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Oil & Gas Stock Roundup: Asset Sale Deals From Concho, Crescent Point Steal the Show

Nilanjan Choudhury

It was a week where both oil and natural gas prices settled higher.

On the news front, Concho Resources Inc. CXO and Crescent Point Energy Corporation CPG struck separate deals to sell some of their assets.  

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures rose 2.6% to close at $56.52 per barrel, while natural gas prices moved up 9.2% for the week to finish at 2.496 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: BP Out of Alaska, Equinor Speeds Up Oil Field Start Up)

The U.S. crude benchmark notched another gain after U.S. government data showed a crude stockpile draw well above expectations. The decline in oil inventories was the third in as many weeks, and came in tandem with a fall in gasoline and distillate supplies. Data showing drillers in the United States removing oil rigs – pointing to signs of declining domestic supplies – brought further downside.

Natural gas prices notched up one the biggest weekly percentage gains of 2019 even as the weekly inventory release showed a larger-than-expected increase in supplies. The commodity got a lift from expectations of above-average temperatures in many regions of the country over the next few days that could trigger strong power sector demand for the fuel.

Recap of the Week’s Most Important Stories

1.  Concho Resources has been executing its strategy to boost the value of its legacy assets and minimize its cost structure. To this end, it has announced that it will divest its New Mexico property for $925 million to a unit of Spur Energy Partners LLC.

In line with this, the company has plans to initiate a $1.5-billion stock repurchase program. This will be partly backed by the divestiture of the New Mexico asset wherein 40% of the proceeds will be used for the buyback program and the remaining will be utilized in repaying the debts.

Selling this non-core Shelf asset will help Concho Resources save its cash operating costs and inch closer to its 2020 target expense of $9 per barrel of oil equivalent (bpd) compared with the current figure of $9.83 bpd. Moreover, the stock repurchase program shows Concho Resources’ strong belief in its strategy. Tim Leach, chairman and CEO, Concho Resources, feels that this venture is a vindication of the company’s scheme to generate solid cash flow along with sustainable oil production. (Read more Concho to Sell Shelf Asset, Plans to Begin Buyback Program)

2.   Crescent Point Energy recently announced that it will sell all its Uinta Basin assets in Utah and part of its southeast Saskatchewan conventional assets for a consideration of C$912 million. The all-cash deal value comprises C$700 million for the Uinta Basin assets and C$212 million for the Saskatchewan conventional assets.

The key purpose is to improve Zacks Rank #3 (Hold) Crescent Point’s balance sheet with focus on debt reduction. Craig Bryksa, chief executive, Crescent Point Energy states that this deal will help the company concentrate on its asset base.

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

The company is expected to sell off 27,000 boed of its upstream assets to undisclosed buyers. The transaction will help this Calgary-based entity to lower its net-debt to almost C$2.75 billion by the end of this year from C$4.40 billion in 2018. Further, the assets’ sale will lead to an 11% rise in the company’s debt-adjusted funds flow per share. The strategic move will strengthen Crescent Point’s ability to conduct its share buyback program and further aid it to repurchase stock worth another C$100 million by this year-end. (Read more Crescent Point to Divest C$912M Assets for Debt Relief)

3.   The uncertainty involving the completion of TOTAL S.A.’s TOT Papua New Guinea liquefied natural gas (“LNG”) project is now over. The new government of Papua New Guinea will honor TOTAL’s $13-billion gas deal signed with the previous government.

Notably, TOTAL and its partners ExxonMobil and Oil Search Ltd. will develop the Papua LNG Project. The new government approved the project after getting assurance that TOTAL will consider some future benefits for the country.

TOTAL, with widespread assets across the globe, is steadily expanding global LNG operation.  At the end of the first half of 2019, the company’s total LNG sales touched 12.7 million tons, substantially exceeding the year-ago level of 5.4 million tons. The start-up of Yamal LNG trains 2 and 3 in Russia, Ichthys LNG in Australia and the Cameron first LNG in the United States have driven TOTAL’s LNG volumes. (Read more TOTAL Gets Nod to Go Ahead With Papua New Guinea LNG Project)

4.   Transocean Ltd. RIG recently announced plans to retire three ultra-deepwater floaters — Discoverer Enterprise, Discoverer Spirit and Discoverer Deep Seas — from its offshore drilling fleet. Following the move, it is expected to incur a non-cash impairment charge of around $580 million, which will be reflected in third-quarter 2019 results. The company has classified these rigs as “held for sale”.

These fifth-generation drillships were built in the time span of 1999-2001. With the recent addition of three rigs, the company presently has eight cold-stacked drillships. Notably, in July, the company announced the withdrawal of a sixth-generation rig to prioritize its seventh-generation rigs. This move confirms that the company has been taking necessary steps to enhance its fleet with modern and competitive rigs, while scrapping old and incompetent drillships that are expected to make its operations technically more effective and efficient.

Notably, Transocean’s two big buyouts in 2018 — Songa and Ocean Rig — had bolstered the company’s offshore game to a considerable extent and boosted fleet size. However, Transocean had to sell a couple of Ocean Rig’s drillships including Paros and Eirik Raude owing to high reactivation costs. Also, many of Ocean Rig’s drillships are currently stacked, involving stacking costs. (Read more Transocean to Retire 3 Drillships, Incur $580M Charge)

5.   Oilfield services provider Halliburton HAL warned that third-quarter earnings would come in at the low end of its previous forecast. Speaking at the Barclays conference call on Wednesday, CEO Jeff Miller blamed North American activity slowdown for the drab outlook.

With customers keeping a tight rein on spending in the face of depressed commodity prices, Barclays expects energy firms’ E&P capital expenditure growth to clock a miserly 2% this year. This is down from the January projection of 9%. Worse, the companies are likely to invest 15% less in the second half of this year compared to the first six months.

While headwinds will continue in North America in the form of softness in activity, the international markets have started to turn around on spending uptick and should continue to ramp throughout the year. CEO Jeff Miller sees customers reviving spending on drilling and completion projects across all regions outside North America – land, offshore and unconventional. (Read more Halliburton's Q3 Outlook: What Investors Need to Know)

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

+3.6%

-9.7%

CVX

+0.5%

-1.4%

COP

+2.8%

-14.5%

OXY

+4.6%

-27.3%

SLB

+7.1%

-11%

RIG

+10.8%

-36.4%

VLO

+3.8%

-2.2%

MPC

+6.6%

-8%

 

The Energy Select Sector SPDR – a popular way to track energy companies – was up 2.7% last week. The best performer was offshore driller Transocean whose stock rose 10.8%.

Longer-term, over six months, the sector tracker is down 6.1%. On the other end of the spectrum this time, Transocean was the major loser during this period, experiencing a 36.4% price plunge.

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.

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Crescent Point Energy Corporation (CPG) : Free Stock Analysis Report
 
Halliburton Company (HAL) : Free Stock Analysis Report
 
TOTAL S.A. (TOT) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Concho Resources Inc. (CXO) : Free Stock Analysis Report
 
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