It was a week where crude prices fell to its lowest level since March 2009 and natural gas collapsed below the psychologically important $3 threshold. On the news front, pipeline giant Energy Transfer Partners L.P. (ETP) has agreed to buy its affiliate Regency Energy Partners L.P. (RGP) in an $18 billion deal.
Overall, it was a bearish week for the sector. West Texas Intermediate (WTI) crude futures fell 7.2% to close at $45.59 per barrel, while natural gas prices slumped 4.5% to $2.99 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Crude Rebounds, Schlumberger Beats Q4 Earnings.)
Oil prices were back to losing ways and fell for the eighth time in 9 weeks. The commodity has been hammered since November’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, which showed that crude stockpiles recorded a massive build of more than 10 million barrels – the largest increase in at least 14 years. Moreover, a stronger dollar has made the greenback-priced crude dearer for investors holding foreign currency.
Natural gas also fared badly, weighed down by a below-average supply drawdown. This was partially offset by expectations of cranked up heating demand with forecasts of frigid weather across the densely populated Northeast U.S. market during the next two weeks.
Recap of the Week’s Most Important Stories
1. Midstream assets operator Energy Transfer Partners L.P. announced that it has entered into a merger agreement with Regency Energy Partners L.P. The $18 billion unit-for-unit merger agreement includes $6.8 billion of debt and other liabilities assumption by Energy Transfer Partners. The transaction is likely to close during the second quarter of this year, making ETP the second largest MLP.
Per the deal, the all-in price for Regency unitholders will come at $26.89 per unit, representing a premium of 13% based upon ETP’s closing price of $23.75 as of Jan 23, 2015. The merger agreement is a move to streamline operations in the current environment of staggering oil and natural gas prices. (See More: Energy Transfer Partners, Regency Enter $18B Merger Deal.)
2. The past few days saw quarterly reporting from the oilfield services biggies like Baker Hughes Inc. and Halliburton Co. (HAL). Both companies came up with strong fourth quarter numbers, even as oil prices plummeted throughout the quarter. This was primarily owing to a spurt in end-of-year sales and proceeds from contracts signed earlier, which more than offset the slowdown in drilling activity.
However, in a note of caution to the investors, both Halliburton and Baker Hughes expect oil prices to remain weak throughout 2015. This, together with the associated cutbacks in rig counts, is going to hamper their 2015 results.
3. U.S. energy major Chevron Corp.’s (CVX) Australian affiliate has entered into a deal with South Korea’s SK LNG Trading Pte Ltd for the sale of liquefied natural gas (“LNG”) from its Gorgon project. Per the Sales and Purchase Agreement, Chevron will supply 4.15 million tons of LNG to SK LNG Trading for a period of five years, beginning 2017.
The Gorgon project will include an LNG plant with 3 processing units and has a capacity of 15.6 million metric tons of LNG per year. Chevron, with a 47.3% stake, is the operator of the Gorgon LNG project. Other major stakeholders in the joint venture include Exxon Mobil Corp. and Royal Dutch Shell plc, each holding 25% interest. (See More: Chevron Inks Gorgon LNG Supply Deal with SK LNG Trading.)
4. Spectra Energy Corp. (SE) and Spectra Energy Partners announced that they have entered into an agreement with ConocoPhillips (COP) through their affiliate – Spectra Energy Transmission II, LLC (“SET”). Per the agreement, the duo would wholly acquire the equity interests in Brazoria Interconnector Gas Pipeline, LLC (“BIG”) from Conoco. The acquisition is expected to close in the second quarter of 2016.
The BIG Pipeline is a 42-inch natural gas pipeline in Brazoria County, TX, with a capacity of approximately 1.8 billion cubic feet per day. It extends 30.5 miles from Stratton Ridge on its south end to a point near Iowa Colony in northern Brazoria County. (See More: Spectra Energy to Buy Brazoria Interconnector Gas Pipeline.)
5. Energy explorer Comstock Resources Inc. (CRK) provided an update on its production and proved reserves for the year ended Dec 31, 2014.
The company announced that as of Dec 31, 2014, it had proved oil and gas reserves of 620.4 billion cubic feet of natural gas equivalent (Bcfe), compared with 585 Bcfe last year. For the fourth-quarter, production was 15.9 Bcfe or 173 million cubic feet equivalent (MMcfe) per day (57% gas). Production for full year was 65.6 Bcfe or 180 MMcfe per day. It comprised of 39% oil, up from 20% last year. The company added that 2014 saw oil production growth of 86%, whereas natural gas production fell 29%. (See More: Comstock Resources Declares Production, Reserves for 2014.)
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 |
-0.11% |
-12.86% |
|
CVX |
+1.71% |
-18.75% |
|
COP |
+3.55% |
-23.07% |
|
OXY |
+1.42% |
-17.11% |
|
SLB |
+5.79% |
-24.43% |
|
RIG |
+9.53% |
-59.06% |
|
VLO |
+10.53% |
+4.47% |
|
TSO |
+13.01% |
+37.73% |
Over the course of last week, most of the market heavyweights bucked the decline in commodity prices and witnessed profits with the major gainer being downstream operator Tesoro Corp., which rose 13% during the period. With refiners being buyers of crude, depressed commodity price has triggered hopes for better margins.
Over the last 6 months, Tesoro was again the major gainer on the bourses with its shares advancing 37.7%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, offshore driller Transocean Ltd. was the laggard, as it witnessed a 59.1% 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 consumer confidence, durable orders, housing and GDP numbers.
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