It was a week where the oil market swung between record losses and gains while natural gas fell to the lowest level in 25 years.
On the news front, American upstream major Apache Corporation APA shares rocketed after it, together with partner TOTAL S.A. TOT, announced a second discovery offshore Suriname Block 58. Meanwhile, British integrated behemoth BP plc BP, squeezed by low oil prices, announced a sharp reduction in its 2020 budget.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures surged 31.8% to close at $28.34 per barrel, natural gas prices lost 2% for the week to finish at 1.621 per million Btu (MMBtu). In particular, the week marked a reversal for the oil market, which has fallen drastically of late, prompting capex cuts at major companies.
Coming back to the week ended Apr 3, the crude benchmark notched its biggest weekly gain ever on hopes that OPEC and its allies will curb production to stabilize markets and support prices. Further, President Trump's tweet on pushing Saudi Arabia and Russia to resolve their price war, also had a positive effect on the commodity.
Despite the bounce off, there is no denying that oil fundamentals remain firmly bearish. On Mar 30, the price of U.S. crude fell to $19.27 a barrel at one point, its lowest since 2002. Oil fundamentals appear to be struggling under the twin strains of untamed supply from major producers in the face of continuously falling global consumption on account of the coronavirus pandemic.
Meanwhile, natural gas ended slightly lower following a smaller-than-expected decrease in supplies. The narrative remains bearish as the fuel faces the prospect of a coronavirus-related steep drop-off in usage. The commodity is already weighed down by mild winter weather (leading to pessimistic heating demand) amid strong production. In fact, the commodity traded to the lowest price since 1995 when it hit $1.552 per MMBtu on Apr 2 before recovering slightly and closing the week at $1.671
Recap of the Week's Most Important Stories
1. Apache and its joint venture partner TOTAL have made a second oil discovery at the Sapakara West-1 well in Block 58, offshore Suriname. Apache, the operator of the well, discovered 259 feet (79 meters) net pay of high-quality light oil and gas condensate in multiple stacked and good quality reservoirs.
In January 2020, the joint venture discovered oil reservoirs at a depth of 240 feet (73 metres) and a 164-feet (50 metres) deep hydrocarbon-bearing light oil and gas condensate pay. The next exploration well will be drilled on the Kwaskwasi prospect with a fourth exploration well to be planned back to back on the Keskesi prospect. TOTAL will become the operator of Block 58 after the drilling of the fourth exploration well.
Apache's shares gained 14.71% in intraday trading on Apr 3. The drilling results pleased investors of both companies as the well confirmed ample traces of hydrocarbon within its bounds, mirroring high potential for productive oil wells. This, in turn, boosts Apache and TOTAL's confidence in discovering significant amount of resources across the sprawling area of 1.4 million acres in the region that they control. (Apache, JV Partner Find Oil in Suriname, Add to Cost Savings)
2. BP has announced the downward revision of its 2020 capital budget. The integrated energy giant has set its 2020 organic capital budget at roughly $12 billion, suggesting a decline of roughly 25% from the prior guidance. On the brighter side, although the business scenario is unfavorable, BP is not planning job cuts in the coming three months.
The company's total capital budget revision includes a reduction of roughly $1 billion in investments for onshore operations which comprise its onshore oil and gas activities in the United States. With lower spending, BP - carrying a Zacks Rank #3 (Hold) - expects its production in 2020 from U.S. shale plays to decline by 70 thousand barrels of oil equivalent per day (MBoE/D).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
For downstream business, which includes refining and marketing activities, the company has decided to lower capital spending by $1 billion. In its operational update, BP added that as compared to 2019, there is likely be a realization of $2.5 billion of cash cost savings by 2021-end, thanks to digitization and increased integration across businesses. (BP Revises 2020 Capex Downward as Coronavirus Drags Oil Down)
3. Whiting Petroleum WLL recently filed for bankruptcy. The company's board of directors reckoned filing for Chapter 11 plan of reorganization (the Plan) to negotiate with its creditors for providing the best part forward in a highly capital constrained market environment. Denver-based Whiting Petroleum faced the maturity of $262 million convertible notes. It listed debt of $3.6 billion and assets worth $7.6 billion in its bankruptcy petition, filed in the Southern District of Texas.
