It was a week where both oil and natural gas prices rebounded from their multi-year lows.
On the news front, Royal Dutch Shell plc RDS.A cut its investment budget for 2016 by $2 billion to $33 billion, while Chevron Corp. CVX has reportedly laid off more than 1,200 employees at its Gorgon Lake LNG project in Western Australia.
Overall, it was a pretty good week for the sector. West Texas Intermediate (WTI) crude futures rallied 6% to close at $38.10 per barrel, while natural gas prices soared 15% to $2.029 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Crude Slide Continues, Halliburton-Baker Hughes Merger Pushed Back.)
Oil prices moved north in reaction to the U.S. Energy Department's latest inventory release that showed a surprise decrease in stockpiles. Crude received a further boost after Baker Hughes said that the number oil-directed rigs fell – indicating a brake in shale drilling activities.
Natural gas fared better after an inventory report showed a bigger-than-expected withdrawal. The heating fuel was also buoyed by predictions of strong demand due to cooler weather forecasts over the next few days.
Recap of the Week’s Most Important Stories
1. Royal Dutch Shell plc is planning to slash its 2016 capital budget amid the persistent weak crude pricing environment. Europe’s largest oil company is on its way to acquire BG Group plc, a leading upstream energy player in the U.K. The acquisition is anticipated to close by early 2016.
As per the prior guidance, the combined company was previously expected to invest $35 billion next year. However, Shell has lowered the budget by $2 billion to $33 billion. On top of that, the company reduced its 2015 budget by $1 billion to $29 billion.
To counter the effects of the oil price slump, the company also plans to lower its operating expenses. Shell expects its costs reduce by $4 billion this year as compared to 2014. Moreover, in 2016, expenses for the combined firm will likely contract by $3 billion Such large-scale cost reduction in 2016 will likely come on the back of 2,800 job cuts post the Shell-BG merger. (See More: Shell Guides Down 2016 Capital Expenditure Budget by $2B.)
2. U.S. energy behemoth Chevron Corp. has reportedly reduced headcount at Western Australia’s Gorgon LNG development by at least 1,200.
The company – holding an approximately 47% operated interest in the A$43 billion ($37 billion) Gorgon development – has terminated roughly 530 electrical workers from the project. Moreover, about 700 jobs – that include boilermakers, pipe fitters, and welders along with trade helpers – have been laid off. In fact, according to the media sources, Chevron had declared last month that it will significantly reduce job count in Australia. (See More: Chevron Cuts Over 1200 Jobs at Gorgon LNG Project.)
3. Offshore drilling giant Transocean Ltd. RIG declared the termination of the contract for its drillship Polar Pioneer by oil major Royal Dutch Shell plc. The contract was scheduled for expiration in Jul 2017.
The harsh environment semisubmersible rig was set for Shell’s Alaska Arctic drilling. But after The Hague-based group wrapped up its Arctic exploration program in September, the drillship’s contract ended up being abruptly terminated. Transocean, the drilling contractor, will be compensated for the unexpected event with lump sum payments. (See More: Transocean Faces Drillship Contract Termination by Shell.)
4. Italy’s Eni SpA E and its South Korean partner, KOGAS, have received approval for the renewal of a license for exploration activities off the southern coast of Cyprus.
According to sources, the consent from the Cypriot Cabinet on Monday has extended the existing exploration agreement between the companies by two years to Feb 2018.
The extension will facilitate Eni to evaluate the hydrocarbon potential in offshore Cyprus. The renewal includes the licenses for Blocks 2, 3 and 9 in Cyprus’ exclusive economic zone.
5. Midstream player Enterprise Products Partners L.P. EPD has received its first contract to transport oil overseas from the U.S. Gulf Coast. The announcement came less than a week after President Barack Obama signed a bill lifting the country's four decade old ban on crude exports.
Enterprise Products Partners has decided to provide pipeline and marine terminal services to ship its first export of U.S. crude oil. The 600,000 barrel cargo of domestic light crude oil will be loaded at the Enterprise Hydrocarbon Terminal (“EHT”) on the Houston Ship Channel during the first week of Jan 2016.
The integrated system of the partnership has facilitated Enterprise Products Partners to respond promptly to customer demand for U.S. crude oil in the international markets. (See More: Enterprise Secures First Contract to Ship Oil Overseas.)
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 |
+1.13% |
-4.93% |
|
CVX |
+0.07% |
-6.55% |
|
COP |
+2.96% |
-22.65% |
|
OXY |
+3.44% |
-12.12% |
|
SLB |
+0.44% |
-17.79% |
|
RIG |
+2.03% |
-22.63% |
|
VLO |
+0.96% |
+16.61% |
|
TSO |
-1.79% |
+22.18% |
Over the course of last week, ‘The Energy Select Sector SPDR’ posted a gain of 2.72% as investors witnessed a bout of buying in major companies. The best performer was U.S. energy explorer Occidental Petroleum Corp. OXY that added 3.4% to its stock price.
But longer-term, over the last 6 months, ‘The Energy Select Sector SPDR’ lost 20.54% of its value. Houston-based energy major ConocoPhillips COP was the main laggard, as it witnessed a 22.7% price decline. However, refiner Tesoro Corp. was able to buck the trend and was the chief beneficiary on the bourses with its shares advancing 22.2% during this period.
What’s Next in the Energy World?
Apart from the usual releases in this holiday-shortened 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 those on consumer confidence, pending home sales and jobless claims.
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