Oil Price DROPS Below $80

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TotalEnergies considers moving stock listing to New York over favorable oil and gas views in U.S.

Highlights of the Podcast

00:00 – Intro

01:36 – TotalEnergies considers moving stock listing to New York over favorable oil and gas views in U.S.

04:05 – When Worlds Collide – U.S. Gulf Coast Refiners Face Challenges To Accessing Heavier Crude Oil

10:27 – Markets Update

12:18 – Large Crude Inventory Build Rocks Oil Prices

13:22 – Chesapeake Energy Corporation Q1 Earnings Report

16:02 – Diamond Energy, Q1 2024 Highlights

18:00 – Outro

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Video Transcription edited for grammar. We disavow any errors unless they make us look better or smarter.

Michael Tanner: [00:00:15] What’s going on, everybody? Welcome into the Thursday, May 2nd, 2024 edition of the Daily Energy News Beat stand up. Here are today’s top headlines. First up, TotalEnergies considers moving stock. Listening to New York over favorable oil and gas views from the Twilight Zone. Absolutely unbelievable story. We will then kick over and cover when worlds collide. U.S. Gulf Coast refiners face challenges to assessing heavier crude oil. That’ll wrap up our news segment. We will then pop over and cover all things finance first. Talk about what Jerome Powell specifically mentioned in relates to where interest rates are going, which played a huge role on the absolute pounding that crude oil prices got today. We also saw a large EIA crude oil inventory build, which did not help prices either. Mainly the reason we were down so much today. And we will then kick over and quickly cover some specific earnings. We saw Chesapeake and Diamondback come in today, and I think there’s some interesting, notes on both of them relative. So we will cover all that and a bag of chips guys. As always check us out. World’s greatest website www.energynewsbeat.com I am Michael Tanner in for Stuart Turley who is on assignment. I’ll be holding it down today so low. He’ll be back in the chair with me on, Monday after the weekly recap. [00:01:35][80.8]

Michael Tanner: [00:01:36] So let’s go ahead and kick this off TotalEnergie’s moving stock listing to New York over favorable oil and gas views in the US. Absolutely right. Somebody is moving to New York City to get better oil and gas law as well. Well, I’ll read straight from the article here. This is Bloomberg. TotalEnergies is increasingly making noise about moving its stock listing to New York, adding much more chatter around European giants potentially being attracted to the U.S investors greater enthusiasm from oil and gas companies. Holy smoke would not have said that two years ago. Next paragraph. The French giant is considering switching, in part because ESG and this is a quote, in part because ESG policies in Europe have more weight, according to Chief Executive officer, Patrick Yang. He told the, the French Senate, you don’t mean you’re done a French Senate. This unbelievable, on climate change goals. Quote, we’re losing European shareholders while U.S. investors are still buying the stock. He did say that the company will, quote, seriously study such a step and prevent its findings to the board in September. That was, based on his conference call last week with analysts. I mean, this is causing a lot of shakeup right now. We already know that Glencore is trying to do a coal merger or, acquisition of a coal, spinoff, and that is being looked at very badly upon the London Stock Exchange. They’re considering moving all of their operations over to the United States. It’s pretty unbelievable. Here’s Eric Meyer, head of RBC Capital Markets in France. We love these guys. Europe’s, virtuous attitude when it comes to ESG norms. Free traders say, or say on pay may have been naive at times in front of trading partners, but economic interests above all, it’s a good point of if and again, for as much as we complain about what’s going on here in the United States, you also have to look at it’s a lot tougher to do business over there in, in, in Europe, we know that shell is also possibly considering doing this. And especially as we’ve seen, prices continue to rise relative to where they are now or relative to where they have been. Excuse me. I think, you know, more and more people are going to see this, but we could see TotalEnergies, move out of France and come over here to the US. Would be would be really interesting. They’re saying all options are on the table, you know, that. You know, to give you guys a quick idea, the total energy is valued at about eight times earnings, whereas Exxon is about 12 times earnings. So there is a little bit of a valuation difference there. Does it have to do with where they’re listed. Who knows. All right. [00:04:05][149.1]

