It was a week where oil prices rebounded from their 6-year lows and natural gas rallied too. On the news front, Chesapeake Energy Corp. CHK cut its capital budget and production outlook to cope with low commodity prices, while Halliburton Co. HAL is said to be looking for $10 billion in asset sales tied to the Baker Hughes merger.
Overall, it was a bullish week for the sector. West Texas Intermediate (WTI) crude futures snapped a four-week losing streak and climbed around 4% to close at $45.72 per barrel, while natural gas prices inched up 2% to $2.79 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chevron Targets $15B of Asset Sales Amid Low Crude Price)
Oil prices finally halted their weekly losses and ended higher on Friday after the U.S. dollar took a hit in response to the Fed announcement. A weaker dollar has made the greenback-priced crude cheaper for investors holding foreign currency.
Investors were further encouraged by the Baker Hughes report that showed another massive record drop in oil-directed rigs, indicating a brake in shale drilling activities. This is seen as a precursor to a slowdown in oil production leading to a subsequent drop in the commodity’s bloated supply level.
Natural gas also fared well as certain regions in the northeast are expected to witness a cold snap. This is likely to spur natural gas’ demand for heating.
Recap of the Week’s Most Important Stories
1. Chesapeake Energy Corp. became the latest among a string of oil companies to cut its capital expenditure for 2015 and related drilling activity in an attempt to counter the tumbling oil prices.
Chesapeake has lowered its capital budget by $500 million to $3.5–$4.0 billion (including capitalized interest of $500 million) from its earlier guidance of $4.0–$4.5 billion. In 2015, the company intends to operate 25–35 rigs, down approximately 55% from an average of 64 rigs employed in 2014. Chesapeake plans to spud and connect to sales about 520 and 650 gross operated wells, respectively in 2015. This represents a massive decline from 1,175 and 1,150 wells, respectively in 2014.
2. Oilfield service behemoth Halliburton Co., along with its smaller rival Baker Hughes Inc., will start looking for potential buyers of almost $10 billion worth assets next month, going by Bloomberg. Following the report, Halliburton moved higher on the NYSE by 3.1%.
The divestiture is a prerequisite for getting approval from the U.S. Department of Justice for the planned $35 billion merger between Halliburton and Baker Hughes. Both companies are required to eliminate at least four groups of overlapping lines of business comprising directional drilling operations and drill bits of Halliburton along with the cementing business of Baker Hughes. (See More: Halliburton, Baker Hughes to Jointly Sell About $10B Assets)
3. Woodlands, TX-based Anadarko Petroleum Corp.’s APC wholly owned subsidiary has decided to exercise the option given by Magellan Midstream Partners L.P. and Plains All American Pipeline L.P. to join Saddlehorn Pipeline Co. With Anadarko joining the venture, Magellan Midstream and Plains All American will now own a 40% ownership apiece in the company while the remaining 20% will be held by Anadarko.
The Saddlehorn pipeline is expected to carry oil of different grades from the resource plays in the DJ Basin and Rocky Mountain area to storage facilities in Cushing, OK. With an initial capacity of around 200,000 barrels per day (bpd), this 20-inch pipeline is projected to have an ultimate capacity of transporting up to 400,000 bpd of oil. (See More: Anadarko Exercises Option to Join Saddlehorn Pipeline)
4. Houston-based energy major ConocoPhillips COP became the latest among a string of oil companies to lay off staff in an attempt to counter the tumbling oil prices.
The American oil firm cut the number of its Canadian personnel by 7% or about 200 employees. Recently, ConocoPhillips’ annual capital expenditures for 2015 have been reduced to about $11.5 billion from $16 billion planned earlier. Falling oil prices, which have witnessed a 60% slide since Jun 2014, have compelled energy companies to rely on job cuts. This is expected to help them reduce their capex and adjust to lower cash flows. (See More: ConocoPhillips Reduces Headcount in Canada by 7%)
5. Independent natural gas operator Southwestern Energy Co. SWN has entered into a definitive agreement to divest its conventional oil and gas assets to a private buyer. The properties, located in East Texas and the Arkoma Basin, are expected to fetch about $218 million.
The amount generated from the sale will be utilized to reduce the company's debt. Subject to customary closing conditions, the transaction is expected to close by the second quarter of 2015. (See More: Southwestern Inks $218M Deal to Sell Conventional Assets)
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 |
+1.21% |
-11.04% |
|
CVX |
+3.63% |
-13.93% |
|
COP |
+2.25% |
-19.87% |
|
OXY |
-0.18% |
-21.29% |
|
SLB |
+1.90% |
-19.68% |
|
RIG |
+11.18% |
-54.17% |
|
VLO |
+5.77% |
+32.56% |
|
TSO |
+5.79% |
+55.17% |
Offshore driller Transocean Ltd. RIG was the week's best performer among the market heavyweights, adding 11.2% to its stock price on the back of crude gains due to weakening U.S. dollar.
Over the last 6 months, refiner Tesoro Corp. TSO has been the chief beneficiary on the bourses with its shares advancing 55.2%. Investors have rewarded the company for its continued focus on shareholder returns. Meanwhile, Transocean was the laggard, as it witnessed a 54.2% 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 the final GDP numbers.
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