by another 1.4 million bbl/day this year, 250,000 bbl/day higher than previous estimates, postponing market rebalancing to the end of this year. OPEC remains decidedly more bullish than the IEA, and insists growing demand is keeping pace with growing production from non-OPEC countries.
- According to S&P Global Platts, Venezuelan oil output hit another low in January, falling to 1.6 million bbl/day, down 20% from the same time last year. However, OPEC and Venezuela's president claims production is closer to 1.8 million bbl/day last month, thanks to recent debt restructuring.
- Saudi Energy Minister Khalid al-Falih says he would prefer a tight market and would rather not risk ending its production caps too early. Saudi Aramco plans to cut production by 100,000 bbl/day in March (from February levels) and keep export below 7 million bbl/day.
The US added 7 new oil rigs this week, bringing the total to 798. This is the fourth consecutive weekly gain. US rig counts are now back to the levels of April 2015. In contrast, Canada lost 3 rigs, falling to 218.
Global equity markets staged a nice relief rally this week, recovering some of the losses from early February. In North American markets, technology stocks continue to outperform.
All energy subsectors ended the week in the green on higher oil prices and generally positive fourth quarter earnings results.
This week's Canadian midstream news:
- TransCanada (TRP) has sanctioned a $2.4 billion expansion of its NGTL System, adding another 1 Bcf/day of natural gas export capacity out of Western Canada. The company says its recent open season was oversubscribed. The expansion will hopefully improve competitiveness and pricing for gas producers in the Montney, Deep Basin and Duvernay regions. Subject to all regulatory approvals, construction is expected to begin in 2019 with an estimated in-service date of November 2020.
- The National Energy Board (NEB) has cleared Kinder Morgan Canada (KML) to start construction on the Burnaby Mountain tunnel entrance required for expansion of the Trans Mountain Pipeline (TMEP). The city of Burnaby has launched another appeal with the NEB over exemptions granted over tree-cutting bylaws. To date, the NEB has approved about 56% of TMEP's routing. Kinder Morgan spent $930 million on TMEP in 2017 and plans to spend another $1.7 billion this year, subject to resolution of legal, regulatory and permitting requirements.
- According to Reuters, Enbridge (ENB) has doubled-down on its planned asset sales, now expected to reach as much as $8 billion. Last November, the pipeline operator told investors it had identified about $10 billion in non-core assets that could be sold, allowing the company to lighten up its balance sheet and focus on its "crown jewel" businesses, primarily oil and gas pipelines and terminals. CEO Al Monaco did not confirm or deny the reports, but says there has been a lot of interest in the company's midstream and renewables assets. Monaco also says he remains concerned about the "unpredictability" of Canada's regulatory process. Enbridge's long-term debt currently sits at $61.4 billion.
In other Canadian energy news:
- During this week's conference call, Cenovus Energy (CVE) says it is working with CN Rail (CNR) and CP Rail (CP) to increase its crude-by-rail export capacity out of the Bruderheim terminal near Edmonton, AB. The company reiterated plans to sell more assets this year, including more properties in the Deep Basin.
- Imperial Oil (IMO) has notified Transport Canada of potential jet fuel quality issues out of its Strathcona refinery, which could potentially interfe with fuel gauge sensors. The company says it is not aware of any safety issues related to the issue but fuel shipments remain halted for now.
- Trucking and logistics firm Mullen Group (MTL) announced the acquisition of privately-held DWS Logistics, adding warehousing and distribution services to Mullen's business. Terms of the deal were not disclosed.
- Natural gas producer Pine Cliff Energy (PNE) announced a 2018 capital budget of $10.4 million, which will be fully funded from internal cash flow at an AECO price of $1.50/MMcf.
