It was a week where units of U.S. pipeline operators Targa Resources Corp. (TRGP) and Atlas Energy L.P. (ATLS) agreed to combine their midstream assets in a $7.7 billion deal.
Overall, it was a bearish week for the sector. West Texas Intermediate (WTI) crude futures declined by 4.4% – the fourth decrease in 5 weeks – to close at $85.82 per barrel. Natural gas prices lost 4.5% to $3.86 per million Btu (MMBtu). (See last ‘Oil & Gas Stock Roundup’ here: Linn Energy Sells Assets, Chevron Offloads Duvernay Stake.)
Oil prices fell to their lowest level since Jul 2012 on plentiful supplies and lackluster demand expectations. Moreover, a stronger dollar made the greenback-priced crude dearer for investors holding foreign currency. The negative sentiment was further dampened by increased fears about recession in Germany – Europe’s biggest economy.
Natural gas also fared badly, as it had to deal with another above-average supply increase. The commodity was also depressed by expectations of mild heating demand with forecasts of mild early-winter weather.
Recap of the Week’s Most Important Stories
1. Houston-based pipeline operator Targa Resources Corp. and its unit Targa Resources Partners L.P. has agreed to acquire Atlas Energy L.P. and Atlas Pipeline Partners L.P. for $7.7 billion in cash, stock and debt. The transaction – which has been cleared by boards of each company involved – is likely to close early next year. The combined group will boast of 22,500 miles of crude oil and natural gas pipelines across the U.S. that could process and transport the booming supply of domestic natural gas from some of the hottest shale plays.
2. Oilfield service behemoth Halliburton Co. (HAL) has entered into a long term deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s oil reserves. Per the agreement, Halliburton is expected to provide field development, project management, drilling and completions services to nine mature oil fields – including Victor Hugo Ruales, Palo Azul and Lago Agrio − for a period of 15 years.
Halliburton added that the contract period can be extended for five more years. During the first five years of the contract, Halliburton will likely invest $1 billion in enhancing oil recovery from the existing matured wells and also in the discovery of new hydrocarbon reserves. (Read More Halliburton to Develop Ecuador Fields, Invest $1B Initially.)
3. Canadian energy explorer Encana Corp. (ECA) declared that it has entered into a deal with the natural gas producer Ember Resources Inc. to sell a major portion of its Clearwater assets. The deal is valued at about C$605 million and is likely to close in the first quarter of next year. The assets under sale, located in southern and central Alberta, are spread across 1.2 million net acres.
The acreage comprises 6,800 wells currently under production. In the last reported quarter, the assets yielded about 180 million cubic feet equivalent of natural gas per day. Encana added that the sale is in accordance with its strategy of reducing natural gas assets and shifting focus on liquid-linked acreage. (Read More: Encana to Divest Natural Gas Focused Clearwater Assets.)
4. Royal Dutch Shell plc (RDS.A) announced that it has produced first oil from the Gumusut-Kakap floating platform located offshore Malaysia. When fully operational, the integrated energy giant expects the platform to reach annual peak production levels of about 135,000 barrels of oil per day. The Gumusut-Kakap field – located at water depths of 1,200 meters – is an addition to the company’s portfolio of deepwater initiatives and also marks the first such development in Malaysia. Shell holds 33% operated interest in the project. (Read More: Shell Advances in Deepwater; Starts Production Off Malaysia.)
5. OneSubsea, operated by oil drilling equipment maker Cameron International Corp. (CAM) and oilfield services provider Schlumberger Ltd. (SLB) has secured a subsea production systems contract from the Mexican state-owned petroleum company, Pemex. The deal, with a value of over $290 million, involves development of the Lakach deepwater project, located off the coast of Mexico.
This is Permex’s first deepwater subsea field development project. Apart from supplying subsea equipment and tooling for the seven-well system, OneSubsea will offer installation and commissioning services. Supply of the above-mentioned equipment will expectedly start from the middle of 2016.
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 |
-3.58% |
-7.17% |
|
CVX |
-4.44% |
-5.62% |
|
COP |
-8.46% |
-4.81% |
|
OXY |
-8.25% |
-6.81% |
|
SLB |
-6.94% |
-7.67% |
|
RIG |
-5.98% |
-29.55% |
|
VLO |
-1.04% |
-14.41% |
|
TSO |
-3.13% |
+22.17% |
Over the course of last week, all the market heavyweights suffered losses in the face of plunging oil prices. The biggest casualty was U.S. energy explorer ConocoPhillips, which fell 8.5% during the period. While all crude-focused stocks stand to lose from falling commodity prices, companies in the exploration and production sector – like ConocoPhillips – are the worst placed, as they will be able to extract less value for their products.
Over the last 6 months, refiner Tesoro Corp. was the leader of the pack with its shares advancing 22.2%. 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 29.6% 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 important domestic economic reports. This includes data on retail sales, inflation, industrial production and the housing sector.
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