Energy Weekly Digest

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Energy Weekly Digest

4Q 2019 Earnings - CVX, XOM, HES, CNX, HCR, CLB, RES, MMP, CNXM, EPD, Company updates - CNXM, OMP, HES, CHK, OVV and OAS

Exploration & Production

4Q 2019 Earnings

(CVX) Chevron Corp. (/+)

Quick Look (Published on Jan 31, 2020)

4Q19 EPS slight beat. Slight earnings beat vs. Street but missed our numbers. Bottom line 4Q19 adjusted EPS of $1.49 vs. HEA $1.69 and the Street’s $1.47.

2020 guidance inline. 2020 capex guidance is unchanged from previous guidance of $20B. 2020 production guidance is 3,058-3,150 Mboe/d vs. HEA of 3,049 Mboe/d and the Street's 3,140 Mboe/d.

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(XOM) ExxonMobil (/-)

Quick Look (Published on Jan 31, 2020)

4Q19 earnings. Bottom line 4Q19 adjusted EPS of $0.41 vs. HEA $0.42 and the Street’s $0.43. Overall earnings were close to XOM's pre-released numbers in early January but with higher than expected downstream offset by lower than expected chemical earnings. 4Q19 earnings were $1.8B (excluding $3.9B in non-recurring items) vs. HEA at $1.8B and the Street's $2.0B.

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(HES) Hess Corporation (/)

Quick Look (Published on Jan 29, 2020)

Summary Thoughts. Mixed update, with solid volumes and cash flow offset by higher capex. Given 3% higher oil volumes and ~3% higher capex vs. the Street, we don't see either as likely to sway the market materially today. Mixed bottom line vs. the Street as well with EPS light and CFPS just ahead. Solid Bakken performance on both prod'n and capital a clear positive vs. us, while GoM prod'n momentum also helped vs. our model.

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Follow-up (Published on Jan 30, 2020)

2020 outlook has some timing nuances. With HES capex and prod'n provided earlier this week, we got additional details on the 2020 program that were helpful from a modeling perspective. Some key elements included Williston 2Q20 turnarounds associated with the Tioga plant expansion (6 Mboe/d, mostly gas), along with 13 Mboe/d of quarterly downtime in the GoM in 2Q as well. This suggests a strong 2H20 for both assets, after what will (hopefully) clearly be a corporate prod'n low point in 2Q20. Meanwhile, Guyana will have ~1 MMbo of net prod'n in 1Q20 of its ~9 MMbo for the year, again pointing to a strong 2H20 prod'n profile.

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(CNX) CNX Resources (+)

Quick Look (Published on Jan 30, 2020)

Overall strong update. CNX's stand-alone 4Q19 EBITDA beat our estimate by +23% on -15% less capital. Prod'n beat by +3% driven by the Marcellus. 2020 Capex guidance was reduced by -$40MM (-8%) with a -2% reduction to prod'n guidance. "Organic" FCF guidance was increased to $200MM from the $146MM guided last quarter, but includes $50MM of payments for the IDR sale and $62MM of AMT refunds. Apples-to-apples comparison puts FCF up ~ $40MM, netting out IDR payments. The IDR transaction is NAV accretive by $0.67/sh to our model.

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Follow-up (Published on Jan 31, 2020)

Our new 2020 estimates put us near the midpoint of 2020 prod'n guidance but on the higher end of capex. The Marcellus outperformed our model and we are factoring in lower downtime and higher initial prod'n for wells heading forward. Although 4Q19 total capex was lower than our model, capex per well looked higher than we forecasted, calibrating heading forward puts us at the high end of capex guidance for 2020 and offsets the NAV impact of slightly higher Marcellus type curves. Overall our NAV goes up $0.88/sh, mainly on the IDR sale to CNXM. CNX outperformed by +5% yesterday, making it one of the top performers of the day.  

What changed. Despite CNX's guidance of better FCF in 2020 and 2021, our estimates are down slightly apples-to-apples as our cash flow estimates fell more than our capex. 2020 Stand-alone CF down -7% to $561MM on relatively unchanged E&P capex of $501MM. 2020 Free cash is down -$39MM to $60MM, excluding IDRs and tax refunds. 2021 Stand-alone CF is up ~1% to $665MM, but +15% (+$93MM) higher E&P capex brings FCF down to $71MM from $159MM previously.

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Oasis Petroleum 4Q19 update and preliminary 2020 plan

Published on Jan 30, 2020

Capex continues to grind lower. Oasis guided to a new capital budget of $700-$730MM vs prior indications of ~$750MM, our (apples to apples) $752MM and the Street's $734MM (could have some E&P only estimates). OAS level spending will be slightly higher (~$20MM) vs. us given the change in midstream funding.

