It was a week where oil futures retreated below $60 a barrel but natural gas futures settled higher.
On the news front, American upstream major Apache Corporation APA shares rocketed after it, together with partner TOTAL S.A. TOT, announced a discovery offshore Suriname block 58. Meanwhile, British integrated behemoth BP plc BP agreed to divest certain North Sea assets for $625 million.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures dropped 6.4% to close at $59.04 per barrel, natural gas prices rose 3.4% for the week to finish at 2.202 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: ExxonMobil's Q4 Update, Core Labs' Dividend Cut & More)
The crude benchmark had its largest weekly decline on a percentage basis since July after the U.S. government reported an unexpected increase in crude stockpiles and hefty build in refined product inventories. The bearish data sets deepened the commodity’s losses that was already on the defensive due to the cooling of geopolitical tensions between U.S. and Iran.
Meanwhile, natural gas prices moved northward even as the U.S. Energy Department's weekly inventory release showed a smaller-than-expected decrease in natural gas supplies that was also lower than the five-year average and the year-ago decline. Prices rose nevertheless as market participants chose to focus on a bullish weather forecast.
Recap of the Week’s Most Important Stories
1. Shares of Apache scored its biggest intraday gain since 1973 after the energy explorer and its partner TOTALannounced a major oil discovery at the Maka Central-1 well in Block 58, offshore Suriname.
Block 58 covers 1.4 million acres in water depths and is located near ExxonMobil and Hess’ Stabroek block in Guyana, South America’s newest oil giant. The field seems a unique, large-scale oil resource opportunity. Maka Central-1 well, which was drilled using Noble Sam Croft drillship, encountered a geologic model bearing 73 metres (240 feet) of oil reservoirs and 50 metres (164 feet) of hydrocarbon-bearing light oil and gas condensate pay.
The drilling results proved to be pleasing for both companies as the well confirmed ample traces of hydrocarbon within its bounds, mirroring high potential for productive oil wells. This, in turn, consolidates Apache and TOTAL’s confidence in discovering significant resources beyond the Maka Central finding since the two control 1.4 million acres in the region. (Read more Apache Stock Jumps as It Hits Oil in Suriname's Block 58)
2. BP has recently entered into an accord with Premier Oil to divest stakes in some of its North Sea assets. The deal, valued at $625 million, is likely to be closed by the end of the third quarter of 2020.
The to-be-divested assets comprise the British energy giant’s stakes in the Andrew area in the central U.K. North Sea. This includes the Andrew platform and controlling stakes in five fields — Andrew, Arundel, Cyrus, Farragon and Kinnoull. Notably, the Andrew platform is being utilized by the five fields to produce oil equivalent volumes. The other assets to be sold include the 27.5% stake of BP in the Shearwater oil field, being operated by Royal Dutch Shell plc (RDS.A - Research Report) in the British North Sea. The other assets to be sold include the 27.5% stake of BP in the Shearwater oil field, being operated by Royal Dutch Shell plc in the British North Sea.
Notably, the recent deal reflects BP’s move to reshape its portfolio of North Sea assets as part of its $10-billion asset divestment plan by 2020-end. With the divestments of the matured fields, the integrated energy player will focus on more profitable resources, which comprise the Clair and Quad 204. (Read more BP to Divest $625M Matured North Sea Assets: Here's Why)
3. Kinder Morgan, Inc. KMI recently announced that it has sold all Pembina Pipeline Corporation PBA shares that were received by the company following the divestment of a stake in Kinder Morgan Canada Limited. For the sale of a 70% interest in the Canadian unit, Kinder Morgan got 25 million shares of Pembina.
The move of divesting its Canadian unit and the U.S. part of the Cochin Pipeline is in line with the midstream company’s strategy of reducing debt burden through divestments. Converting Pembina shares into cash of $764 million in after-tax proceeds will likely help Zacks Rank #3 (Hold) Kinder Morgan to increase balance sheet flexibility.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The latest move is significant for the company as it had only $241 million in cash and cash equivalents, and a long-term debt of $30,849 million at the end of third-quarter 2019. Total debt-to-capitalization ratio was 50.6%, signifying that its balance sheet is more levered than the industry it belongs to. (Read more Kinder Morgan Sells Pembina Shares to Reduce Debt Burden)
4. Range Resources Corporation RRC recently released 2020 capital budget of an estimated $520 million. The amount is much lower than the projected 2019 capital expenditure of $728 million. Notably, in order to improve the balance sheet, the company has decided to shelve dividend payments, which will enable it to save $20 million per annum.
The exploration and production company expect 2020 spending to enable it to maintain production volumes of around 2.3 Bcfe per day. Majority of the capital budget will likely be spent on the company’s Marcellus properties. For 2020, average well cost will likely remain below the $625 per lateral foot mark.
For 2020, Range Resources has hedged more than 1 billion cubic feet of natural gas per day of production at $2.64 average price. This year, the company expects to export additional propane and butane volumes to international markets, with the help of the Mariner East system. (Read more Range Resources Expects Lower 2020 Capex, Shelves Dividend)
5. Transocean Limited RIG recently issued a new fleet status report, lending an insight into its portfolio of drillships, recent contracts and backlog. Since its last fleet status update in October 2019, which showed a backlog of $10.8 billion, the company has been successful in securing $352.9 million worth additional contracts, courtesy of new deals and extensions of its existing projects.
While the company won a few deals since the last fleet report in October 2019, the$91- million worth one-year drilling contract off the coast of Trinidad and Tobago for its semisubmersible Development Driller III served as the fundamental component to boost its backlog. This new pact with leverage to command an estimated day rate of $250,000 is scheduled to start in the second quarter of 2020. Further, it is expected to help the company progress in terms of both backlog and cash flow.
Moving on, the Leiv Eiriksson rig, which operates for ConocoPhillips, gained a 125-day contract offshore Norway and is expected to be effective August 2020. Drillship Discoverer Inspiration, working for Talos Energy, also clinched a 120-day contract in the US Gulf of Mexico with a dayrate of $210,000. Notably, Discoverer Inspiration is set to conclude a contract with Chevron in the US Gulf during the first quarter of this year.(Read more Transocean Adds $352.9M to Backlog Since Last Fleet Status)
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.
Last 6 Months
The Energy Select Sector SPDR – a popular way to track energy companies – edged down 1% last week. The worst performer was offshore driller Transocean Ltd. whose stock slumped 11.5%.
Longer-term, over six months, the sector tracker is down 6.3%. Houston-based oil and gas producer Occidental Petroleum OXY was the major loser during this period, experiencing a 9.8% price decline.
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. The Baker Hughes data on rig count will also be on the energy traders' radar.
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TOTAL S.A. (TOT) : Free Stock Analysis Report
BP p.l.c. (BP) : Free Stock Analysis Report
Transocean Ltd. (RIG) : Free Stock Analysis Report
Pembina Pipeline Corp. (PBA) : Free Stock Analysis Report
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
Range Resources Corporation (RRC) : Free Stock Analysis Report
Apache Corporation (APA) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
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