It was another week where oil prices witnessed a big drop, falling to a new 5½ year low on oversupply fears. Taking advantage of this crude slump, Spain's Repsol S.A. (REPYY) has agreed to buy Canada’s Talisman Energy Inc. (TLM) in a $13 billion transaction.
Overall, it was an eventful week for the sector. West Texas Intermediate (WTI) crude futures slumped 12.2% to close at $57.81 per barrel, while natural gas prices remained essentially flat at $3.80 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: As Crude Hits 5-Year Low, ConocoPhillips Slashes 2015 Budget.)
Oil prices continued the slide and fell to their lowest level since May 2009 in reaction to the cut in global crude demand growth by major energy consultative bodies. While the OPEC international oil cartel cut its 2015 forecasted consumption by 280,000 barrels per day from its previous expectation, the U.S. Energy Information Administration (EIA) trimmed its demand outlook for next year by 240,000 barrels per day. Lastly, the Paris-based International Energy Agency (IEA) reduced its 2015 global oil demand growth forecast by 230,000 barrels per day, all pointing toward a slowdown in world consumption.
On the other hand, natural gas prices barely moved as a below-average supply drawdown was offset by expectations of cranked up heating demand across the U.S. with forecasts of cooler weather by December end.
Recap of the Week’s Most Important Stories
1. Shares of the Canadian energy explorer Talisman Energy Inc. jumped nearly 47% in the pre-market trading session following its confirmation of being acquired by Repsol S.A. The company announced that the deal involves an all-cash transaction, and the per-share price of the takeover is $8 or C$9.33, a 75% premium to Talisman’s 7-day average closing price. This should be immediately accretive to shareholders. Total value of the transaction is about $13 billion, including Talisman’s current debt of about $4.7 billion.
The transaction, expected to be completed in the second quarter of next year, will result in a combined entity with production capacity of 680 thousand barrels of oil equivalent per day (MBOE/D) and refining capacity of 1 MBOE/D. The merger will create a global E&P company, which would be better positioned to fully exploit Talisman’s large, undeveloped resource base.
2. U.K.-based energy major BP plc (BP) – struggling to cope with the ongoing oil price slump – declared that it will likely incur around $1 billion in restructuring charges in its financial statements over 2015. The company is expected to spread the charges over the next five quarters, including the fourth quarter of this year. A significant amount of the restructuring cost will be incurred for long-planned lay-off activities in all its operating segments.
At the same time, the London-based group revealed that although it is not spending much in the near term, it will definitely invest in profitable projects once crude price recovers. (See More: BP Plans Layoff, to Add $1B Restructuring Cost.)
3. At Capital One's annual energy conference, oilfield service behemoth Halliburton Co. (HAL) declared that it might book roughly $75 million of restructuring charges in its financial statement during the fourth-quarter of this year. The charges will be related to layoff and streamline operations in response to the weak crude pricing environment.
The company is expected to cut roughly 1,000 jobs across Europe, Asia, Africa, the Middle East and Australia, effective immediately. The main reason for the head-count cut is the challenging market scenario owing to plummeting oil prices – as reflected in a more than 44% crude price fall since June this year. (See More: Halliburton to Trim Workforce, Add $75M Charges in Q4.)
4. U.S. energy firm Apache Corp. (APA) announced that it has entered into an agreement with the Australian oil and gas producer Woodside Petroleum Ltd., to sell its stake in two liquefied natural gas (LNG) projects – Australia’s Wheatstone LNG and Canada’s Kitimat LNG.
The deal is valued at $2.75 billion. Apache would also receive about $1 billion for its investments in these projects between the effective date of the deal (Jun 30, 2014) and the closing date (likely to be in the first quarter of 2015) of the transaction. The company is likely to receive net proceeds of about $3.7 billion from the deal.
5. Cheniere Energy Inc. (LNG) announced that it has entered into long-term agreements with three units of North America’s largest midstream energy firm, Kinder Morgan Inc. (KMI), for its Corpus Christi Liquefaction project. The firms have signed 15-year transportation and multi-year storage contracts.
Per the terms of the contracts, Kinder Morgan would provide transportation service for 550,000 dekatherms of natural gas per day (Dth/d), which can be increased to 800,000 Dth/d following the expansion of its Texas pipeline system. The firm would also provide storage services for 3 billion cubic feet of natural gas to serve the Corpus Christi liquefied natural gas export facility. (See More: Cheniere Energy, Kinder Morgan Sign Long-Term Contracts.)
Price Performance
The following table shows the price movement of the major oil and gas players over the past week and during the last 6 months.
|
Company |
Last Week |
Last 6 Months |
|
XOM |
-7.46% |
-15.57% |
|
CVX |
-9.03% |
-21.53% |
|
COP |
-9.08% |
-26.29% |
|
OXY |
-10.21% |
-26.24% |
|
SLB |
-8.33% |
-25.36% |
|
RIG |
-13.14% |
-63.67% |
|
VLO |
-7.36% |
-13.57% |
|
TSO |
-0.93% |
+30.09% |
Energy investors witnessed another bout of heavy selling in major companies amid mounting evidence of oil’s oversupply. Of the lot, the biggest loser was offshore driller Transocean Ltd. (RIG), which fell 13.1% during the period. With oil prices down almost 50% since June and energy companies cutting costs by scaling back drilling, the likes of Transocean is having to deal with less orders.
Over the last 6 months, refiner Tesoro Corp. has been the leader of the pack with its shares advancing 30.1%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, Transocean was again the laggard, as it witnessed a 63.7% price decline over the same time frame on the back of rig oversupply that has led the industry into a cyclical downturn.
What’s Next in the Energy World?
Apart from the usual releases in this week – the U.S. government data on oil and natural gas – market participants will be closely tracking a series of crucial economic reports, including those on industrial production, housing, leading indicators and jobless claims. Most importantly, the Fed policy statement is slated for release, an event which the market is eagerly awaiting.
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