Dec 8, 2018

Dec. 7, 2018 - Daily Energy Update

By Sarfaraz A. Khan

WTI crude oil: $52.61 a barrel
Brent crude: $61.67 a barrel
Natural gas: $4.49 per MMBtu   

Crude oil prices settled higher as OPEC announced 1.2 million barrels per day production cuts which, as per BNP Paribas global oil strategist Harry Tchilinguirian, should “attenuate but not eliminate expected implied global inventory builds” in H1-2019. Wood Mackenzie forecasts Brent climbing to more than $70 by Q3-2019.

EOG Resources (EOG) received an upgrade from J.P. Morgan to Overweight from Neutral with a $118 price target. JPM analyst Arun Jayaram likes EOG's defensive characteristics and expects the shares to outperform the peer group assuming oil prices remain near strip levels. The upgrade, combined with improvement in oil prices, has pushed the stock higher. (Source)

The oil rig count in the US dropped by 10 units to 877 rigs which marks the biggest weekly decline since May 2016, as per data from Baker Hughes for the week ended December 7, 2018. The number of gas rigs, however, jumped by 9 to 198. As a result, the total U.S. rig count dropped by 1 to 1,075. This comes after EIA reported a 7.3 million barrel drop in crude oil inventories, which was bigger than the consensus of a drop of 0.9 million barrels. (Source)

The Trump administration moves to boost oil and gas drilling by rolling back sage grouse protections. This could potentially open millions of acres of public lands to new oil and gas drilling and mining. The Bureau of Land Management is expected to finalize a proposal by early 2019. Miners, oil drillers and ranchers have been calling for an end to the Obama-era plan which they believed unnecessarily dragged economic development. (Source)

Chesapeake Energy (CHK) stock bounced off 10-month lows following improvement in crude oil prices which outweighed a J.P. Morgan downgrade. JPM has cut CHK rating to Underweight from Neutral as the firm believes that Chesapeake faces headwinds related to its $4 billion acquisition of WildHorse Resource. Although the oil-rich purchase will improve Chesapeake’s production profile, "the stock will likely be a 'show me' situation" as investors weren’t really excited about the Texas’s Eagle Ford play, the JPMorgan analyst Arun Jayaram said. (Source) 

The U.S. became a net oil exporter last week for first time on record following the shale oil boom which triggered a surge in drilling and slashed the country’s reliance on foreign energy sources. The Department of Energy reported the U.S. exported a net 211,000 bpd of crude oil for the week ended Nov. 30 as exports rose to a weekly record of more than 3.2 million bpd. The overall U.S. production has increased to a record 11.7 million bpd. (Source)

Chevron (CVX) unveiled a $20 billion capital budget for 2019. The company says it will invest in " high-return short-cycle projects, with more than two-thirds of spend projected to realize cash flow within two years." For the oil and gas production business, Chevron has earmarked $10.4 billion for sustaining and growing current production, including $3.6 billion for the Permian Basin in the Texas and New Mexico and $1.6 billion for other shale and tight oil investments. Almost $5.1 billion of the upstream program is planned for major capital projects, including $4.3 billion for the Future Growth Project at the Tengiz field in Kazakhstan. In the downstream businesses, which includes oil refineries and petrochemical plants, Chevron will invest $2.5 billion. (Source)

Permian Basin’s less drilled Delaware Basin region could hold twice as much oil as the Midland Basin, US Geological Survey says. The Delaware's Wolfcamp and Bone Spring formations hold an estimated 46.3 billion barrels of oil and 281 trillion cf of natural gas reserves. Major Permian Basin producers are Chevron, Exxon Mobil, EOG Resources, Pioneer Natural Resources,  Laredo Petroleum, Diamondback Energy , Concho Resources, Devon Energy, Newfield Exploration, Occidental Petroleum,  Anadarko Petroleum,  Apache Corporation, Jagged Peak Energy, and SM Energy. (Source)

Exxon Mobil (XOM) can make Guyana one of South America’s top oil producers, as per Wood Mackenzie. Exxon Mobil has recently increased its reserve estimates for offshore Guyana by 25% to 5 billion boe as the company continues to explore in the deepwater Stabroek block. Wood Mackenzie believes that the oil giant has done some of the most impressive exploration work in recent times. "If Venezuela and Mexico fail to address production declines, Guyana could quickly surpass them to number two" among South American oil producers. (Source)

Kinder Morgan has maintained its Q1-2019 startup target for Georgia LNG project. The pipeline operator moves 42% of the current U.S. liquefaction capacity with feedgas that moves through its pipelines. Its market share will increase as more terminals come online, including the Elba Island facility near Savannah, Georgia. (Source)