David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Ford Unveils Electric Mustang SUV to Challenge Tesla Dominance

    This article by Keith Naughton for Bloomberg may be of interest to subscribers. Here is a section:

    The Mach-E will make a profit “on vehicle one,” he said in a Bloomberg TV interview. “That’s surprising a lot of people because electrics have not had a history of making money. This will.”

    Hackett said it will turn a profit because the vehicle “creates the passion that follows with Mustang” and prices start in the mid-$30,000 when U.S. subsides on electric cars are factored in. “So it’s attractive to customers.”

    Ford is building it in Mexico because it had an open factory there and it needed to be overhauled to build an electric vehicle, Hackett said. “As we start to adopt more electric vehicles — we had capacity down there, we had no capacity in the United States — we’re going to have electric capacity here in the United States. They’ll be building other electric platforms.”

    Still, it’s a high-risk gambit. The Mustang is Ford’s signature sports car, having sold more than 10 million units since it debuted in 1964 with simultaneous cover stories in Time and Newsweek. When Ford decided to abandon the traditional passenger-car business last year, it spared only one model: The Mustang.

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    The next 6 months favor Cyclicals: Financials, Energy, Industrials, Tech, Materials

    Thanks to a subscriber for this chart illustrated report by Barry Bannister for Stifel which may be of interest.

    Chesapeake's Covenants Could Pinch in 2020

    This article by Allison McNeely may be of interest to subscribers. Here is a section:

    The company warned there is doubt about its ability to continue operating. Its shares and bonds have plunged since reporting earnings Nov. 5.

    *Based on price assumptions of $55 per barrel for oil and $2.50 per million British thermal units for natural gas as well as no debt reduction, Chesapeake is likely to trip its leverage covenant by the third quarter of next year, if not sooner, CreditSights analysts Jake Leiby and Michael Mistras wrote in
    the report.

    **They predict Chesapeake will have a free cash flow shortfall of about $50 million in 2020 and finish the year with gross leverage of 4.6 times debt to a measure of earnings, above the 4.25 ratio in its covenant.

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    Brazil's Oil Flop a Warning for Majors and Aramco

    This article by Liam Denning for Bloomberg may be of interest to subscribers. Here is a section:

    Offshore oil investment was all the rage among Big Oil during the supercycle, with capital expenditure almost quadrupling in the decade up to 2014. That is the problem. The majors poured money into large, multi-year projects prone to delays and, because of their often bespoke engineering, spiraling budgets. The result: tumbling return on capital and an inability to dial back investment quickly when the oil crash hit in 2014. Roughly 3,000 new offshore projects sanctioned between 2010 and 2014 have either barely generated any value for oil companies or are expected to generate none at all, according to a recent study published by Rystad Energy, a consultancy:

    More recent investments score better, mostly because the boom tailed off, with offshore capex falling by more than half between 2014 and 2018. That took the heat out of industry inflation; and, because of the bonfire of returns in the prior decade, oil majors got smarter about such things as standardizing offshore equipment design to cut costs and shorten schedules. The pace of new projects has picked up again after the slump. Exxon, for example, has effectively opened up an entire new offshore zone with its Guyanese fields.

    Still, one look at the stock prices of oilfield services firms, especially offshore-focused types such as Transocean Ltd. and Noble Corp. Plc, tells you this investment wave is nothing like the tsunami of yesteryear. Bad memories combined with unease about both near- and long-term oil demand make bold bets on big, multi-year offshore projects a tough sell with investors more interested in payouts. Even Exxon’s success in Guyana gets overshadowed by the fact that the company’s capex bill leaves it borrowing to pay its dividend. And Exxon, like Chevron Corp. and other majors, has swung more of its spending toward shorter-cycle onshore fracking in North America.

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    Shell Shares Continue Slide After Tense Call With Analysts

    This article by Kelly Gilblom and Javier Blas for Bloomberg may be of interest to subscribers. Here is a section:

    At one point, van Beurden quipped that the buyback program would be cheaper now because the shares were falling, which invited a terse response from an analyst who said: “I agree.”
    “Please help me with my confused state,” said Christopher Kuplent, an analyst at Bank of America Corp., before asking the penultimate question on the call about whether they are
    disclosing information in the right way.

    Van Beurden responded that they could have avoided the cautionary note about the buybacks completely. He said that people could have done the math that lower oil prices make life more financially challenging for Shell, however, he said it was better to acknowledge a likely stormy year ahead to the market.

