We expect the EIA to report a crude inventory draw of 2.9MM bbl for the week ended 3/22/19, above consensus’ 0.9MM bbl draw. Disruption in the Gulf of Mexico could result in lower imports and exports w/w, although most of the delta in crude draw w/w is due to refinery downtime. We adjust production -600 kb/d as we see a high likelihood that the DOE is overstating production and the trend of negative “adjustments” in weekly reports will continue.
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We are moving this weekly to Tuesdays at noon to improve EIA preview accuracy and because there was no significance to Mondays with respect to international data. Since the inception of this EIA forecast, the WR estimate has been closer to EIA actuals vs consensus 7 of 13 weeks. Generally, we believe the OPEC data has been more predictive of oil price direction than EIA trends, but we believe the EIA forecast adds nuance to the global supply/demand picture.
Reports persist that RDS is evaluating a major Permian acquisition, specifically private company Endeavor, which owns ~300k Midland basin acres. This week, management commentary confirmed earlier reports of the company’s desire to acquire Permian assets, although targets were not specified. With respect to Endeavor, the BHP L48 unconventional sale process is instructive, as media reports pointed to BP as the likely winning bid several weeks before the acquisition was announced.
RDS put on a small meeting hosted by Maarten Wetselaar, Director of Integrated Gas (LNG) and New Energies. The meeting contained both revelations about LNG and power markets and RDS’s strategy to optimize them, as well as confirmation of observations from last week’s XOM and CVX analyst days. Full notes are published inside.
EIA Preview (Page 2): We expect the EIA to report a crude inventory build of 3.1MM bbl for the week ended 3/8/19. Relative to the larger than expected 7.1MM bbl build last week, we expect net imports to be down and refinery throughput to be up. We believe the EIA has possibly been overstating weekly crude exports, flowing through a persistent positive “adjustment”, which last week was 0.7MM bpd. In our model, we remove the adjustment and use our lower crude export forecast vs the EIA trend.
XOM SVP Andy Swiger hosted our room for the Analyst Day follow up breakfast. Mr. Swiger delivered the financial outlook portion of yesterday’s presentation but has experience throughout the entire organization. We typically avoid colorful language in research, but the depth, detail, and content of our group conversation blew us away. We publish our notes herein.
Intraday out of its Analyst Day, XOM shares are underperforming the S&P 500 by >100 bps. Media reports indicate that spending was “increased” although the move from $30B capex in 2019 to $33-35B in 2020 was communicated at the 2018 analyst day and is not new. Our key takeaways were 1) clarity around asset sales balances dividend coverage near term, and 2) detailed Permian guidance of 1MM boepd and $5B FCF in the segment in 2025 could take time to reflect in the stock.
Intraday, CVX shares are outperforming the S&P 500 by ~50 bps as its Analyst Day wraps up. We believe outperformance will be durable as two key items were highlighted: 1) post-2020 spending and growth framework are driven by visible, reliable items; and 2) nearer term, key milestones achieved at Tengiz assuage fears of cost slippage. Increased Permian guidance and reminder of the company’s overall financial health (lowest net debt load in the group) were also positive.
We expect the EIA to report a crude inventory draw of 0.7MM bbl for the week ended March 1st. While we believe we are now in a likely prolonged trend of materially lower US crude imports and therefore a higher likelihood of crude draws, fog in the Gulf the week ended 2/22 resulted in abnormally low imports and pulled forward a greater than normal draw in last week’s report. This week’s higher import number represents a one-week normalization as the downtrend in imports moves forward.
The main debate around XOM currently is the company’s dividend coverage as it ramps capex. We believe the Mar 6th Analyst Day will be an immediate catalyst if investors see a CFFO growth bridge between now and 2025. As a reminder, 2025 is the timeframe for the 2018 Analyst Day’s financial and operating targets, which were 5MM boepd of Upstream production from ~4MM today, and 135% (from 2017) earnings growth at $60 oil. While upstream development assets begin to mature closer to 2025, in the intermediate term we see CFFO contributions from Downstream projects and Permian infrastructure that improves US Upstream realizations.
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