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Oil & Gas Stock Roundup: BP & Eni's Angola Plans, Shell's Philippine Sale & More

·7 min read

It was a week when both oil and natural gas prices settled lower.

On the news front, European integrated majors BP plc BP and Eni SPA E have started discussing the possibility of merging their upstream portfolios in Angola. Meanwhile, rival Royal Dutch Shell RDS.A inked a deal to let go its stake in a Philippine gas field for $460 million.

Overall, it was a not-so-good week for the sector. West Texas Intermediate (WTI) crude futures lost 2.7% to close at $63.58 per barrel and natural gas prices fell 1.9% in the week to end at $2.91 per million British thermal units (MMBtu). In particular, the oil market hit a speed bump after posting a gain in the previous three weeks.

Coming back to the week ended May 21, oil prices moved down as rising inventories and the surging pandemic in India — the world's third-largest crude importer and consumer — outweighed stronger gasoline and distillate demands. On top of the demand issues, there were reports on the progress of U.S.-Iran nuclear deal talks (or probability of more oil coming back to the market), which prompted the fuel’s slide.

Natural gas finished down too following a higher-than-expected increase in supplies, plus the prospect of tepid weather-related consumption due to comfortable temperatures.

Recap of the Week’s Most-Important Stories

1.  BP entered a non-binding memorandum of understanding (MoU) with Eni to consider combining their upstream portfolios into a joint venture in Angola. Notably, the portfolio includes the companies’ oil, gas and liquefied natural gas assets in the country.

BP and Eni expect their combined efforts to ensure ample opportunities to enhance subsequent developments and operations in Angola. Notably, a business plan will be formed to help the companies grab opportunities in exploration, development and potential portfolio growth in the country and beyond.

The companies will assist the 50/50 joint venture, and will likely benefit from their capabilities and massive workforce. Heath, safety and environmental performance, project delivery and production efficiency will be the main areas of focus for the joint venture’s management. Moreover, the new venture will be self-funded and is expected to generate significant synergies, improve operational efficiencies as well as increase investment and growth in the basin.

2.   Royal Dutch Shell has agreed to sell its whole stake in Shell Philippines Exploration B.V. (SPEX) to Malampaya Energy XP Pte Ltd — a subsidiary of Udenna Corporation for $460 million. Service Contract 38 (SC38), a deepwater license that includes the Malampaya gas field, is 45% owned by SPEX.  

The base consideration for the deal is valued at $380 million, with extra payments of nearly $80 million possible between 2022 and 2024, depending on asset performance and commodities prices. The transaction is slated to close by the end of this year, upon fulfilling all the necessary conditions and pending approvals.

The divestment is part of an ongoing portfolio rationalization by Shell to simplify and increase the flexibility of its business. The move is in sync with its strategy to secure the long-term sustainability of its business and grow in the new normal and energy transition. (Shell to Divest Its Malampaya Gas Field for $460M)

3.  TOTAL SE TOT announced that it has signed a long-term agreement with pharma company Merck & Co. MRK over a period of 10 years to sell the latter’s 90 gigawatt (GW) of clean energy annually from its 45 MW utility-scale solar power projects in Spain, Castilla La Mancha region.

TOTAL has an ambition of achieving net-zero emissions by 2050 and has been taking initiatives in this regard. It is gradually building the clean electricity generation portfolio. The acquisition of SunPower Corporation has enabled the Zacks Rank #2 (Buy) company to expand solar operations since 2011. At the end of 2020, TOTAL had a global capacity to generate 7GW of renewable energy.

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

The company now plans to scale up renewable generation capacity to 25 Gigawatts (GW) by 2025 and further to 100 GW by 2030. TOTAL is building a portfolio of assets in renewables and electricity that should account for up to 40% of sales by 2050. Its ambition is in sync with the projection of International Energy Agency, which predicts that the share of renewable energies in the global energy mix is expected to increase from 14% in 2019 to 36% in 2040. (TOTAL Signs 10-Year Deal With Merck to Sell Clean Power)

4.  Equinor ASA EQNR signed a memorandum of understanding (MoU) with state-owned Sonatrach to strengthen both parties’ cooperation in the exploration and production (E&P) of oil and gas in Algeria and worldwide.

The MoU involves cooperation opportunities in greenhouse gas emissions, carbon management and industrial safety management. Notably, it is expected to continue strengthening the existing partnership between the firms.

Moreover, the companies will explore opportunities in implementing technologies to improve hydrocarbon recovery and the development of flexible operating models for driving oil operations at the highest level. However, no financial information regarding the deal was revealed. (Equinor, Sonatrach Unite for E&P Activities in Algeria)

5.  The Williams Companies WMB received approval from U.S. energy regulators for a two-year extension of its Northeast Supply Enhancement (“NESE”) project, which is intended to transport natural gas from Pennsylvania to New York.

The NESE project was proposed by Transcontinental Gas Pipe Line Company, LLC (or Transco), a wholly owned subsidiary of Williams, to construct and commission the expansion facilities for shipping gas from Pennsylvania through New Jersey.

In May 2019, the $1-billion project was approved by the Federal Energy Regulatory Commission of the United States and required Williams to commission the project by May 2021. However, the company had to postpone NESE since environmental regulators in New York and New Jersey disapproved water permits for the project. (Williams Gets Extension to Complete $1B NESE Gas Pipeline)

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                  -3%                 +40.4%
CVX                   -3.7%             +8.9%
COP                  -1.5%             +25.3%
OXY                    0%                 +49.7%
SLB                   -2.6%             +43.7%
RIG                   -5%                 +87.3%
VLO                  -4.9%              +32%
MPC                 +0.1%            +40.4%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 2.5% last week. The worst performer was offshore driller Transocean Ltd. RIG, the stock of which fell 5%.

However, over the past six months, the sector tracker has surged 29.4%. On the other end of the spectrum this time, Transocean was a major gainer during the period, experiencing an 87.3% 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 energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. Finally, news related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.

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Transocean Ltd. (RIG) : Free Stock Analysis Report
TOTAL SE (TOT) : Free Stock Analysis Report
Merck & Co., Inc. (MRK) : Free Stock Analysis Report
Eni SpA (E) : Free Stock Analysis Report
Williams Companies, Inc. The (WMB) : Free Stock Analysis Report
BP p.l.c. (BP) : Free Stock Analysis Report
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
Equinor ASA (EQNR) : Free Stock Analysis Report
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