    Then he offered another mind-bending answer as shares slipped further. “That macro does actually have an effect on our cash flow is obviously a statement of the obvious. So we could also have said: ‘Well that’s hopefully all understood isn’t it?”’ he added. “But not making a statement of the obvious it is also making a statement.”

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    Fed Cuts Rates by Quarter Point, Hints It May Be Done for Now

    This article by Christopher Condon for Bloomberg may be of interest to subscribers. Here is a section:

    Federal Reserve officials reduced interest rates by a quarter-percentage point for the third time this year and hinted they may be done loosening monetary policy, at least for one meeting.

    The Federal Open Market Committee altered language in its statement following the two-day meeting Wednesday, dropping its pledge to “act as appropriate to sustain the expansion,” while adding a promise to monitor data as it “assesses the appropriate path of the target range for the federal funds rate.”

    As with the September statement, the FOMC cited the implications of global developments in deciding to lower the target range for the central bank’s benchmark rate to 1.5% to 1.75%.

    Treasuries weakened on the Fed’s announcement, pushing the 10-year yield up briefly to 1.81% from 1.80%. Stocks were little changed and the U.S. dollar gained. Traders also pared wagers on a fourth consecutive rate cut in December.

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    Oil Shipping Costs Soar to Highest Levels in 11 Years

    This article by Costas Paris for the Wall Street Journal may be of interest to subscribers. Here is a section:

    “There is a lot of confusion and uncertainty out there,” said Paolo d’Amico, head of Intertanko, a trade body representing tanker owners. “Everyone is afraid of being hit by the U.S., sanctions, rendering about 50 VLCCs untouchable.”

    U.S. oil exports to Europe, which usually move in smaller tankers, hit a record 1.8 million barrels a day for the week ending Oct. 7, according to Kpler, an energy market intelligence company. The figure is double the 924,000 barrels in the previous week. But shipments to Asia, which are typically done on VLCCs, were reduced almost in half to 508,000 barrels.

    A Singapore broker said rates for some VLCC cargoes on sailings from the U.S. Gulf Coast to the Far East were more than $120,000 on Thursday. Average earnings for supertankers picking up cargoes from around the world hit $94,124 a day, up from $18,284 on Sept. 25, when Washington blacklisted the Cosco fleet.

    “VLCCs to Asia are a rare commodity, the market is red hot and will stay that way while the U.S. sanctions on Cosco ships are in place,” said the broker, who asked not to be named because he isn’t authorized to talk to the media.

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    Midcap British Stocks Soar On Move Toward Brexit Talks

    This article by Steve Goldstein for MarketWatch may be of interest to subscribers. Here it is in full:

    The midcap FTSE 250 rose 3.5%, its best single-day percentage gain in more than three years, as European leaders indicated there was progress toward reaching an agreed deal with the U.K. on leaving the European Union. The European Union says it has agreed with the United Kingdom to "intensify" Brexit negotiations in a belated attempt to reach a divorce deal ahead of Oct. 31. A number of FTSE 250 components sported double-digit gains, including bank CYBG, building materials distributor Grafton Group and home improvement retailer Travis Perkins. The FTSE 100 however saw much smaller gains, of just 0.7%, because many of those components record revenue in dollars.

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    Melting Ice Redraws the World Map and Starts a Power Struggle

    This article by Marc Champion for Bloomberg may be of interest to subscribers. Here is a section:

    Shawn Bennett, deputy assistant secretary for oil and natural gas at the Department of Energy, said the U.S. was not concerned about competition. Growth projections for natural gas demand in India and other Asian countries are so high, and the need for supply diversification in Europe so acute that there’s little risk of a glut, he told Bloomberg. “Global demand for LNG is just going to grow,” he said.

    The U.S. may be pushing back in more concrete ways. On September 30, the Department of the Treasury imposed sanctions on units of China’s Cosco Shipping Corp., over alleged breaches of U.S. sanctions against Iran. The move immediately hit the Yamal project’s LNG tanker routes because of Cosco’s share in one of the main shipping companies involved.

    Still, for those who have been working in the Arctic for a long time, much of the geopolitical discussion sounds a little breathless. Last year, Russia’s Northern Sea Route carried 29 million tons of cargo, with projections rising to 90 million. The Suez Canal carries about 1 billion tons.

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