It was a week where oil prices fluctuated wildly to maintain status quo, while natural gas futures were reeling under the twin strains of abundant supply and mild weather.
On the news front, both Royal Dutch Shell plc RDS.A and Halliburton Co. HAL are looking to overcome regulatory hurdles in their respective bids to acquire BG Group and Baker Hughes.
Overall, it was a bearish week for the sector. While West Texas Intermediate (WTI) crude futures remained essentially unchanged at $41.71 per barrel, natural gas prices tumbled 7.8% to $2.21 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: MPC Sweetens MarkWest Bid, RIG to Delist from Swiss Bourse.)
Oil prices gained after Baker Hughes rig count data showed a drop in oil-directed rigs, indicating a break in shale drilling activities. The commodity also got support from heightened geopolitical tensions in the Mideast that stoked fears of possible supply disruptions. However, crude gave up all its gains by Friday, pressured by a stronger dollar and an unexpected stockpile addition.
Natural gas though fell sharply amid a bearish inventory report – that showed supplies rising to another all-time high – and predictions of tepid early-winter demand for the heating fuel due to mild weather.
Recap of the Week’s Most Important Stories
1. Europe’s largest oil company Royal Dutch Shell will likely get approvals from the regulators of China and Australia before Christmas to proceed with the acquisition of BG Group plc − a leading upstream energy player in the U.K. – going by The Telegraph. The prospects of the BG buyout will rest on shareholders once the Chinese and Australian regulators give the green signal.
During the first half of this year, the integrated energy major had announced that it has entered into a deal with BG Group plc. Per the agreement, Shell is expected to acquire BG Group for a total consideration of $70 billion – including both cash and equity payments. This is the biggest merger within energy firms in a decade.
2. Oilfield services behemoth Halliburton has once again filed a request for approval from the EU antitrust regulators for its $35 billion acquisition of smaller rival Baker Hughes Inc. Four months ago, the authorities had rejected Halliburton’s bid due to insufficient data.
The EU authorities are expected to decide on whether to approve the deal or start an investigation by Jan 12. While Canada, Kazakhstan, South Africa and Turkey have already approved the deal, antitrust regulators in the U.S. are yet to announce their decision. Finally, the Australian authorities too are anticipated to declare their verdict on Dec 17. (See More: Halliburton Seeks EU Consent Again for Baker Hughes Deal.)
3. British energy major BP plc BP announced the completion of the transaction to farm in a stake of 20% of Taas-Yuryakh Neftegazodobycha LLC from Rosneft. The deal was inked in Jun 2015.
The joint venture (JV) between Rosneft and BP, which was formed after the companies had signed the aforesaid deal for Taas-Yuryakh Neftegazodobycha LLC, is intended to carry on further development of the Srednebotuobinskoye oil and gas condensate field – one of the largest fields in the Eastern Siberia. The JV will also be responsible for the development of appropriate infrastructure for further exploration and development of the region’s reserves.
Eastern Siberian fields are one of the main regions of Rosneft’s business. The companies’ collaboration within the project will therefore help in expanding local infrastructure and enhancing production capacities of this region.
4. Chinese energy giant PetroChina Co. Ltd. PTR is willing to divest its 50% interest in natural gas pipeline firm for as high as $2.4 billion. This is in accordance with the aim of China National Petroleum Corporation (“CNPC”) – parent company of PetroChina − to meet the government set profit target for the year.
The intended sale will allow PetroChina to strengthen its overall financials that have been severely impacted by persistently low oil and natural gas prices. (See More: PetroChina to Divest 50% Stake in Pipeline Assets for $2.4B.)
5. Upstream energy firm EXCO Resources Inc. XCO provided an update on its capital budget and drilling activity for the first six months of 2016. The company added that it would invest in certain select assets but will defer other projects until there is an improvement in commodity prices.
EXCO Resources plans drilling and completion capital spending of about $70 million for the first half of the next year, a 59% plunge from this year’s investment of $171 million for the comparable period. The oil and gas finder plans to develop nine wells by the end of June and 18 wells by the end of Aug 2016. EXCO Resources expects to fund the capital spending through cash generated from operations and funds under its credit agreement. (See More: EXCO Resources Provides Capital Budget Update for 1H16.)
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 |
+1.88% |
-4.08% |
|
CVX |
+3.32% |
-11.02% |
|
COP |
+2.55% |
-15.03% |
|
OXY |
+0.95% |
-4.18% |
|
SLB |
+0.52% |
-14.89% |
|
RIG |
+3.58% |
-22.71% |
|
VLO |
-0.10% |
+22.25% |
|
TSO |
+0.64% |
+31.41% |
Over the course of last week, ‘The Energy Select Sector SPDR’ posted a gain of 1.30% as investors witnessed a bout of buying in major companies. The best performer was offshore drilling powerhouse Transocean Ltd. RIG that added 3.6% to its stock price.
Longer-term, over the last 6 months, ‘The Energy Select Sector SPDR’ lost 14% of its value. Transocean was the main laggard, as it witnessed a 22.7% price decline. However, downstream operator Tesoro Corp. TSO was able to buck the trend and was the chief beneficiary on the bourses with its shares advancing 31.4% during this period.
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 top-tier economic readings, including the all-important November jobs report.
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