Michael Tanner: [00:04:05] Let’s move to the next one here. When worlds collide U.S. Gulf Coast refiners faces challenges to assessing heavier crude. This is a little bit of in the weeds, but since I’ve got the solo show today, I’ve got the keys to the Kingdom. I wanted to bring this up. We’ve talked a lot on the show about refining margins, and I talk about that relative to when the EIA releases all their I, I, I, I like to look at the supply. We bring it up every once in a while in terms of what’s going in and out of the refineries from a utilization standpoint. But there also is something to refining these refineries, being able to handle a certain type of crude, specifically heavier crude. Obviously, you can have an idea. West Texas Intermediate, which is the standard oil price oil composition that people base everything off of. We’ve heard of that. You can imagine that is almost green looking. It’s a vial. It’s very easily pouring in. It’s definitely a little bit see through if you only have a little bit of to. That’s that light, sweet, crude. What comes up from Mexico, what comes up from Venezuela. What comes from Russia is really a heavy crude, which is almost could be considered more of a paste. Now heavier crude has a lot of impurities in it which cause it to. Trade at a, discount relative to the light sweet crew. But what it also requires is different retrofitting on the refineries. And because of some of the stuff that’s happened in Mexico, specifically over their future forecasted supply of oil, it’s it’s kind of thrown some of these refineries into into whack here. So I’m going to go ahead and read a few, a couple paragraphs out of here. The prospect of decreased crude oil supplies from Mexico, the top international supplier, to the US Gulf Coast, is creating uncertainty among heavy crude focused refineries, Mexico’s state owned country, Pemex or Petro. Pemex instructed its trainee use unit to cancel 436,000 barrels a day of crude exports for April and decided, and to supposedly focus on producing domestic oil at its new or processing the domestic oil at its new 340,000 barrels per day. Does Baucus refinery and or existing plants, while this refinery startup is not nearly as imminent as Pemex says, the cancellation of Mexican crude imports could be problematic for U.S. refiners with plants built to run heavy crude a necessary ingredient reading to optimize operations and yield. Adding to this complexity of the situation is the upcoming start of the Trans Mountain pipeline expansion and recent reinstatement of U.S. sanctions on Venezuelan crude. And this is from, you know, they go on to examine sort of the potential fallout from this decision from Pemex in terms of where those heavy crudes were going. Specifically, the heavy crude is going to be less and less available. So they the really great overview. I’d recommend going to energy Newsbeat and reading this. Andy, if you can go ahead here and pull up. Figure one the typical qualities of Pemex crude oil. You’re going to see the different grades there Olmec es mas, Maya and Altair. You’ll notice that Maya is their, flagship grade. Basically, it’s the majority of their, exports are specifically coming in that Maya flagship blend. The interesting part is that that Maya crude blend does definitely have a little bit of a smaller gravity. You see, the API gravity of the Altamira is a little bit lower sitting at 15.5, whereas the Maya is about 2021 to 20. With this restriction in Mexico now sending their a lot of their domestic heavy crude to within with all of this crude from Mexico now and Pemex staying within Mexico, it goes to wonder where are these U.S. Gulf Coast refineries going to find their heavy crude? We also know Venezuela is this. The sanctions are ramping back up. People of you know, we we drew a little bit of oil. There was a few loads coming out of Venezuela, but now the prospects per se of a lot more oil coming out of Venezuela is not going to happen. So a lot of what these Gulf Coast refineries are dealing with right now, what this analysis shows is it tries to plant out where exactly are these going to come from. And the big the big, big answer, specifically in this article, as I mentioned, was that Trans Mountain pipeline, which flows from Edmonton all the way down to British Columbia and the Puget Sound system, where there are a bunch of refineries. Canada also has a decent amount of heavy crude. So if we have to now shift ourselves and buying it from Canada, those differentials are a little bit different. You pay a little bit more of a premium for the Canadian heavy crude than you would the Mexican heavy crude. So all of a sudden now the spreads on what a refinery can make or not, it could go down. And specifically if you’re talking about, you know, the margin that makes up the refining basis, it could get very interesting here. I love this breakdown. You know, via RB, RB and energy. We do a lot of that stuff. You know, it’s a $25 billion investment that Trans Mountain pipeline. So whether or not that’s going to be able to completely take over or not it’s going to be interesting. You know, the this article goes on to say the extent to which an individual refinery can lighten up its crude slate by very, varies by, say, switching to lighter crudes would increase cost given that light crude is more expensive than heavy goods. However, the light heavy crude differential continues to narrow and may narrow further on the US. On the U.S Gulf Coast, as measured by West Texas Intermediate, spread to Houston. You know, these these narrower differentials are expected to incentivize some Gulf Coast refiners to shift towards lighter crude slates. Further, we expect the minimal impact of crude runs, an increase in Latin America imports. or they they see minimal impact to overall crude runs in some increases to Latin American imports, to the United States Gulf, excluding Venezuela. So it looks like they’re thinking a lot of this is going to come from, from, Latin America, Canada and be able to fill the gap. But very interesting what Mexico, has decided to do. And it kind of gives you a little bit of behind the scenes on a lot of what these, refineries are dealing with on the back end. [00:09:49][343.9]

