It was another week where oil prices witnessed a big drop, falling to a new 5½ year low on oversupply fears. On the news front, BP plc (BP) and ConocoPhillips (COP) made headlines with their oil production startups.
Overall, it was another bearish week for the sector. West Texas Intermediate (WTI) crude futures fell 3.7% to close at $52.69 per barrel, while natural gas prices stayed put at a lowly $3 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Now Gas Prices Collapse, Southwestern Continues Marcellus Push.)
Oil prices continued the slide and fell for the sixth successive week. 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. Moreover, a stronger dollar has made the greenback-priced crude dearer for investors holding foreign currency.
Natural gas – which slumped to a two year low on Thursday – rebounded Friday on expectations of cranked up heating demand across the U.S. with forecasts of cooler weather over the next few days. However, prices still remain around 80% below the 2008 peak of $13.50 per MMBtu.
Recap of the Week’s Most Important Stories
1. U.K. supermajor BP plc announced the commencement of oil production from the Kinnoull field in the central North Sea. Development of the Kinnoull reservoir is a part of wider upgradation of the Andrew field area, located 230 kilometers east of Aberdeen. This arrangement is likely to facilitate production in the Andrew field area by another decade.
Oil and gas output from Andrew and Kinnoull, which is expected to peak at over 50,000 barrels of oil equivalent per day, will be a major contributor to BP's operating cash flow growth. BP operates Kinnoull with an interest of 77.06%, while controlling a 62.75% stake in Andrew. (See More: BP's Kinnoull Field in Central North Sea Starts Production.)
2. Houston-based independent exploration and production company ConocoPhillips produced its first oil from the Eldfisk II project in the Norwegian North Sea — the second major project startup in Norway since late 2013 after Ekofisk South.
The company's production volume is expected to receive a boost of about 60,000 barrels of oil equivalent per day by 2017 from Eldfisk II, along with Ekofisk South and other projects offshore Norway. The Eldfisk II project comprises plans to drill 40 new production and water injection wells. Currently, one of four pre-drilled wells is operational and the other three are expected to be commissioned by Jan 2015 end. Production from the field will accelerate over the next three years when additional wells are brought onstream.
3. As per media releases, the government of Croatia has awarded seven licenses to a consortium of domestic upstream player Marathon Oil Corp. (MRO) and Vienna-based OMV Aktiengesellschaft to carry out exploration activities for hydrocarbons in the Adriatic Sea.
The group got licenses to explore off the coast of Adriatic Sea for five years. The government is expected to sign the exploration deals with the winning bidders within Apr 2. Since 2009, Croatia has been going through a phase of recession. The government believes that the considerable reserves − which can be as much as 3 billion barrels of oil equivalent – worth billions of dollars in the Adriatic Sea will help to recover the economy. (See More: Marathon Oil Awarded Licenses to Explore the Adriatic Sea.)
4. Independent energy explorer Concho Resources Inc. (CXO) cut its 2015 capital expenditure outlook to $2 billion from its prior outlook of $3 billion on the back of sharp decline in commodity prices. The company's updated 2015 capital outlay includes about $1.8 billion for drilling and completion activities and about $200 million for facilities, midstream and other requirements.
Management reduced the capital program to maintain a strong balance sheet and quality of assets in the Permian Basin. In the current bearish environment, the company intends to manage its 2015 capital program around anticipated cash flows and retain significant flexibility to scale activity level up or down depending on service costs and commodity prices.
5. Offshore drilling contractor SeaDrill Ltd. (SDRL) declared the execution of $456 million worth purchase option for West Polaris. The company has bought the 6th generation ultra-deepwater drillship from Ship Finance International Ltd. that owns and operates crude oil tankers, drilling rigs, container and seismic vessels.
Out of the $456 million option price, SeaDrill will pay $108 million cash. The rest of the transaction comprises the purchase of the stocks of SFL West Polaris Ltd – an affiliate of Ship Finance International – which owns the ultra-deepwater drillship. (See More: SeaDrill Buys 6th Generation Drillship West Polaris.)
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 |
-3.08% |
-12.04% |
|
CVX |
-4.49% |
-17.16% |
|
COP |
-6.00% |
-23.76% |
|
OXY |
-5.35% |
-20.34% |
|
SLB |
-4.34% |
-29.02% |
|
RIG |
-10.85% |
-61.68% |
|
VLO |
-3.98% |
-3.98% |
|
TSO |
-4.24% |
+20.02% |
Energy investors witnessed another bout of heavy selling in major companies amid mounting evidence of oil’s oversupply. Of the lot, the biggest loser was offshore driller Transocean Ltd. (RIG), which fell 10.9% during the period. With oil prices down 50% since June and energy companies cutting costs by scaling back drilling, the likes of Transocean is having to deal with less orders.
Over the last 6 months, refiner Tesoro Corp. (TSO) has been the leader of the pack with its shares advancing 20%. Investors have rewarded the company for its continued focus on shareholder returns. On the other hand, Transocean was again the laggard, as it witnessed a 61.7% 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 factory orders, services and the unemployment rate.
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