Shale producers’ stocks surge as crude oil spikes

Rachel Adams-Heard and Tina Davis September 16, 2019

HOUSTON (Bloomberg) - American shale producers, one of the worst-performing segments on the stock market this year, jumped Monday morning after an attack on a Saudi Arabia oil production facility over the weekend sent crude prices soaring.

Whiting Petroleum Corp. surged as much as 41%, the most on record, while Apache Corp. and Marathon Oil Corp. were among other names to post strong gains in New York. The bonds of companies including Whiting and California Resources Corp. also climbed after the global crude benchmark clocked the biggest advance in dollar terms since futures started trading in 1988.

State energy producer Saudi Aramco lost about 5.7 MMbpd of output on Saturday after 10 unmanned aerial vehicles struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais.

While the attack was seen as good news for U.S. producers, refiners dropped since the bulk of American facilities rely on heavy crude supplied by countries including Saudi Arabia. PBF Energy Inc. fell as much as 10%, while Valero Energy Corp. dropped 7.3%.

Shale Relief

The spike in oil prices offers relief at a critical time for U.S. shale producers, which have seen investors flee after the sector largely failed to generate shareholder returns while rapidly growing output.

At the end of last week, independent oil drillers had fallen 25% in the preceding 12 months. Some smaller explorers have filed for bankruptcy or been forced into restructuring their debt. A series of issues -- reduced flow from wells drilled too close together, low oil and gas prices, and pipeline limits -- have forced producers to slow their growth plans.

The companies that gain the most from the uptick in prices will likely be U.S. producers with sizable short interest, including Apache, Continental Resources Inc., Devon Energy Corp. and Noble Energy Inc., analysts at Houston-based Tudor, Pickering, Holt & Co said in a note Sunday.

“Upstream should see some of the biggest gains as the increase in crude price will immediately flow through to improved cash flow,” Tudor Pickering said. “Given duration of outage, we suspect equity performance may be short-lived as investors continue to focus on imbalances in 2020 crude fundamentals.”

Shale is lauded for its ability to quickly ramp up and down in response to global supply and demand. Still, crude produced in the U.S. is a different grade than that of Saudi Arabia, meaning refineries that rely on heavy crude won’t be able to turn to American supplies while Saudi Arabia output remain offline.

It’s not yet clear how long the outage will last. Saudi Aramco officials are growing less optimistic that there will be a rapid recovery in oil production, a person with knowledge of the matter said. Saudi Arabia -- or its customers -- may use stockpiles to keep oil supplies flowing in the short term. U.S. President Donald Trump said Sunday he authorized releasing an amount of crude from the U.S. Strategic Petroleum Reserve “sufficient to keep the markets well-supplied.”

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