Refinery profits help ease the pain
Calgary energy companies set to reveal Q2 results
Commodity price and oilfield activity weakness will be balanced by strong refinery profits as Calgary’s producers and service companies begin to roll out second- quarter financial results this week.
Oil prices will again provide the headlines as companies try to guess which way to go with second half spending. Benchmark West Texas Intermediate oil averaged $ 57.85 US per barrel in the three months ended June 30, up from $ 48.57 in the first quarter.
Western producers were helped by a tighter difference between New York prices and the prices they receive in the second quarter thanks to factors that included lower production due to shut- ins as forest
Encana is the first large Calgarybased producer to report Friday morning. Precision Drilling, Canada’s largest driller, reports Thursday.
fires raged in northeast Alberta.
CIBC World Markets reported that Western Canada Select prices averaged $ 58.93 Cdn per barrel, up about 36 per cent from the first quarter. Peters & Co. noted natural gas prices fell slightly to average $ 2.74 US per 1,000 cubic feet in New York and $ 2.68 Cdn per mcf at AECO in Alberta.
“Key themes in the quarter will be: 1) tight heavy differentials, mitigating some of the impact of the lower oil price environment; 2) strong crack spreads and FIFO ( first- in- first- out accounting) gains across the downstream segment, driving robust earnings; 3) continued downward pressure on supplier and service costs across the sector; and, 4) scheduled and unscheduled downtime for various producers,” said CIBC in a report last week.
Encana is the first large Calgarybased producer to report Friday morning. Precision Drilling Corp., Canada’s largest driller, reports Thursday.
“We expect Encana to have a bit of a mixed quarter,” CIBC analysts said, adding they expect production in its four core areas to be flat compared to the first quarter due to longer times to achieve peak production in the Permian in Texas, flooding in the state, and apportionment issues on the TransCanada pipeline system in northwestern Alberta and northeastern B. C.
Peters & Co. pointed out that natural gas production will fall for Encana in the second quarter due to the shut- in of the Deep Panuke East Coast offshore facility in May as the company has decided to produce only in the winter when prices are higher. It said liquids production is expected to be up 19 per cent over the previous quarter and more than double the same quarter in 2014.
Results posted by Houston oilfield service company Halliburton Co. on Monday bode well for Canadian rivals, said Calgary- based investment firm AltaCorp Capital in a report.
“HAL’s Q2/ 15 results are incrementally positive for our coverage universe with exposure to the Middle East including Precision Drilling, Trinidad Drilling and Xtreme Drilling & Coil,” it noted. “Similar to Schlumberger’s recent outlook, HAL’s commentary suggests continued industry uncertainty.”
Halliburton president Jeff Milleroil said the company isn’t expecting a significant recovery in North American oilfield activity until some time in 2016. The company reported a second- quarter profit of $ 55 million US, 93 per cent lower than $ 775 million in the same period last year, as revenue fell from $ 8.1 billion to $ 5.9 billion.
Still, it beat analyst expectations with income from continuing operations of $ 380 million, or 44 cents a share, exceeding the forecast 29 cents a share. Its North American revenues were hit hardest in the downturn, falling 25 per cent from the first quarter, while Middle Eastern revenues declined just five per cent.
The first large integrated Calgary company to report is Husky Energy Inc. on July 28. Analysts said it will likely report lower production due to a smaller take from its Liwan offshore gas project in the South China Sea as costs are recovered, as well as downtime at Terra Nova, off Canada’s East Coast, and a turnaround at its Lloydminster upgrader.
“One of the more significant items from the quarter should be higher downstream cash flow, as refining margins have been quite strong and as the company deferred essentially all maintenance activities into 2016,” noted Peters.
Analysts said they will be closely watching when Cenovus Energy Inc. announces its second- quarter results July 30 for hints of what it intends to do with the $ 3.3 billion it raised with the sale of its royalty assets to a subsidiary of the Ontario Teachers’ Pension Plan.
They suggested it may restart expansion spending suspended due to low oil prices at its Foster Creek and Christina Lake thermal oilsands projects in northern Alberta.