It was a week where both crude and natural gas prices plummeted to multi-year lows. Apart from that, the top story came from Southwestern Energy Co.’s (SWN) big push in the Marcellus and Utica plays.
Overall, it was a bad week for the sector. West Texas Intermediate (WTI) crude futures fell 4.2% to close at $54.73 per barrel, while natural gas prices slumped more than 13% to $3 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Exxon Strikes in Argentina, Shell Divests Norway Downstream Units.)
Oil prices continued the slide and fell for the fifth successive week. The commodity has been hammered since last month’s decision by the OPEC oil cartel to maintain daily crude production level at the preset 30 million barrels, defying expectations of an output cut in response to the current supply glut.
Investors were further spooked by the U.S. Energy Department's latest inventory release that showed a surprise jump in crude stockpiles. Moreover, a stronger dollar has made the greenback-priced crude dearer for investors holding foreign currency.
Natural gas fared worse, dipping below $3 for the first time since Sep 2012. The severe drop in prices has been driven in large part by expectations of modest winter heating demand and abundant supplies.
Recap of the Week’s Most Important Stories
1. Houston-based Southwestern Energy Co. inked a purchase and sale agreement for an undivided 20% of Norway’s Statoil ASA's (STO) ownership in oil and gas assets in West Virginia and southwest Pennsylvania. The deal, worth $394 million, is likely to close in early 2015 and will possibly be financed from the company’s revolving credit facility. The to-be-bought properties are spread over 30,000 net acres and increases Southwestern's overall working interest in the assets to approximately 73%, up by about 5.8%.
This announcement comes a day after the company closed a nearly $4.98 billion deal to acquire Oklahoma City-based Chesapeake Energy Corp.’s (CHK) interest in 413,000 acres in the Marcellus and Utica shale plays. (See More: Southwestern Energy Buys More Marcellus, Utica Assets.)
2. Natural gas pipeline operator Energy Transfer Partners L.P. (ETP) and parent company, Energy Transfer Equity L.P. have received approval from their boards on the previously announced deal involving the sale of stake in the Bakken pipeline. The transaction – mutually beneficial to both the parties – will be effective from Jan 1, 2015 and is expected to close in Feb.
Per the deal, Energy Transfer Partners will acquire 45% stake in the Bakken pipeline project and will receive $879 million in cash and 30.8 million of its common units from Energy Transfer Equity. In exchange, Energy Transfer Equity would receive 40% stake in general partner interest and incentive distribution rights of Sunoco Logistics Partners L.P.
Also, per the agreement, both the parties will lower IDR subsidies to ETP from ETE. Energy Transfer Equity would pay $55 million less in 2015 and $30 million less in 2016. (See More: Energy Transfer Partners & Parent's Pipeline Stake Sale OK'd.)
3. Midstream partnership Enbridge Energy Partners L.P. (EEP) announced an agreement regarding the terms of the drop down of the remaining 66.7% interest in the U.S. segment of the Alberta Clipper Pipeline from its general partner Enbridge Inc. (ENB). The drop down is expected to close on Jan 2, 2015, for aggregate consideration of $1 billion.
In conjunction with the approval of this transaction, the board of directors has authorized an increase in the cash distribution payable on Feb 13, 2015 from 55.5 cents per quarter to 57 cents per quarter. (See More: Enbridge Energy Partners OKs Drop Down; Ups Distribution.)
4. NYSE-listed ADRs of Petrobras (PBR) gained around 3.5% following the announcement that it has achieved historical production levels. The Brazilian state-run energy giant said that on Dec 21 its oil and natural gas liquid (NGL) production reached 2.29 million barrels per day, breaking the previous record of 2.26 million.
The company further added that it has attained a daily operated production record of 2.47 barrels per day. Contribution from nine production systems – five of which came online last year and the remaining four this year – led to this production growth. (See More: Petrobras Production Reaches Historical High, Stock Gains.)
5. UK energy giant BP plc (BP) is reportedly close to buying a stake in an oilfield in East Siberia from state-owned giant Rosneft. This is likely to further strengthen the company’s relationship with Rosneft.
According to Moscow-based daily Kommersant, BP intends to tie up for a 20% interest in the Tass-Yuriakh field in East Siberia and is willing to shell out anything between $700 million and $800 million for the same. BP already owns a stake of just under a fifth in the field. (See More: BP to Invest About $800 Million in Oilfield Deal with Rosneft.)
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 |
-0.59% |
-7.56% |
|
CVX |
+0.39% |
-13.20% |
|
COP |
-1.17% |
-18.22% |
|
OXY |
+0.23% |
-17.04% |
|
SLB |
-0.16% |
-25.94% |
|
RIG |
-4.72% |
-58.27% |
|
VLO |
+2.31% |
-0.18% |
|
TSO |
+5.03% |
+28.87% |
Refiner Tesoro Corp. (TSO) was the week's best performer among the market heavyweights, adding 5% to its stock price. With refiners being buyers of crude, depressed commodity price has triggered hopes for better margins.
On the other hand, the biggest loser was offshore driller Transocean Ltd. (RIG), which fell 4.7% during the period. With oil prices down 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, Tesoro was again the leader of the pack with its shares advancing 28.9%. Investors have rewarded the company for its continued focus on shareholder returns. Similarly, Transocean was the laggard, as it witnessed a 58.3% 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?
In this holiday-shortened week, market participants will be closely tracking some important reports on housing and consumer confidence.
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