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Oil & Gas Stock Roundup: Anadarko's Mozambique FID, Archrock's Acquisition & More

Nilanjan Choudhury

It was a week where oil prices scored almost 9% gain – the largest percentage climb for the period since December 2016. Meanwhile, natural gas futures slumped to a 37-month low.

On the news front, Anadarko Petroleum APC and partners took the final investment decision on a $20 billion LNG project in Mozambique, while midstream energy company Archrock, Inc. AROC agreed to acquire a gas compression assets-provider for $410 million.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures rose 8.8% to close at $57.43 per barrel, natural gas prices moved down 8.4% for the week to finish at $2.186 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: C&J Energy-Keane Merger, Phillips 66 JVs & More)

The U.S. crude benchmark hit the highest settlement level since May 29 amid the possibility of mounting geopolitical tensions in the Middle East hampering global supplies. Hopes for an interest rate cut next month by the US Federal Reserve also send oil prices soaring. On a further bullish note, the U.S. Energy Department's latest inventory release showed that crude stockpiles recorded a much bigger-than-anticipated weekly draw.

On the other hand, natural gas prices suffered after a government report showed another larger-than-expected increase in natural gas supplies. The bearish injection, which was also higher than the five-year average, intensified a sell-off that left the U.S. benchmark with its lowest close in more than three years.

Recap of the Week’s Most Important Stories

1.  Anadarko Petroleum and the co-venturers in Mozambique's Offshore Area 1 made a final investment decision (FID) on the $20 billion LNG project. The facility will be Mozambique's first onshore LNG unit.

The project comprises two LNG train with total initial capacity of 12.88 million tons per annum (MTPA). Of the total capacity, 86% is committed by the key LNG buyers in Asia and Europe. Moreover, the project is expected to boost Mozambique's in-country consumption as well as contribute to domestic economic development.

Anadarko, which is set to be acquired by Occidental Petroleum Corporation for $38 billion, has entered into a binding agreement with French supermajor TOTAL SA to sell its African assets for $8.8 billion (including the Mozambique holdings).(Read more Anadarko Petroleum Makes FID on Mozambique LNG Project)

2.   Archrock is set to acquire Texas-based Elite Compression Services, LLC in a cash-and-stock deal valued at $410 million. The Houston-based energy infrastructure company will pay approximately $205 million in cash and issue 21.66 million new shares to fund the deal. Subject to satisfactory closing conditions and regulatory approvals, the deal is set for closure in third-quarter 2019.

Per the deal, Archrock — which is focused on midstream natural gas compression — will receive Elite's large horsepower compression assets amounting to 430,000, majority of which are already contracted for more than three years with blue chip companies. Post the conclusion of the deal, Archrock expects to realize $55 million of annualized adjusted EBITDA, including cost synergies of $5 million. The deal is expected to be accretive to earnings and cash flows of the firm, as well as boost basin density across core U.S. shale plays. This move is likely to support the Zacks Rank #3 (Hold) company’s goal of reducing leverage and maintaining adequate dividend coverage.

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

Concurrently, Archrock will also offload 80,000 active and idle compression horsepower assets to Houston-based Harvest Midstream Co. for $30 million in cash. This will further standardize Archrock’s portfolio.

3.   Chevron CVX and Phillips 66’s PSX joint venture Chevron Phillips Chemical Company LLC has announced its decision to construct a petrochemical facility in collaboration with Qatar Petroleum.

The facility will process ethane into ethylene, with Qatar Petroleum expected to have a 70% interest in the venture. In the Middle East, the to-be-constructed complex will likely be the largest when it comes to producing ethylene by processing ethane. Notably, the major constituent for manufacturing plastic is ethylene.

With this transaction, Chevron Phillips Chemical will be helping Qatar Petroleum produce roughly 1.9 million tons of ethylene every year, said chief executive officer of Qatar Petroleum. Moreover, the completion of constructing the new plant, expected by 2025, will boost Qatar’s polyethylene production, added Qatar Petroleum. (Read more Chevron Phillips to Manufacture World-Class Ethylene Complex)

4.   ConocoPhillips’ COP affiliate ConocoPhillips Alaska has agreed to acquire the entire stake in Nuna discovery. The deal has been signed with Caelus Natural Resources Alaska LLC for the prospect, which is situated in the east of the Colville River. Notably, the closing of the deal – with effective date of Jun 14, 2019 – awaits regulatory approval. The value of the transaction has not been disclosed yet.

The Nuna prospect, spread across 21,000 acres with 11 tracts, was discovered in 2012. Before taking the final investment decision, ConocoPhillips will assess the discovery.

In Alaska, ConocoPhillips is the largest producer of crude oil, operating roughly 1.3 million net undeveloped acres under leases. The latest deal has fortified the upstream energy player’s position in Alaska’s North Slope. ConocoPhillips has decided to employ the infrastructure of Kuparuk River Unit (KRU) field – the second biggest oilfield in North Slope of Alaska – for the development of the Nuna prospect. This will enable ConocoPhillips to minimize its cost structure while producing optimum oil volumes that will contribute to the company’s revenues and create jobs in Alaska.(Read more ConocoPhillips Agrees to Acquire Entire Stake in Nuna Field)

5.    SM Energy Company’s SM shares jumped 6.6% after it announced that second-quarter production is surpassing estimates on better-than-expected well performance and completion timing. As such, the company increased its second quarter and full-year 2019 production guidance by 400 thousand barrels of oil equivalent (MBoe) at the midpoint.

Around 43-44% of total production in the second quarter and full-year 2019 is expected to be oil. Higher production volumes from the Permian Basin and South Texas areas enabled the company to upwardly revise its second-quarter guidance from 126-131 MBoe per day (MBoe/d) to 132-134 MBoe/d. The current projection indicates a significant rise from the year-ago period’s 115.2 MBoe/d. For full-year 2019 as well, SM Energy upwardly revised its production view from 123.3-131.5 MBoe/d to 124.4-132.6 MBoe/d. The new guidance is much higher than the 2018 figure of 120.3 MBoe/d.

Moreover, the company announced several positive well test results from the RockStar area of the Permian Basin and Watson State Austin Chalk in South Texas. These are expected to enhance the company’s Midland Basin and South Texas inventories, as well as unlock value from the existing footprint.(Read more SM Energy Raises Production View, Eyes Positive FCF in 2H19)

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 6 months.

Company

Last Week

Last 6 Months

XOM

+4.5%

+12.1%

CVX

+3.4%

+16.3%

COP

+2.6%

-1.6%

OXY

+2.6%

-17.7%

SLB

+8.2%

+5.6%

RIG

+16.1%

-11.6%

VLO

+6.7%

+10.2%

MPC

+9.8%

-11.6%

Reflecting the bullish market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – rose 5.1% last week. The best performer was offshore driller Transocean Ltd. RIG whose stock surged 16.1%.

Longer-term, over six months, the sector tracker is up 10.1%. Integrated energy major Chevron was the major gainer during this period, experiencing a 16.3% price increase.

What’s Next in the Energy World?

As usual, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas -- one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count, while outcome from the July 1-2 OPEC meeting in Vienna, where the cartel would decide on its production policy for the next six months, will be of some interest.

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Phillips 66 (PSX) : Free Stock Analysis Report
 
Archrock, Inc. (AROC) : Free Stock Analysis Report
 
Chevron Corporation (CVX) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
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