Per the Plan, Whiting Petroleum will exchange 97% of the new equity of the reorganized company for erasure of more than $2.2 billion debt, payment or refinancing of its revolving credit facility, payment of all other secured lenders and employees, and 3% of the new equity of the reorganized company and warrants for its existing stockholders.
The company has also proposed financial restructuring and reached an arrangement with creditors of its 1.25% convertible senior notes due 2020, 5.750% senior notes due 2021, 6.250% senior notes due 2023, and 6.625% senior notes due 2026. This would ease its debt burden and create a more sustainable capital structure. (Whiting Petroleum Files for Bankruptcy Amid Oil Price Crash)
4. Royal Dutch Shell RDS.A recently provided an update on its first-quarter 2020 guidance and envisioned its post-tax impairment charges between $400 million and $800 million for the period. On a bullish note though, management at this European energy behemoth stated that the company entered into a new credit facility, driving its shares more than 4% on the NYSE. The company further assured that it will face a relatively minor impact from the coronavirus-induced soft demand for oil products.
Investors were particularly reassured by Shell agreeing to a new $12-billion revolving credit facility. The amount supplements the company's $10-billion financing obtained in December 2019 to prop up its available liquidity in excess of $40 billion (after including $20 billion cash in hand).
The upstream production is projected between 2,650 and 2,720 thousand barrels of oil equivalent per day (boe/d). Shell estimated its first-quarter oil product sales in the band of 6,000-7,000 thousand barrels per day. The company expects first-quarter LNG liquefaction volumes to expand to 8.8-9.2 million tons. (Shell Up on Coronavirus Resilience, New Financing)
5.Imperial Oil IMO recently trimmed capital spending for the current year owing to the outbreak of novel coronavirus and sudden oil price slump. The company has trimmed its capital expenditure guidance for the current year by C$500 million to C$1.1-C$1.2 billion from the prior projection of C$1.6-C$1.7 billion. It has further identified opportunities to cut operating costs by C$500 million from 2019 levels. The company has also suspended the share buyback program to weather the current oil price woes.
In view of the weak oil demand scenario, it aims at reducing the planned second-quarter turnaround work at its Sarnia site. It has deferred a planned coker turnaround at the Syncrude facility in Western Canada until the third quarter, while continuing to assess other planned shutdowns across the business.
Imperial Oil expects the current business environment to negatively impact upstream production, downstream refinery utilization and product sales. The company is re-modelling strategies to maintain the balance sheet, so that it can sustain payout and offer attractive returns to shareholders. (Imperial Oil Slashes 2020 Capex Amid Depressed Prices)
The following table shows the price movement of some the major oil and gas players over the past week and during the last six months.
Company Last Week Last 6 Months
XOM +6.1% -43.2%
CVX +9.2% -33.1%
COP +12.5% -36.7%
OXY +12% -70.4%
SLB +3.9% -56.5%
RIG -7.7% -74.1%
VLO -10.4% -50.9%
MPC -13.3% -65.1%
The Energy Select Sector SPDR - a popular way to track energy companies - rose 5.3% last week. The best performer was upstream biggie ConocoPhillips COP whose stock jumped 12.5%.
But longer-term, over six months, the sector tracker is down 47.5%. Offshore driller Transocean Ltd. was the major loser during this period, experiencing a 74.1% price plunge.
What's Next in the Energy World?
As global oil consumption plunges amid a supply glut, market participants will be closely tracking the regular releases to watch for signs that could indicate a rebound. In this context, the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly - and the Baker Hughes data on rig count, will be on the energy traders' radar. The roadmap, if any, from leading producers to tackle the unfavorable crude market fundamentals, will also be of major interest.
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Click to get this free report TOTAL S.A. (TOT) : Free Stock Analysis Report Apache Corporation (APA) : Free Stock Analysis Report ConocoPhillips (COP) : Free Stock Analysis Report Imperial Oil Limited (IMO) : Free Stock Analysis Report BP p.l.c. (BP) : Free Stock Analysis Report Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report Whiting Petroleum Corporation (WLL) : Free Stock Analysis Report To read this article on Zacks.com click here.