Michael Tanner: [00:09:49] So we’ll go ahead and jump over to the finance segment, guys. But before we do that, as always, the news and analysis you just heard is brought to you by, the world’s greatest website, www.energynewsbeat.com. The best place for all your energy and oil and gas news. Appreciates you in the team. Doing a tremendous job making sure that website stays up to speed. Everything you need to know to be the tip of the spear when it comes to the energy and the oil and gas. Is, as you can hit the description below for all the timestamps links to the articles. Appreciate all the, feedback and support. You can also check us out. Dashboard.energynewsbeat.com as always energynewsbeat.com world’s greatest website. [00:10:26][37.2]

Michael Tanner: [00:10:27] Let’s flip over to finance here for the markets. Markets were up in the morning. Jerome Powell decided to come out and give a little bit of a crazy not a crazy speech but a little bit of a dampening speech on the market. And markets absolutely tumbled, finished actually down on the day after being up almost 85 points on the S&P 500. We’ve now fallen about 75 points. Market closed about 5018. That’s about three quarters of a percentage point down. Nasdaq was down about 0.7 percentage points. Ten year yields two year yields fall 1.45 percentage points. Ten year yields fall only one percentage point dollar index down about, 3/10 of a percentage point. Bitcoin down 5%. Below 60,000 at 57,000. And then we get to crude oil who dropped about $3.33 today to 7917 as we currently sit here in stand, which is lower than we’ve seen it. And, you know, I think there’s there’s two reasons why the overall markets have done pretty poorly today. Obviously FOMC you know they they meet today the you know they they they held its benchmark interest rates at its current level. You know we kind of all thought that you know we know they have priced in a few rate cuts. But based on some of the info that’s come out the FOMC decided to keep interest rates. Where they are in that 5.25 guidance range. You know it. Jerome Powell always decides to speak afterwards. And and basically he’s quote was they’re prepared to maintain the current target range the federal funds as long as appropriate. they also said they would slow the pace of reducing its balance sheet starting in June. That decision ensures money markets don’t experience an episode of volatility and stress, as seen in September 2019, so interest rates from the federal funds stay the same. Which means, you know, overall, markets are going to take a little bit of a hit relative to the fact that we were hoping for some rate cuts coming in. And you can see the broader markets did like that. [00:12:18][110.7]

Michael Tanner: [00:12:18] You know, another reason oil prices were down, as I mentioned, 79 and 16 was the fact that we did have crude oil inventories come out today. EIA estimated a 7.3 million barrel build for the street for, the crude oil inventory reserves. That compares to a 6.4 million barrel draw. Last week we saw gasoline, inventories rise by 300,000 barrels, in which we saw a draw of 600,000 barrels. Yesterday, gasoline production was about 9.4 million barrels daily, which compared to, one, well, 9.1 million barrels during the previous week. Distillates we saw draw the inventory about 700,000 barrels, on those distillates, adding about 4.5 million barrels per day. So, I mean, you know, there was I think it was swinging on crude oil inventories. And if stew was on here, he’d say, hey, maybe we need to check the numbers a little bit. I won’t necessarily go that far, but I do think, you know, these wild swings we’re experiencing on the on the crude oil inventories front is indicative of that. The the market may not be as solid as we think it. And and as we kind of swing back and forth, it it continues to hurt to earnings. [00:13:22][63.7]

