U.S. OIL CAPEX UP TO 72%
EIA - U.S. oil producers issued record equity in 2016 and increased investment in the final quarter.
A group of 44 U.S. onshore-focused oil producers issued a record amount of equity in 2016. In the fourth quarter of 2016, capital expenditure for these companies was $4.9 billion (72%) higher than in the fourth quarter of 2015. This increase in investment spending was the first year-over-year increase since the fourth quarter of 2014 and largest annual increase for any quarter since at least the first quarter of 2012. Quarterly financial statements from these producers also show an overall improvement in their financial situation compared with early 2016 and all of 2015. Company announcements and continued increases in the number of active oil rigs suggest U.S. oil production companies are increasing capital expenditure in 2017.
Market conditions for U.S. oil producers grew more favorable as West Texas Intermediate (WTI) front-month futures prices averaged $49.29 per barrel (b) in the fourth quarter of 2016, compared to $42.16/b in the fourth quarter of 2015 and $33.63/b in the first quarter of 2016. Higher prices are contributing to an increase in upstream earnings for U.S. producers, prompting some companies to increase their investment budgets. In the fourth quarter of 2016, a majority of these companies experienced a year-over-year increase in earnings and a decline in long-term debt-to-equity ratios, which suggest U.S. producers are financially healthier than they were in 2015 and the beginning of 2016 (Figure 1). In addition, 73% of the 44 companies reported a year-over-year increase in earnings, the largest such percentage since the third quarter of 2014. Just over half of these companies reported an annual decrease in their debt-to-equity ratios, close to the levels of the third and fourth quarters of 2014.
Despite the increase in crude oil prices and capital expenditure, cash from operations declined $475 million year-over-year in the fourth quarter of 2016 (Figure 2). Significant reductions in exploration and development spending over the course of 2015-16 led to less drilling, which reduced oil production in the fourth quarter of 2016, likely offsetting some increased revenue that came from higher prices. Companies' cash flow statements also show an increase in working capital movements, which lowers the net cash generated from operating activities. The fourth quarter of 2016 had the lowest year-over-year decline in cash from operations since it began falling in the first quarter of 2015. Cash from operations lags capital expenditure for these companies because they invest to develop reserves that will increase oil production and cash flow in the future. In the years 2011-14, these companies had typically raised cash through debt—either borrowing from a bank or issuing bonds.
These companies raised over $4.5 billion in the fourth quarter through equity issuance, more than all but one quarter in the 2011-15 period (Figure 3). For 2016 as a whole, these companies raised $15.8 billion in equity, with the average equity issuance of $4.0 billion per quarter, significantly above the 2011-15 quarterly average of $1.4 billion. Equity issuance is often considered to be less attractive to companies than debt funding given the tax deductibility of interest expenses. Another factor that may have reduced debt issuance is that banks often set credit limits based on the value of proved reserves. The effect of lower prices in 2015 on the value of proved reserves was compounded by a 1.0 billion barrel decline in the level of proved reserves for the 44 companies in 2015. Proved reserves (defined as the estimated quantities of oil and natural gas that analyses of geologic and engineering data demonstrate with reasonable certainty are recoverable under existing economic and operating conditions) increased 0.1 billion barrels for this set of companies in 2016, which together with higher prices could allow some companies to increase bank borrowing in 2017.
The U.S. active oil-directed rig count stood at 652 on March 24, with growth accelerating since the end of the fourth quarter of 2016, when the count was only 525. In addition, the number of short positions in futures and option contracts held by producers and merchants, which provides a measure for the amount of future production oil companies have hedged, accelerated since crude oil prices rose above $50/b in the fourth quarter of 2016, approaching a ten-year high of 756,000 contracts on February 14, 2017 (Figure 4). Financial hedging reduces the effect of a fall in revenue if prices were to decline. These indicators suggest that U.S. oil companies are continuing to increase capital expenditures in exploration and development and support continued production growth in the United States.
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AOG - The Dubai Electricity & Water Authority (DEWA) is to invest around $22bn on new energy projects across the next five years, with the renewables sector accounting for an increasing share of electricity generation, according to CEO Saeed Mohammed Al Tayer.
TRANSCANADA - TransCanada Corporation (TSX:TRP) (NYSE:TRP) (TransCanada or the Company) announced net income attributable to common shares for fourth quarter 2017 of $861 million or $0.98 per share compared to a net loss of $358 million or $0.43 per share for the same period in 2016. For the year ended December 31, 2017, net income attributable to common shares was $3.0 billion or $3.44 per share compared to net income of $124 million or $0.16 per share in 2016.
ROSATOM - February 13, 2018, Moscow. – ROSATOM and the Ministry of Scientific Research and Technological Innovations of the Republic of Congo today signed a Memorandum of Understanding on cooperation in the field of peaceful uses of atomic energy.
FRB - Industrial production edged down 0.1 percent in January following four consecutive monthly increases. Manufacturing production was unchanged in January. Mining output fell 1.0 percent, with all of its major component industries recording declines, while the index for utilities moved up 0.6 percent. At 107.2 percent of its 2012 average, total industrial production was 3.7 percent higher in January than it was a year earlier. Capacity utilization for the industrial sector fell 0.2 percentage point in January to 77.5 percent, a rate that is 2.3 percentage points below its long-run (1972–2017) average.