It was a week where oil prices settled above the $60-a-barrel level but natural gas hit a four-week low. On the news front, Exxon Mobil Corp. XOM received conditional authorization for its Alaska LNG terminal, while Chevron Corp. CVX has agreed to sell its fuel business in New Zealand.
Overall, it was a mixed week for the sector. While resurgent West Texas Intermediate (WTI) crude futures inched up another 25 cents (or 1%) to close at $60.30 per barrel, natural gas prices slumped 9.5% to $2.64 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Halliburton, BP Resolve Macondo Claims, Exxon Strikes Near Guyana.)
Oil prices gained for the tenth time in past 11 weeks, encouraged by the U.S. Energy Department's latest inventory release that showed a bigger-than-expected decline in crude stockpiles, the fourth drop in as many weeks. This is seen as a precursor to a slowdown in oil production, leading to a subsequent drop in the commodity’s bloated supply level.
Things were further helped by the Baker Hughes report that showed another drop in oil-directed rigs – the 25th in succession – indicating a break in shale drilling activities.
Natural gas, on the other hand, fared badly amid predictions of weak cooling demand with forecasts of mild temperature across the country over the next few days. A higher-than-expected supply increase added to the pessimism.
Recap of the Week’s Most Important Stories
1. Energy supermajor Exxon Mobil Corp. has received the authorization to export liquefied natural gas (“LNG”) to non-free trade agreement countries from its Alaska LNG terminal. The proposed project received conditional authorization from the U.S. Department of Energy to export up to 20 million metric tons per year of LNG for 30 years. Earlier, the company had permission to export only to countries with U.S. trade agreements.
The project would include a liquefaction facility, an 800-mile pipeline, up to eight natural gas compression stations and at least five take-off points for in-state gas delivery. It also includes a gas treatment plant on Alaska's North Slope.
2. U.S energy giant Chevron Corp. has entered into an agreement with Z Energy to sell its downstream operations in New Zealand. The deal is valued at $556.4 million. The local gasoline retailer would acquire 100% stake in Chevron New Zealand (‘CNZ’), a wholly-owned subsidiary of Chevron, subject to necessary approvals.
The sale includes 146 Caltex service stations, 73 truck fueling stations and 10 terminal assets. Per the deal, Z Energy would also purchase Chevron’s lubricants sales and distribution business. These assets would further strengthen Z Energy’s portfolio of 210 Z service stations.
3. U.S. energy firm Apache Corp. APA announced its decision to undertake several restructuring measures and management changes in order to improve efficiency and lower costs. However, the market did not respond positively to the news as the stock fell about 1.6% in the last trading session. The company plans to implement a ‘more integrated, super-region structure’ following its past acquisitions and divestments, while intending to lower redundancy and improve efficiency through these measures.
Apache said that it would streamline operations into three super regions. The company’s North American operations would be divided into the Permian Region and the Houston Region. Its Egypt Region, North Sea Region and Gulf of Mexico Region would be combined to form the International and Offshore Region.
4. Shares of offshore oil and gas-focused engineering and construction firm McDermott International Inc. MDR gained over 13% on the NYSE following the announcement that it has received a large brownfield contract from Saudi Aramco. The gig – likely to be complete during the first quarter of 2016 – would be added to its second quarter 2015 backlog.
McDermott announced that it has been awarded an engineering, procurement, construction and installation (“EPCI”) contract for twelve jackets in offshore Saudi Arabia. However, no financial details have been provided by the firm. The fabrication of the jackets would take place in McDermott’s U.A.E.-based facility. The company’s global fleet will perform the installation work. (See More: McDermott Shares Up on Second Contract from Saudi Aramco)
5. Brazilian state-run energy giant Petrobras PBR declared the sale of 100-year bonds worth $2.5 billion. This reflects solid demand for Petrobras bonds, even though the integrated player was involved in a multi-billion dollar money laundering scandal. The bonds are set to mature by Jun 2115 and carry interest rate of 6.85%. Most importantly, the bonds are expected to yield 8.45% and were sold at 81.07% of the face value.
It is to be noted that there was significant demand for the bonds as it will give much higher returns than the debts issued by the government. As revealed by data from media releases, the yield of the 30-year US Treasury bond is 2.94%.
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 |
-1.24% |
-9.62% |
|
CVX |
-1.35% |
-9.57% |
|
COP |
-1.47% |
-8.09% |
|
OXY |
+2.73% |
-2.23% |
|
SLB |
-0.84% |
+6.37% |
|
RIG |
-5.97% |
-4.13% |
|
VLO |
-2.88% |
+15.53% |
|
TSO |
-2.61% |
+14.04% |
Over the course of last week, the best performer was U.S. energy explorer Occidental Petroleum Corp. OXY that added 2.7% to its stock price, while the biggest loser was offshore driller Transocean Ltd. RIG which fell 6% during the period.
Over the last 6 months, refiner Valero Energy Corp. has been the chief beneficiary on the bourses with its shares advancing 15.5%. On the other hand, oil major Exxon Mobil Corp. was the laggard, as it witnessed a 9.6% price decline over the same time frame.
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 manufacturing, services, personal income, construction spending and unemployment.
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