It was a week when both oil and natural gas prices settled higher.
On the news front, Permian and Bakken-focused energy explorer WPX Energy WPX agreed to acquire Delaware Basin-based Felix Energy for $2.5 billion. Meanwhile, Devon Energy DVN announced that it is selling its remaining Barnett Shale gas assets for $770 million.
Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures edged up 0.8% to close at $60.44 per barrel, while natural gas prices rose 1.4% for the week to finish at 2.328 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Chevron's 2020 Capex, Transocean's Contract Win & More)
The U.S. crude benchmark ended above the coveted $60 mark for the second consecutive week on continued optimism over the recent agreement on a phase one trade deal between China and the United States. The development – coming after almost two-years of wrangling – is seen to prop up the demand outlook and revive global economic growth. The OPEC+ group’s recent announcement – to cut output by as much as 500,000 barrels per day from Jan 1 for three months – have already boosted oil prices.
However, a rise in the oil drilling rig count – an indicator of higher future output – and the Energy Department’s bearish inventory release restricted the commodity from rising higher.
Natural gas prices moved northward too, benefiting from the U.S. Energy Department's weekly inventory release showing a larger-than-expected decrease in supplies.
Recap of the Week’s Most Important Stories
1. WPX Energy announced that it intends to acquire Delaware Basin-based Felix Energy for $2.5 billion. The purchase consideration comprises $900 million in cash and $1.6 billion in WPX Energy shares. This acquisition is in sync with the company’s intention to further increase oil production.
Felix Energy has nearly 1,500 gross undeveloped locations in the eastern portion of the basin, with expected production of around 60 thousand barrels of oil equivalent per day. Out of the total production, 70% will be oil. The parties anticipate closing the transaction early in second-quarter 2020.
Following the closure, WPX Energy expects to further increase cash flow, earnings per share, free cash flow, return on capital employed and cash margins. Management will use this opportunity to increase the value of its shareholders through share buybacks and maintaining the annual dividend. (Read more WPX Energy to Buy Delaware Basin-Based Felix Energy for $2.5B)
2. Devon Energy announced that it has signed an agreement with Banpu Kalnin Ventures to sell Barnett Shale gas assets for $770 million. This agreement in a way completes Zacks Rank #3 (Hold) Devon’s transformation to an U.S. oil-focused company.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earlier this year, it sold the Canadian business to Canadian Natural Resources Limited for $2.8 billion. Divestiture of Canadian and Barnett Shale gas assets generated $3.6 billion in proceeds at accretive multiples. Devon decided to divest non-core gas assets as these no longer support its long-term growth objectives.
The company’s board of directors authorized to repurchase an additional $1 billion shares, bringing the total buyback authorization to $6 billion. The new program expires on Dec 31, 2020 and $800 million of the $1-billion authorization is conditioned upon the closing of the Barnett transaction. To date, Devon has repurchased 144 million shares or nearly 30% outstanding shares at a total cost of $4.8 billion. (Read more Devon to Exit Barnett, Transforms to US Oil-Focused Company)
3. ExxonMobil XOM recently announced the commencement of production from the deepwater Liza field, located offshore Guyana in the Stabroek Block, well ahead of schedule. Following its first discovery of oil and gas, the company brought the field online in less than five years. Notably, around 1,700 people — marking more than 50% of its workforce — working for the company’s Guyanese operations are localites.
In the next few months, oil production from the field’s first phase is expected to hit 120,000 barrels per day (BPD). It will take only a few weeks to sell the company’s first cargo. Last August, an oil production vessel, Liza Destiny had arrived at the Stabroek Block, marking Guyana’s first floating, production, storage and offloading (FPSO) vessel. The FPSO vessel moored 190 kilometres off the coast of Guyana and four subsea drill centers, which support production from 17 wells, during the first stage of development.
The company is planning on bringing a second FPSO vessel for the phase 2 development. The Liza Unity FPSO vessel, expected to have a 220,000 BPD production capacity, is currently under construction. This May, ExxonMobil authorized the $6-billion Liza Phase 2 project that is expected to commence within mid-2022. (Read more ExxonMobil Commences Liza Field Production Offshore Guyana)
4. Chevron CVX wholly-owned Australian affiliate, signed a conditional share sale agreement to acquire Australia’s Puma Energy Holdings Pty Ltd in an all-stock deal worth $288 million. The transaction is expected to close by the second quarter of 2020 and is dependent on pending approvals and customary conditions.
Chevron's acquisition deal comes four years after it exited Australia's retail fuel market by selling its stake in Caltex in a $4.62 billion transaction. The transaction will help its Australian business to acquire a stable network of petrol stations and fuel distribution ventures, together with storage and import terminals in the country and provide a base for sustainable earnings growth.
Chevron’s executive vice president for Downstream & Chemicals, Mark Nelson, feels that this deal will build on the company’s strong history of partnership in Australia and its global experience in fuels and convenience marketing and supply. (Read more Chevron Australia Inks Acquisition Deal With Puma Energy)
5. Royal Dutch Shell RDS.A recently provided an update on its fourth-quarter guidance. Let’s delve into some key segmental revisions. Further, Shell envisioned its post-tax impairment charges between $1.7 billion and $2.3 billion for the fourth quarter. It expects its 2019 cash capital expenditure at the lower end of its previous guided range of $24-29 billion.
The upstream production is projected between 2,775 and 2,825 thousand barrels of oil equivalent per day (boe/d). Compared with the prior-year quarter, the company expects to incur additional $100-$200 million well write-offs for the ongoing quarter due to weaker macro-economic outlook. Shell estimated its fourth-quarter oil product sales in the band of 6,500-7,000 thousand barrels per day. This indicates a 1.36% increase from the year-earlier reported number assuming that the upper end of the estimate will be met.
The company expects its fourth-quarter LNG liquefaction volumes to expand to 8.8-9.4 million tonnes from its previous year’s quarterly output of 8.78 million tonnes. Moreover, its segmental production is forecast in the 920-970 thousand boe/d band. In the year-earlier period, Shell produced 979 thousand boe/d.(Read more Shell Renews Q4 Outlook, Awaits $1.7-$2.3B Write-Offs)
Price Performance
The following table shows the price movement of some the major oil and gas players over the past week and during the last 6 months.
|
Company |
Last Week |
Last 6 Months |
|
XOM |
+1% |
-8.7% |
|
CVX |
+1.5% |
-3.7% |
|
COP |
+1.6% |
+6.7% |
|
OXY |
+3.4% |
-20.4% |
|
SLB |
+1.1% |
+5.5% |
|
RIG |
-3.3% |
+6% |
|
VLO |
+1.6% |
+17.9% |
|
MPC |
+5.1% |
+17.6% |
The Energy Select Sector SPDR – a popular way to track energy companies – was up 2.7% last week. The best performer was independent refiner Marathon Petroleum MPC whose stock jumped 5.1%.
But longer-term, over six months, the sector tracker is down 1.6%. Houston-based oil and gas producer Occidental Petroleum OXY was the major loser during this period, experiencing a 20.4% price plunge.
What’s Next in the Energy World?
In this holiday-shortened week, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas – one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.
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