GLNG reported an adjusted net loss of $42MM vs a consensus net loss of $24MM and our $16MM net income estimate. TCE realizations of $39,000/day were lower than our estimate and explain the variance, with management citing weather and capacity related spot LNG market weakness as a weight on freight markets. Importantly, the company announced that the board has authorized a spin out of the shipping business (excluding two more modern vessels, one of which is marked for FSRU conversion). A separation of the growth (FLNG/FSRU/Golar Power) from the shipping business, unencumbering the growth business from legacy debt, is a long-awaited catalyst which we believe is positive for GLNG shares.
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Over the past month, refiners are down 9%, underperforming a 5% decline in the XLE and a 2% decline in the S&P. A general risk-off bias partially explains the underperformance, but outside of global demand growth, refiners have little direct exposure to the China/US trade dispute. Another possible explanation is increasing geo-political risk, particularly in the Middle East, inflating the price of crude oil. Geo-political inflationary effects on crude prices are problematic for refiners because costs de-couple from demand trends. However, if Mid-East and other OPEC tension is a headwind on refiners currently, we note an offset effect from potentially wider US crude differential benefits in the event of a supply shock.
PA Liquefier Still in the Plan – While PA liquefier project was de-emphasized somewhat in the mgmt presentation of 1Q19 results as the focus is on progress in terminal commitments and expanding margins on committed LNG sales volumes, we are leaving the PA liquefier project in our base case valuation on NFE, which calls for 4.5MM gal/day of LNG sales, production from the 3.5MM gal/day liquefier, and 1MM gal/day of 3rd party LNG volumes for sale. Management noted financing was the hurdle to FID of the PA liquefier, and we believe as the core terminaling business ramps and generates EBITDA, financing for developing vertical integration on LNG sales will open up.
“Adjustment factor” in EIA supply has been very lumpy, swinging from massive unaccounted for crude volume to a negative adjustment last week. This likely reflects large well pad development, shorter haul imports replacing Arabian Gulf volumes, and lumpy exports with China not participating. For this week, we zero out the adjustment factor, but the range of potential outcomes is wide.
Brief overview of Wolfe’s alternative data products in Energy, utilizing ClipperData to identify key inflections across multiple commodity streams worldwide.
MPC shares are down almost 10% since reporting 1Q19 earnings, and we attribute three drivers, two of which are easily addressed: 1) 2Q19 maintenance guide and EPS impact; 2) inference that the Coker 3 project communicates a negative view of IMO 2020; and 3) modeling challenges reconciling heritage ANDV metrics with MPC reporting, which makes expenses look inflated. #1 is a non-recurring issue; #2 is in our view a total misconception, as the Coker project was never related to IMO 2020; #3 requires some elbow grease, and we present a materially reshaped model where valuation drivers are all intact, but expense and margin reporting is squared. These changes solidify our deep-value position on the stock as upside to our target builds.
CVX hosted a sell-side lunch with CFO Pierre Breber and most of the IR team, including GM Wayne Borduin. The purpose was to “put a bow” on the APC process after announcing the company would not counterbid against OXY and will take the $1B break-up fee. Concurrently, CVX increased its buyback authorization from $4B to $5B, which will remain the annual run-rate going forward. Without the APC assets, our CVX price target remains $151. This note will be brief as we simply reset our model and assumptions to a month ago.
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