OAS metrics - click to explore

Production growth pretty consistent. The Company pointed to mid-single digit oil growth from 4Q19 volumes to 4Q20. We model 4% growth  and our 4Q19 was in line with 4Q19 provided today, suggesting modest potential upside to our 4Q20 oil estimate. We currently model 2H20 loaded prod'n with 1H20 down vs. 4Q19 before growing Q/Q through YE as the Delaware program ramps. Current Street estimates imply ~5% growth, with OAS slightly beating 4Q19 Street.

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Ovintiv Anadarko Basin update​​​​​​​

Published on Jan 29, 2020

Increased production guide. OVV increased their total production guidance for the year to 589 Mboe/d vs. 580-590 previously with no change to capex of $2.8B. This appears to put 4Q implied production ~5Mboe/d better than our model (apples to apples vs. our model after adjusting for asset sales). OVV lumps gas liquids and oil together, so there is no way to comp a clean crude-only number vs. HEA and Street.  

OVV Jan 29 2020 and July 25 2019 presentations

Anadarko production beat HEA on higher TILS. 4Q production increased to 164 Mboe/d vs. 162 Mboe/d in 3Q and beating our 158 Mboe/d estimate by 4% on 25 TILS vs. our 20 estimate. We expected production to decline in 4Q due to a 1H weighted activity program with 63% of the 2019 TILS in 1H.

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Chesapeake Energy 4Q19 ops update​​​​​​​

Published on Jan 29, 2020

Positive update from a volume and capital perspective. Total debt is down q/q but the revolver balance is up; our first pass shows a very small outspend in the quarter with more details to come. Weak gas pricing and the degradation of the Eagle Ford oil premium are headwinds for free cash flow in 2020.

Positive 4Q19 operations update. The tightened range shows CHK to be inline to slightly above the Street on oil volumes with capex 4% bellow for the quarter. Oil was below our relatively aggressive estimate by ~3%.

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HES vs. CHK vs. Large Caps - click to explore

Hess Corp. 2020 production and capital guidance

Published on Jan 28, 2020

HES provided the broad strokes on its 2020 outlook, with capital of ~$3B (ex-midstream) driving prod'n of 330-335 Mboe/d. This compares to our ~$2.8B (ex-midstream) and 343 Mboe/d and the Street's ~$3.1B (likely some midstream included) and 351 Mboe/d. The update suggests slightly worse capital efficiency vs. both us and Street, with ~5% lower volumes vs. Street and ~3% lower capital (although the ex-midstream comp is likely closer).

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Oilfield Services

4Q 2019 Earnings

(HCR) Hi-Crush Inc.

HCR on
Pre-announcement (Published on Jan 31, 2020)

We view the update as roughly neutral given lower than expected revenues and volumes were roughly offset by lower costs. Frac sand volumes of 2.1MM tons declined -22% Q/Q and were -9% below our estimate. 4Q19 revenue of $123-$127MM compares to HEA/Street at $147MM/$144MM. However, contribution margin is expected to be ~$9/ton, which - if SG&A comes in at $11MM as guided - suggests 4Q19 EBITDA of ~$8MM, slightly better than HEA/Street at $7MM/$6MM. Additionally, HCR announced a new initiative to provide mobile proppant processing, allowing frac sand to be produced and processed much closer to customer wellsites (subject to adequate sand reserves). HCR expects to deploy two systems, which HCR calls OnCore Processing, in 2Q20. We look forward to learning more information about this system, particularly the capex requirements, expected contract structures, and targeted returns.  ​​​​​​​

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(CLB) Core Laboratories (/)

CLB on
Quick Look (Published on Jan 30, 2020)

Ops in-line with pre-announcement. Revenue and EBITDA were in-line with CLB's prior pre-announcement and initial Q1 guidance was maintained resulting in a relatively uneventful Q4 release after the New Year's Eve pre-announcement fireworks.

EBITDA in-line but taxes dent EPS. Q4 EBITDA of $31MM was in-line with HEA/consensus of $31MM/$30MM. Adjusted EPS came in at $0.28 vs. updated guidance of $0.37-0.38. However, we include the $0.02/share negative FX impact as well as the $0.08/share resulting from a tax rate higher than CLB's 20% guidance as they are part of normal operations. Adding these two items back would yield a Q4 EPS of $0.38, or the high end of the $0.37-$0.38 pre-announced range.

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(RES) RPC, Inc. (+)

RES on
Quick Look (Published on Jan 29, 2020)

Strongest beat in a long time. Q4 EBITDA was nearly 50% better than our estimate (admittedly off a small base) as lower costs more than offset a steeper than expected decline in revenue, resulting in a Q/Q increase in EBITDA margins. Expectations seemed low coming into the print given 1) the weaker than expected Q4 completion activity; and 2) RES had missed every quarter since 3Q17, so we would expect the stock to be very strong today.