Notable fourth quarter earnings on the TSX:
- Cenovus Energy (CVE) posted a net profit of $620 million for the fourth quarter and $3.4 billion for the full year, including a mixed bag of gains and write-downs on asset sales, forex, depreciation and exploration expenses. The company's production almost doubled to 554,606 boe/day in Q4 due to last year's acquisition of oil sands and conventional assets from ConocoPhillips (NYSE:COP). Production averaged 470,490 boe/day in 2017 and is expected to average closer to 500,000 boe/day this year. Cenovus also says it expects to achieve at least $1 billion in cost savings over the next two years, one year ahead of schedule.
- Fourth quarter profits at TransCanada (TRP) rose to $861 million, up from a loss of $358 million for the same quarter last year. Revenues were roughly unchanged at $3.62 billion. For the full year 2017, funds from operations increased 9% to $5.6 billion. TransCanada completed $5 billion in growth projects last year and plans another $23 billion in capital spend over the next few years. The company raised its dividend 10.4% this week, the eighth consecutive annual increase, and plans to grow its dividend 8-10% annually through 2021.
- Enbridge (ENB) posted a profit of $207 million in the fourth quarter, down from $365 million for the same quarter last year, including several impairment charges on asset write-downs. Cash flow from operations rose to $6.6 billion for the full year 2017, a 26% improvement over 2016. The pipeline operator brought $12 billion in new projects online last year, while another $22 billion are on the books through 2020. The company says it saw record transport volumes on its pipelines, particularly crude oil and liquids, and plans to grow its dividend 10% annually through 2020.
- Funds from operations rose to $991 million at Inter Pipeline (IPL) for the full year 2017, a 17% increase over the previous year. Net income rose 10% to $527 million. Throughput volumes averaged 1.39 million bbl/day last year, a new record for the company. About 85% of those volumes came from bitumen blend and diluent pipelines servicing the oil sands.
- Encana (ECA) posted better-than-expected Q4 results this week, as production rose 4% to 313,200 boe/day. Net loss narrowed to $229 million in Q4 due to a write-down of deferred taxes caused by US tax reform. For the full year, the company reported a profit of $827 million. Full year capital spend is expected to be between $1.8 and $1.9 billion this year, $200 million more than the previous forecast. Full year 2018 production is expected to average between 360,000 and 380,000 boe/day. The company also announced plans to buyback $400 million of its own shares.
- Keyera Corp (KEY) posted record net earnings of $290 million for the full year 2017, up from $217 million the previous year. The company says it is seeing strong demand for its condensate services.
- Funds from operations increased 85% y/y at NuVista Energy (NVA), rising to $76 million in the fourth quarter. The company reached a production record of 37,400 boe/day in Q4, and averaged 29,800 boe/day for the full year 2017. Total proved plus probable reserves increased 35% to 347 million boe.
- Nike Resources (NKO) reported a Q4 loss of US$7.7 million, blamed on unpaid bills from state-owned Petrobangla, as per their contract agreement with the government of Bangladesh. The company says it is considering selling its core assets in India and Bangladesh to raise much needed liquidity.
- Birchcliff Energy (BIR) reported a fourth quarter profit of $24.8 million. Funds from operations rose 35% y/y to $97 million, as production reached a record 80,103 boe/day. Production is expected to average 76,000 to 78,000 boe/day this year. Birchcliff's board has approved a $255 million capital budget for 2018, expected to be fully funded through internal cash flow.
- Precision Drilling (PD) reported a 15% increase in fourth quarter revenues, rising to $347 million. Net losses widened to $47 million, due in part to US tax reform and write-downs in Mexico. For the full year 2017, the company posted a $132 million loss on revenues of $1.32 billion. The energy services provider says it is seeing strong demand for its services in the US, while its Canadian operations "remain on track."
- North American Energy Partners (NOA) reported fourth quarter revenues of $82 million, much better than analysts were expecting. The company returned to profitability in 2017, posting a net income of $5.3 million for the full year.
This week's 2017 reserves revisions:
- Peyto Exploration (PEY) reported a 10% increase in proved plus probable reserves, rising to 4.3 trillion cubic feet equivalent (cfe) in 2017.
