crude Archives - Webber Research

EPC Risks: Energy Transfer (ET) Capital Project Monitor – Q220

W|EPC: Energy Transfer (ET) Capital Project Monitor – Q220

  • Energy Transfer (ET) Q220 Capital Project Monitor: Key Takeaways (slide 2)
  • Energy Transfer Capital Budget Overview (slide 3)
  • Energy Transfer: NGL Fractionation History (slide 5)
  • Tale of the Tape: ETvs. EPD (slide 6)
  • Mariner East 2X (slide 8)
  • Orbit Ethane Export Terminal(slide 9)
  • Lone Star Express Pipeline (slide 11)
  • Lake Charles LNG: Fighting Yesterday’s War? (slides 13-20)

Key Takeaways:
1. Does ET’s Frac 8 Have a Cost Advantage over EPD’s Frac 12?
2. Energy Transfer’s NGL BPD Frac Costs Keep Falling
3. Budget Cuts, COVID-19 Impact, & Schedule Delays
4. Lake Charles LNG – Fighting Yesterday’s War?

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Tankers: Moving From OPEC Trade, To Global COVID Relapse Hedge

Tanker Q120 Preview & Storage Update

  • Thesis (EURN, DHT, FRO, ASC, etc) …………………Pages 1-2
  • Floating Storage Scenario Analysis………………….Pages 2-5
  • Tanker Rates Reactions & Implications ……………..Page 5
  • Multi-Factor Supply/Demand Model……………….. Pages 6-7
  • Crude Inventory & Production Cuts………………….Pages 7-9
  • Valuations……………………………………………….. Pages 10-11
  • Earnings Estimates……………………………………..Page 12

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Contango, COVID, & Floating Storage To Dominate Q1 Earnings: As with our Barge Preview from last week, we expect the majority of this earnings season to revolve around the simultaneous COVID+OPEC supply & demand shocks to global energy markets, which have driven down global oil demand by ~15-30mbd, introduced negative crude pricing for certain landlocked geographies, and reinforced the notion of systemic, structural and economically driven floating storage. The result: our tanker rate charts look more like seismograph readings (page 5) and our tanker group is poised to throw off record cash flow in Q2 & Q3 (and potentially longer). We believe the long tanker trade is gradually transitioning from a shorter-term OPEC trade, into a longer-term COVID-19 global relapse hedge. We believe tanker dynamics from the remainder of 2020 and 2021 will be defined by the depth and duration of the floating storage dynamics – which we believe will be increasingly driven by the shape and pace of a global economic reopening vs any remaining OPEC/policy maneuvers. Now that crisis level production levels are now more defined, we believe tanker rates and equities will have a strong negative correlation to the success of any semi-synchronized economic reopening. Hence, Long Tankers = Long An Extended And Asymmetrical Global Reopening.

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OPEC+ Fallout: Contagion Everywhere From Looming Price War…

***From Sunday 3/8***

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Tankers Among Few Eventual Beneficiaries

  • Impact On Tankers:                                                                                     Page 1, 3-5
  • The 2015 Tanker Comp, Similarities, Implied Upside                         Pages 3-4
  • Impact On LNG Developers (LNG, TELL, NEXT, GLNG, NFE)            Pages 2-3
  • Historical & Implied Equity Correlations To Crude Vol                       Page 3
  • NAVs: Current, Mid-Cycle to Trough Range                                          Page 3
  • OPEC+ Background                                                                                   Page 3, 6

This Is Going To Hurt: On Friday (3/6) talks between OPEC and its OPEC+ allies (Russia) over a corona-related production cut collapsed, sending oil prices down with it (Brent and WTI down 9% and 10%, respectively on Friday). While the lack of OPEC+ support for crude prices was enough to rattle markets, what’s transpired since – the relationship between the Saudis and the Russians rapidly devolving into what looks like an all-out pricing war – has the potential to reshape energy markets for years to come, and will likely take the mantle as the most value-destructive policy shift in decades.

Exogenous Demand Shock, Meet Exogenous Supply Shock. As noted below, Aramco has already come out with discounted crude prices (OSPs) on the back of the meeting, and is reportedly speaking to a potential production ramp from its current 9.7mbd, to well above 10mbd, and could even reach a record of 12mbd. Again – that would be additional supply into a market that’s already oversupplied amid global efforts to contain the Coronavirus (nCoV) weighing on demand. While the Russians have less available swing production, what they do have will be moving in the wrong direction as well, as they look to grab share from U.S. Shale producers.

How Does This Impact Our Universe:
Tankers: We’ll Call It Mixed… (And That’s One Of The Few Bright Spots). Once the dust settles the tanker group, including FRO, DHT, EURN, ASC, etc, should be one of the few actual overproduction beneficiaries as: 1) tanker activity and rates are generally positively levered to production volumes (including overproduction), and 2) we expect to see floating storage, both economic (as the front end of the crude forward curve collapses (already in progress) and…….continued on Pages 3-5

Most Relevant Tanker Comp: 2015, after OPEC failed to respond to falling crude prices. While overcapacity and falling crude prices ravaged the rest of the energy markets, Crude Tanker rates (VLCCs) averaged $65K/day (Figure 4) – a level not reached since 2008, up 116% y/y and the firmest level in nearly a decade. What would 2015 day rates mean for current tanker stocks? If we replaced our current 2020 rate decks with the 2015 average rates….continued on page Pages 2-3

Everything Stops. If nCoV brought the near-term prospects of new LNG business to a particularly slow crawl, we believe the OPEC+ blow up will bring it to a full stop, at least until the dust settles. For companies in the process of restructuring (like TELL).….continued on Pages 2-3

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Webber R|A Barge Week- Part 2: The M&A Menu


Barge Week Continues at Webber R|A with our Barge M&A Menu, out yesterday.

The Barge M&A Menu: Assessing 2020 Consolidation Options includes:

• The Elephant In The Room – Inland Special Situations (Page 2-3)
• High Profile Coastal Distress (Pages 4-5)
• Strategic Pivots Into Ancillary Sectors (Marine Services & Bunkering)? (Pages 6-9)
• Fleet & Company Details, & Our View On Viability & Timing

Laying Out KEX’s M&A Menu: We expect M&A to remain a major theme for KEX in 2020, particularly with several high-profile, ongoing distressed situations in the barge space (Bouchard, ACBL, Harley Marine, etc.). While there’s no shortage of opportunities for KEX to continue acting as the sector’s primary consolidator, the makeup of viable targets looks increasingly diverse. Despite the headlines, the number of traditional M&A opportunities within KEX’s core inland business are actually getting fewer and further between, while distress builds in
pockets of the tangential coastal market (Bouchard ) and the Marine Service & Bunkering markets (Harley Marine, potentially Vane Brothers). We take a look at those scenarios in the pages that follow.

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