Pressure Pumper Overcomes Extinction Threat

Pressure Pumper Overcomes Extinction Threat
Here is a recap oil and gas market hits and misses for the week ending Nov. 20, 2020.

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)

This year’s oil and gas industry downturn has been particularly challenging for oilfield services (OFS) companies, but one of these “pressure pumpers” appears to have turned the proverbial corner this week. Keep reading to find out which OFS firm hit an important milestone, along with other market insights.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Tom Curran, Senior Energy Services and Equipment Analyst in Equity Research, B. Riley FBR, Inc.: On Nov. 19, FTS International (NYSEAMERICAN: FTSI) announced the successful completion of its “fully consensual” financial restructuring. Thus, as the structurally oversupplied and overcrowded U.S. pressure pumping industry continues to experience an extinction-level event, FTS International has emerged as one of the survivors. This followed 15 days after the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division confirmed the company’s prepackaged plan of reorganization.

Under the plan, FSTI equitized all prepetition funded debt, giving over 90 percent of new common stock to holders of its legacy senior notes and term loan. Legacy shareholders received roughly 9.4 percent of the remaining new equity. In a press release, CEO Michael Doss said he expects the company’s new owners “to be active partners, who are strongly committed to supporting our company.” They include Aumundi Pioneer Asset Management, Glendon Capital Management, Wexford Capital and the Wilks Brothers. As for its new balance sheet, FTSI expects to have $90 million in cash on hand and a new $40 million asset-based revolver. Trading of the new common stock on the NYSE under the ticker “FTSI” began on Nov. 20.

Barani Krishnan, Senior Commodities Analyst, The U.S. Energy Information Administration’s weekly report was a mixed bag that left some people scratching their heads for direction. Crude prices, nevertheless, rose, with WTI breaching the $42 per barrel barrier level.

Rigzone: What were some market surprises?

Krishnan: The crude build came in a just about half of the 1.6 million-plus barrels that were anticipated due to a drop of 245,000 barrels per day in imports. Another bright spot for oil longs in this report is, of course, the huge draw in {{ecl-917||diesel-led distillates}} that was more than triple forecasts, at 5.2 million barrels versus expectations of 1.5 million.

But there were two red flags in this report and they were both important.

The first was the gasoline build of 2.6 million versus forecasts of under 100,000 barrels. This reinforced the flagging seasonal demand for fuels – something that you can’t make up, no matter how much noise OPEC makes. WTI may have crossed $42 a barrel, but the gasoline number is almost always the key variable for its continued rally. That doesn’t look too good now.

The second was production, which the EIA estimated was closer to 11 million barrels per day (bpd), up 400,000 bpd from the previous week. This is affirmation that the steadily rising U.S. oil rig count is starting to impact production.

Curran: The PHLX Oil Service Index (i.e., the OSX) has been one of the best-performing composites over the past two weeks – as astonishing vaccine efficacy announcements by Pfizer and then Moderna fueled a rotation into value stocks, with long-beleaguered cyclicals, such as energy and financials, leading the way. Since the close on Nov. 6, the OSX has soared 33 percent, while the Russell 2000 has gained nine percent, the Dow Jones Industrial Average has risen four percent and the S&P 500 has increased two percent. Based on early results from ongoing Phase 3 trials, Pfizer (and partner BioNTech) and Moderna said their mRNA vaccines had proven 90 percent-plus and 94.5 percent effective, respectively, at preventing the disease.

On the demand side of the energy macro outlook, the most vital question – when will sustained normalization became possible, either via the roll-out of a sufficiently reliable vaccine or the arrival at herd immunity – has started to be reassuringly resolved. On Nov. 19, the OSX finished at $38.17, its highest close since Aug. 20. Given the ever-clearer, firmer visibility that’s coalescing on the timing and nature of a post-vaccine world, we believe the OSX has entered a new primary uptrend – meaning that, with each rally and retreat of 10 percent or greater, the index will put in ever-higher bottoms and tops.

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