- Tourmaline Oil (TOU) says its proved plus probable reserves rose 27% last year to 2.22 billion boe.
- Surge Energy (SGY) reported a 13% increase in proved plus probable reserves, rising to 95.2 million boe.
- Chinook Energy (CKE) announced a 28% increase in proved plus probably reserves, rising to 33.91 million boe. The company says it averaged 3,425 boe/day in 2017.
- Natural gas producer Advantage Oil & Gas (AAV) announced a 13% increase in its proved plus probable reserves. Annual production rose 16% y/y to a record 39,315 boe/day despite "persistent" outages of natural gas export pipelines out of Western Canada.
This week's fourth quarter earnings releases south of the border:
- Marathon Oil (MRO) posted a net loss of US$28 million in Q4, versus a US$1.38 billion loss for the same time last year. Full year 2017 production averaged 358,000 boe/day (excluding Libya), up 9% from 2016. The company took a US$4.9 billion write-down on the sale of its oil sands assets to Canadian Natural Resources (CNQ) last year, bringing full year losses to US$5.7 billion. The company has set 2018 capital budget of US$2.3 billion and expects to produce about 400,000 boe/day this year, a 12% increase from 2017 (adjusted for divestitures).
- Occidental Petroleum (OXY) reported net income of US$497 million in Q4, more than double the same time last year. Production averaged 621,000 boe/day for the fourth quarter, up 3.5% from previous quarter. The company has set a 2018 capital budget of US$3.9 billion and plans to grow its production 8 to 12% this year, with most of that growth coming from the Permian basin.
- Andeavor (ANDV) reported fourth quarter and full year earnings of US$879 million and US$1.5 billion, respectively, including several gains related to US tax reform and acquisition costs. Andeavor processed 1.122 million bbl/day of crude through its 10 refineries. The independent refiner also grew its retail business 31% last year, now owning 3,255 outlets.
- Williams Companies (WMB) reported a fourth quarter net income of US$1.68 billion, including a US$1.9 billion gain on US tax reform. The energy infrastructure company is projecting a dividend growth rate of 10% to 15% annually for 2018 and 2019, respectively.
- WMB subsidiary Williams Partners (WPZ) reported a net loss of US$342 million for Q4, including a US$713 million write-down related to US tax reform.
- Spectra Energy Partners (SEP) reported a net profit of US$703 million for the full year 2017, including several one-time items. The company put 6 new projects into service last year, and has another US$2 billion in projects planned to start-up this year. SEP raised its dividend 7.3%, its 41st consecutive quarterly increase.
- Targa Resources (TRGP) reported a profit of US$283 million in the fourth quarter, including a US$270 million gain on US tax reform.
- DCP Midstream (DCP) posted a net income of US$60 million in Q4 and US$229 million for the full year 2017.
- Antero Midstream (AM) reported a profit of US$64 million in the fourth quarter, down 13% from the same quarter last year. For the full year 2017, net income rose 30% to US$307 million.
- Boardwalk Pipeline Partners (BWP) reported an 18% decline in distributable cash flow for the full year 2017, falling to US$600 million due to restructuring contracts and lower revenues from its storage business. Net income for the full year declined 2% to US$302 million.
This week's other US energy news:
- Andeavor (ANDV) announced the purchase of Delek Holding's (DK) West Coast asphalt terminals for US$75 million, plus working capital. This deal brings Andeavor's total asphalt capacity to over 430,000 tons across ten terminal locations.
- A consortium consisting of Williams Co (WMB), Cabot Oil & Gas (COG), Duke Energy (DUK) and WGL Holdings (WGL) has once again asked federal regulators (FERC) to overturn New York State's denial of a water permit on its Constitutional natural gas pipeline. The 125 mile (200 km) line was approved by FERC in 2014, but the company has been unable to progress construction on the line. Constitution would transport 650 MMcf/day of shale gas from Pennsylvania into New York.
