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Oil & Gas Stock Roundup: Acquisitions by Pembina, Southwestern & Kinder Morgan

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·8 min read
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It was a week when both oil and natural gas prices posted healthy gains.

On the news front, the headlines came from energy infrastructure provider Pembina Pipeline Corporation PBA, natural gas producer Southwestern Energy Company SWN and midstream operator Kinder Morgan’s KMI acquisition announcements.

Overall, it was another good week for the sector. West Texas Intermediate (WTI) crude futures gained 5% to close at $69.62 per barrel and natural gas prices moved up 3.7% in the week to end at $3.10 per million British thermal units (MMBtu). In particular, the oil market managed to maintain their forward momentum from the previous week.

Coming back to the week ended Jun 4, oil prices marked their highest settlement since October 2018 after U.S. government data showed a second successive weekly draw in crude. Prices have also been driven up by hopes of a faster demand recovery and the OPEC+ coalition’s gradual loosening of the output cuts, reflecting their confidence in the fuel’s usage.

Natural gas finished up too on encouraging inventory numbers, the prospect of more weather-related consumption and strong liquefied natural gas (“LNG”) feedgas deliveries.

Recap of the Week’s Most-Important Stories

1.  Pembina Pipeline has entered into a definitive agreement with Inter Pipeline Ltd. (IPL) wherein the Zacks Rank #2 (Buy) company will acquire all the issued and outstanding shares of IPL in an all-stock deal worth C$8.3 billion.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Per the terms of the deal, which is unanimously approved by both companies' board members, IPL shareholders will receive 0.5 Pembina common stock for each IPL common stock they hold. Post completion of this transaction, Pembina stockholders will own a 72% interest of the combined entity while the rest will be owned by IPL stakeholders.

The C$15.2-billion deal including debt is expected to establish one of Canada's largest energy infrastructure companies as well as a diversified and integrated asset base capable of supporting and developing an extensive value chain for natural gas, natural gas liquids and crude oil from the wellhead to its end user. (Pembina Inks Deal to Buy Inter Pipeline for C$8.3B)

2.   Southwestern Energy recently agreed to acquire private natural gas producer Indigo Natural Resources, LLC for around $2.7 billion. The move comes at a time when gas prices are expected to rise in the coming days.  

Indigo’s net production stands at 1 billion cubic feet of natural gas per day (Bcf/d), which is expected to rise after the closing of the acquisition. The acquiree is a low-cost producer in the core of the prolific Haynesville play. Its net adjusted debt stands at $631 million, with 1.1X leverage.

Southwestern already boasts a diversified reserve base in multiple U.S. basins and remains focused on investments in high-return areas such as Appalachia. The acquisition of Indigo further expands its reach in the Haynesville and Bossier shale plays of northern Louisiana. Indigo’s low-cost production structure will boost Southwestern’s profitability. Moreover, the acquirer is expected to get access to the premium Gulf Coast export market. The deal is likely to conclude in early fourth quarter. (Southwestern to Acquire Indigo for $2.7B: Here's Why)

3.  Kinder Morgan has entered into an agreement to acquire Stagecoach Gas Services LLC (Stagecoach). The $1.225-billion deal is likely to consummate in the third quarter of this year, awaiting regulatory approval under Hart-Scott-Rodino.

It is to be noted that Stagecoach is a joint venture between Consolidated Edison and Crestwood Equity Partners LP. Stagecoach comprises four natural gas storage facilities along with networks of natural gas pipelines — spanning 185 miles. Importantly, the storage facilities have a total working gas capacity of 41 billion cubic feet, which is FERC-certificated. Moreover, the pipeline networks have several interconnects to major interstate natural gas pipelines that comprise Kinder Morgan’s affiliate Tennessee Gas Pipeline.

The midstream energy firm expects the acquisition to broaden its scope of services by connecting Northeast demand regions with natural gas supply sources. It can be said that the acquisition has placed Kinder Morgan in a position to capitalize on growing natural gas demand, which is a source of clean energy and has long being utilized as a fuel for providing heat and hot water to businesses and homes in the Northeast. (Kinder Morgan Inks $1.2B Accord to Acquire Stagecoach)

4.  Schlumberger SLB recently provided an encouraging forecast for the oil industry in the Bernstein Strategic Decisions Conference 2021. The company has also provided exceptional estimates for this year. As such, the stock jumped 7.7% Wednesday.

The oilfield service provider expects 2021 revenues to be more than $22.5 billion, marginally higher than the Zacks Consensus Estimate of $22.4 billion. However, the figure indicates a fall from the 2020 level of $23.6 billion. Adjusted EBITDA margin for 2021 is expected within 20.8-21.3%, signaling a rise from 18.3% in 2020. Moreover, free cash flow margin is likely to be more than 10% this year, indicating a significant jump from 6% recorded in 2020.

Schlumberger reiterated the 2021 capital investment view within $1.5-$1.7 billion. Last year, the metric was $1.5 billion. The company believes that there has been an increase in the optimism for fuel demand recovery in 2021, thanks to the rolling out of coronavirus vaccines. It expects oil demand to recover to the pre-2019 levels by 2022-end. As such, the growth cycle can provide the company with immense potential to capture a larger share of the market with low-carbon technology. (Schlumberger Stock Jumps 7.7% on Uplifting Forecasts)

5.  TotalEnergies TOT announced that it has entered into an agreement to acquire 10% of Arctic Transshipment LLC from Novatek. The acquisition will further expand TotalEnergies’ footprint in the global LNG space. Arctic Transshipment owns and will operate two liquefied natural gas (LNG) transshipment terminals being built in the Murmansk and Kamchatka regions of Russia.

These terminals will provide export logistics services, including the Arctic LNG 2 project under construction, and will each initially include a 360,000 m3 floating storage unit and two ship-to-ship transfer kits.

TotalEnergies holds a 20% stake in Yamal LNG and 10% in Arctic LNG 2, a project currently under construction and on track to deliver its first LNG cargo in 2023. The acquisition of interest in these terminals is a strategic move by TotalEnergies, and an important step in the advancement and consolidation of the Arctic LNG 2 project. Moreover, these terminals will contribute to safe and sustainable export of cargoes from its existing and developing Yamal projects. (TotalEnergies Expands LNG Operation Via Acquisition)

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 six months.

Company    Last Week    Last 6 Months

XOM                    +5.3%                   +50.2%
CVX                     +4.5%                  +19.5%
COP                   +7.4%                   +39.8%
OXY                    +12.2%                 +60.2%
SLB                    +16.7%                 +59.5%
RIG                     +16.9%                 +106.5%
VLO                     +3.5%                   +40%
MPC                    +3%                      +50.8%

The Energy Select Sector SPDR — a popular way to track energy companies — was up 6.8% last week. The best performer was offshore driller Transocean Ltd. RIG whose stock gained 16.9%.

Over the past six months, the sector tracker has surged 40.5%. Transocean was the major gainer during the period too, experiencing a 106.5% price appreciation.

What’s Next in the Energy World?

As global oil consumption outlook strengthens amid the OPEC+ led calibrated supply cuts and successful vaccine deployments, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that come out regularly — will be on energy traders' radar. Data on rig count from the energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance. Finally, the closely watched monthly reports from three key agencies (EIA, OPEC and the IEA) complete the releases this week.

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Transocean Ltd. (RIG) : Free Stock Analysis Report
 
TOTAL SE (TOT) : Free Stock Analysis Report
 
Southwestern Energy Company (SWN) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
 
Pembina Pipeline Corp. (PBA) : Free Stock Analysis Report
 
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