Michael Tanner: [00:13:22] I want to cover, Chesapeake and Diamondback. We’ll start with Chesapeake. You know, this is going to be a bloodbath per usual or not per usual, but clearly, because the fact that we’re releasing earnings here and in Q1, you know, we’ve got a couple different things here. Net cash provided by operating activities for Chesapeake came in at a cool $552 million. They delivered about 112 million of adjusted free cash flow, you know, due to quarterly combined base and variable debit of about $0.71 per common share holder. reaffirmed its core, borrowing credit base, to about 2.5 billion, to about 2.5 billion. And that variable breaks down into a variable dividend of $0.14 and a base dividend of about $0.57. You know, here’s here’s the other interesting part. As I mentioned, net income was only 26 million or adjusted net income, about 80 million. Obviously the street didn’t like this. You know, you you, you you miss on earnings. You know, they’re down about 20% or you know the a slight miss on earnings. You know $0.56 a share. Street was averaging about was hoping for about $0.70 a share. So not quite unfortunately what the street was wanting. Their stock today was trading down. Let me pull it up here. Stock down was 3.5 percentage points. on the fact that natural gas prices actually rose today a little bit. Not rose, but they, they out lost natural gas. Natural gas dropped 2.8 percentage points. Chesapeake now down 3.8 percentage points. So a four percentage points increase on the downside mainly because I mean the market I think is is adjusting the fact that if prices don’t turn around, it’s going to be tough, tough for Chesapeake in these companies, to keep making money. You know, they, they, they’re they, they talk about how they’re building their productive capacity with over 46 ducks and their and keep deferring what they would call turret titles or turning lines, which means, hey, who knows what’s going to happen? We’re just going to wait. See how we’re going to play and we’re going to turn these guys on, but we can turn them on. So, you know, not good on Chesapeake side. I do want to point out that, I mean, they’re still spending money, folks. It’s 354 million of CapEx being spent in Q1. What they’re spending CapEx on, I have no idea. I don’t know what you’d be spending CapEx on in this environment. But, hey, sometimes you got to do what you got to do. They are drilling, you know, you know, there’s no Eagle Ford. They’re just drilling Haynesville in Marcellus. Relative to, what they what they’re saying. So truly 300 of of CapEx, there’s non drilling, you know, field and corporate CapEx that could definitely be associated with it. But there’s still find a ways to spend money. Folks. I think the street is going to somehow figure out and it’s going to come to them at some point okay guys. What’s what’s what’s going on here? What what’s going on? Why are we spending $3 million of gas prices below $2? But that’s just me. [00:16:02][159.8]

Michael Tanner: [00:16:02] Look at Diamondback real quick. I mean, they’re only down, you know, just just to give you guys a quick thing. They were only down 2.5 percentage points. Oil’s down 3.5 percentage points. So there actually saw a little bit less of a drop relative to what oil prices did. Mainly because of their, impending merger with Endeavor Resources. They’re still hoping that gets approved here. Quarter four of 2024. But to give you guys an idea. Net cash provided by operating activities 1.3 billion operating cash flow before working capital changes. You know, that’s a mouthful, right? There was 1.4 billion. CapEx was still 609 million free cash flow, 791 million base dividend of about $0.90 per share and a variable dividend of about one point, one dollars and $0.07. Which means it’s about a basically a $2 per share, or excuse about $2 per share. And that implies, a 3.8 annualized return or a 3.8 annualized yield, based on that closing price of about $205. So. Absolutely. Good stuff for Diamondback. I mean, they continue to to keep on keepin on. They went ahead and drilled, 79 wells, 69 in the Midland Basin, ten in the, ten in the Delaware Basin, and completed 101 wells. I they’re a pretty big rig program. I don’t know exactly how many. But we we do know that they’re they completed 30 lower Sprayberry Wells, 919 Wolfe camp, a 16 Joe Mill, Wells, 15 Wolfe Camp, B-12, middle Sprayberry six Wolf camp, d Wells and three Upper Sprayberry well. So they continue to, to chunk along. They they also did release some of their guidance. You can go check out I mean, we we we we we are big fans of Diamondback here on the show. They, you know, we always say good management, good numbers. The team over there, continues to make smart acquisitions. I think this merger with endeavor is only going to make them stronger. And I think that’s partly what you’re seeing in this, in this in this earnings call in terms of, you know, where they came in relative to how far their stock fell relative to where oil prices fall. [00:17:59][116.9]

Michael Tanner: [00:18:00] So, great day all around, guys. It’s the end of the week though. So I’m going to go ahead and let you guys get out of here. Appreciate for checking us out. World’s greatest website energynewsbeat.com. You’ll see a long form interview with With stew tomorrow and conversations with Stu Energy. You will see our weekly recap on Saturday, and we will be back in the chair Monday for everyone. We will see you. Have a great weekend. We’ll see you Monday. [00:18:00][0.0][1062.1]

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