- Refiner Phillips 66 (PSX) has agreed to repurchase 35 million of its shares from Berkshire Hathaway (BRK.A) for US$3.28 billion, valuing each share at US$93.725. After the sale, Berkshire will still own 45.7 million PSX shares. CEO Warren Buffet says the sale was just to "eliminate regulatory requirements" that come with owning more than 10% of a publicly traded company.
- California investment firm Dodge & Cox disclosed an 8.5% passive stake in Anadarko Petroleum (APC), or about 46.4 million shares.
This week's global energy news:
- BP (BP) announced the start of gas production from Atoll Phase One, located off the coast of Egypt, ahead of schedule and under-budget. The field is now producing 350 MMcf/day of gas and 10,000 bbl/day of condensate.
- Italian energy major Eni (E) says its Zohr gas field off the coast of Egypt should reach about 2 Bcf/day by the end of this year and hit its full nameplate capacity of 2.9 Bcf/day by the middle of 2019 when all seven trains are operational. Zohr contains an estimated 30 trillion cubic feet of gas.
- Zion Oil & Gas (ZN) announced "clear evidence of hydrocarbons" during its onshore drilling activities in Israel. The size of the field was not disclosed.
- Australia's Woodside Petroleum (WOPEY) has acquired Exxon Mobil's (XOM) 50% stake in the Scarborough gas field in Western Australia for US$744 million. Once the deal closes, Woodside's stake rises to 75%. Woodside has planned a US$2 billion share issuance to help finance the deal and accelerate development of the field, which has an estimated price tag of almost US$10 billion.
- UK's Court of Appeal has ruled that two Nigerian communities cannot sue Royal Dutch Shell (RDS.A) in British courts over alleged spills in the Niger Delta Region. Lawyers for the plaintiffs are now headed to Britain's Supreme Court.
- State-owned Ecopetrol (EC) has suspended production at three of its Columbian gas fields after several of its workers were injuring during protests. Leftist rebel groups have stepped up their attacks in recent months, bombing major oil pipelines out of the western part of the country. Columbia produces about 1 million bbl/day of crude, about half exported to the US.
Surge Energy (SGY)|
NuVista Energy (NVA)
Bonterra Energy (BNE)
EQT Corp (EQT)|
Pioneer Natural Res (PXD)
EOG Resources (EOG)
National-Oilwell Varco (NOV)
| None|| None|
| None|| None|
| Shawcor (SCL)|| None|
Crew Energy (CR)|
MEG Energy (MEG)
Imperial Oil (IMO)
Birchcliff Energy (BIR)
Bonavista Energy (BNP)
Chesapeake Energy (CHK)|
Devon Energy (DVN)
Cimarex Energy (CVX)
Advantage Oil & Gas (AAV)
ARC Resources (ARX)
Birchcliff Energy (BIR)
Crew Energy (CR)
Imperial Oil (IMO)
| Baker Hughes (BHGE)|
| Crew Energy (CR)|| None|
Imperial Oil (IMO)
- Andeaver (NYSE:ANDV): Upgraded from Neutral to Buy at Citigroup.
- BP (NYSE:BP): Upgraded from Hold to Buy at Societe Generale.
- CNOOC (NYSE:CEO): Upgraded from Neutral to Outperform at Macquarie.
- Cabot Oil & Gas (NYSE:COG): Upgraded from Hold to Buy at Tudor Pickering.
- California Resources (NYSE:CRC): Upgraded from In-Line to Outperform at Imperial Capital.
- Encana (TSX:ECA): Upgraded from Sector Perform to Outoperform at Scotiabank.
- EQT (NYSE:EQT): Upgraded from Sector Perform to Outperform at RBC and from Peer Perform to Outperform at Wolfe Research.
- Hess (NYSE:HES): Upgraded from Underperform to Neutral at Credit Suisse.