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Follow-up (Published on Jan 30, 2020)

What changed. The outlook for RES's pressure pumping business improved modestly but this was largely offset by a deteriorating outlook for the higher margin Thru Tubing Solutions (TTS) business. As a result, the significantly stronger than expected 4Q19 results did not have as much positive impact on our 2020 EBITDA estimates as we expected prior to the conference call. We are raising our 2020/2021 EBITDA estimates to $132MM/$172MM from $124MM/$168MM. The 7% increase to our 2020 estimate reflects both a higher fleet count and accelerated cost savings in pressure pumping, partially offset by lower than expected TTS revenue, particularly in 1H20.

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4Q 2019 Earnings

(MMP) Magellan Midstream (/-)

MMP on
Quick Look (Published on Jan 30, 2020)

Summary thoughts. Mixed bag with a significant beat for 4Q19 but 2020 guidance materially below consensus. 2020 looks very much like we expected with Longhorn re-contracting and lower Permian spot volumes weighing on the bottom line. The company has made progress on re-contracting Longhorn and announced a new commitment and the intention to use marketing to fill the pipe, but these barrels should be assumed to carry a lower average margin as we assume in our model. MMP is guiding to +3% distribution growth in 2020 vs. +5% previously.

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(CNXM) CNX Midstream Partners (/-)

Quick Look (Published on Jan 30, 2020)

Summary thoughts. CNXM announced a deal to buy the IDRs from CNX for total compensation of $565MM. Although this is better than the $625MM assumption in our CNXM model for the IDRs, we believe the deal could be viewed as expensive on a cash flow basis which has been the driving factor for recent IDR deal performance. This equates to 14x 2020 CF, 9.7x 2021 CF, and 7.2x 2022 CF. The $135MM cash payment is deferred with $50MM due at the end of 2020, $50MM due at the end of 2021, and the remaining $35MM due at the end of 2022. Further, 3MM CNXM units ($44MM) will not receive distributions until they convert in early 2022. The deferred nature of the compensation from CNXM is a positive attribute of the deal, but overall, we think the total compensation for the IDR CF is expensive. CNX will own 53% of CNXM's LP interest post this deal. On the positive side, CNXM handily beat 4Q19 estimates, and the early 2021 EBITDA and Capex guidance are both much better than our model, generating a significant $200MM of FCF.

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(EPD) Enterprise Products (/)

EPD on
Quick Look (Published on Jan 30, 2020)

Summary thoughts. Neutral release overall. EPD's 4Q19 results were better than consensus although slightly below our expectations. The company is committing to buy back stock with ~2% of 2020 CFO, which combined with an intended 2.3% increase to the company's distribution, results in +5.6% growth in total return to unitholders y/y. The company's LPG export business was very strong during the 4Q19 driving better than expected results in the NGL segment. This was offset somewhat by significant maintenance during the quarter in the Petrochemical and Refined Products segment including 30 days of unplanned downtime at the company's PDH facility. Capex was high for the 4Q19 period but 2020 capex guidance is maintained with 2021 early guidance better than our model.

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Oasis Midstream Partners 4Q19 update and preliminary 2020 plan​​​​​​​

Published on Jan 30, 2020

Cash flows estimates improve with 4Q19 volumes being better than our estimates. When we apply 4Q19 actual volumes, our 4Q19 EBITDA increases +$0.5MM to $46.5MM vs. consensus of $45.8MM.

Preliminary 2020 guidance is a mixed bag. 2020 EBITDA is guided to double-digit growth vs. 2019 EBITDA compared to HEA growth of +20% and consensus of +19%. 2020 net capex guidance is $65MM-$80MM vs. HEAe/consensus of $86MM/$93MM.

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CNX Midstream company update​​​​​​​

Published on Jan 28, 2020

CNXM is often over-looked in the current investment landscape as the company that has all of the external warts of a single producer, Appalachian gas MLP with IDRs and low liquidity. Yikes, we are pained to even write that out. However, we believe the stock can continue to work in 2020 even after outperforming our Midstream coverage group by +19.8% since our 8/22/19 upgrade to Focus List.

Maybe an IDR deal is coming, maybe it isn't but both cases could work for investors. CNXM has been outwardly one of the more stubborn MLPs when addressing the prevailing structure continuing to cite that the company does not need to act today. While we disagree with this and would like to see a deal done sooner rather than later, there are 2 things that investors should focus on related to the structure. First, CNXM is capable and willing to continue to grow its distribution at +15% per year. The company's distribution yield will be 11.4% in 2020 and 13.0% in 2021. You would be paid to wait on a deal. Second, there have been 3 consecutive midstream MLP IDR transactions where the cash flow multiple for the IDRs has been a minimal premium to the MLP's forward EV/EBITDA. This allows the MLP to buy future growth at an attractive price. With equity markets closed, the sponsor CNX knows that the only way to make this deal is to take CNXM stock in return. So CNX's motivation to do right by the MLP should be very high today considering the past several years worth of bad deals, back door cuts, general LP abuse, and the impact that has had on both the MLPs and the sponsors. The lack of available public market equity forces the sponsor to make a fair deal to the MLP.

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