- Marathon Petroleum (NYSE:MPC): Upgraded from Neutral to Buy at Goldman Sachs Group.
- Nuvista Energy (TSX:NVA): Upgraded from Sector Perform to Outperform at National Bank.
- Obsidian Energy (TSX:OBE): Upgraded from Hold to Speculative Buy at Canaccord Genuity.
- Patterson-UTI Energy (TSX:PTEN): Upgraded from Market Perform to Buy at BMO.
- PDC Energy (NASDAQ:PDCE): Upgraded from Hold to Buy at Tudoring Pickering.
- Pembina Pipeline (TSX:PPL): Upgraded from Buy to Strong Buy at Industrial Alliance Securities.
- Pengrowth Energy (TSX:PGF): Upgraded from Sell to Hold at Canaccord Genuity.
- Pioneer Natural Resources (NYSE:PXD): Upgraded from Sector Perform to Outperform at RBC and from Hold to Buy at National Alliance Securities.
- Plains All American Pipeline (NYSE:PAA): Upgraded from Equal Weight to Overweight at Morgan Stanley.
- Plains GP (NYSE:PAGP): Upgraded from Equal Weight to Overweight at Morgan Stanley.
- Rowan Companies (NYSE:RDC): Upgraded from Hold to Buy at DNB Markets.
- Schlumberger (NYSE:SLB): Upgraded from Neutral to Buy at Griffin Securities.
- Select Energy Services (NYSE:WTTR): Upgraded from Sell to Neutral at Citigroup.
- Statoil (NYSE:STO): Upgraded from Underweight to Equal Weight at Morgan Stanley.
- Total (NYSE:TOT): Upgraded from Equal Weight to Overweight at Morgan Stanley and from Outperform to Strong Buy at Raymond James.
- TransCanada (TSX:TRP): Upgraded from Hold to Buy at Edward Jones.
- Trican Well Service (TSE:TCW): Upgraded from Outperform to Strong Buy at Raymond James.
- Whiting Petroleum (NYSE:WLL): Upgraded from Sell to Hold at Tudor Pickering.
- Valero Energy (NYSE:VLO): Upgraded from Neutral to Buy at Citigroup.
- Yangarra Resources (TSX:YGR): Upgraded from Outperform to Strong Buy at Raymond James.
- BP (NYSE:BP): Downgraded from Overweight to Equal Weight at Morgan Stanley.
- Crew Energy (TSX:CR): Downgraded from Outperform to Neutral at CIBC and Eight Captial.
- EQT Midstream Partners (NYSE:EQM): Downgraded from Outperform to Peer Perform at Wolfe Research.
- Tallgrass Energy GP (NYSE:TEGP): Downgraded from Overweight to Equal Weight at Barclays.
- Weatherford (NYSE:WFT): Downgraded from Overweight to Equal Weight at Barclays.
- Cdn and US markets closed for Family Day and Presidents' Day
- December wholesale trade data released by StatsCan @ 8:30am ET
- BP 2018 Energy Outlook
- International Petroleum Week kicks-off in London, UK
- March contract expiry for WTI
- EnerCom Dallas kicks-off in Dallas, TX
- API Weekly Statistical Bulletin released at 4:30pm ET (holiday schedule)
- Minutes released from last FOMC meeting
- 2017/Q4 earnings: Western Energy Services, Trican Well Service, Whiting Petroleum
- December retail sales data released by StatsCan @ 8:30am ET
- EIA Weekly Natural Gas Storage Report released @ 10:30pm ET
- EIA Weekly Petroleum Status Report released @ 11:00am ET (holiday schedule)
- 2017/Q4 earnings: Perpetual Energy, Pembina Pipeline
- December weekly earnings and hours released by StatsCan @ 8:30am ET
- January Consumer Price Index (CPI) released by StatsCan @ 8:30am ET
- Baker Hughes Rig Count released @ 1:00pm ET
- 2017/Q4 earnings: TC Pipelines