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Oil & Gas Stock Roundup: BP's Job Cuts, TOTAL's Wind Farm Deal & More

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Nilanjan Choudhury
·8 min read
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It was a week where oil prices climbed sharply, while natural gas finished lower.

On the news front, British energy major BP plc BP said it would cut 10,000 jobs in response to crashing oil prices, while France’s TOTAL S.A. TOT has agreed to purchase a 51% stake in the Seagreen 1 offshore wind farm project in Scottish waters.

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures surged 11.4% to close at $39.55 per barrel, natural gas prices fell 3.6% for the week to finish at 1.782 per million Btu (MMBtu). In particular, the oil markets extended their gain toward $40 a barrel.

Coming back to the week ended Jun 5, the crude benchmark recorded another rise after news tricked in that the world’s major oil producers were on track to prolong the record output curbs through to the end of July. Further, U.S. government data revealing an unexpected fall in crude stockpiles helped to keep the price elevated. Oil prices were also supported by the continued decline in rig count, which currently sits at its lowest since 2009.

Meanwhile, natural gas ended lower on weak LNG demand and continued oversupply.

Recap of the Week’s Most Important Stories

1.  BP announced that it will commence a process of reducing its global work force. This time, the energy major has decided to cut headcount by 10,000 from its workforce of roughly 70,000 across the globe. With the announcement, the stock gained 2.4% on Jun 8.

The British energy major – carrying a Zacks Rank #3 (Hold) – added that in 2020 it will be reducing majority of its workforce. However, people working in the frontline will get protection. Office-based jobs will get affected, said the company. The senior levels will see the maximum job cuts, which will include a reduction of group leaders by more than 30%.

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

The decision, though tough to take, will significantly strengthen the financials, BP added. The leading integrated energy company also said that it is time to reinvent BP, considering the coronavirus-hit business environment and current financial status. Overall, the broader plan is to make the company smaller and more competitive. (BP Gains on Decision to Lay Off 10,000 Global Employees)

2.   TOTAL has decided to acquire a 51% interest in the Seagreen 1 offshore wind farm project from SSE Renewables. This will further expand its renewable assets portfolio. TOTAL will make an upfront payment at closing of $88 million (£70 million) and earn-outs up to $75.5 million (£60 million), subject to fulfillment of performance conditions. TOTAL has secured nearly 70% external financing to fund the stake purchase in this offshore project.

The Seagreen 1 project is located 16.8 miles (27 kms) from the coastline in Scottish waters of U.K. North and has secured all necessary major permits. Onshore construction of the project began in the first quarter. Initially, the project will produce 1,140 megawatts (MW) of clean energy and has further extension opportunity of up to 360 MW.

The Seagreen 1 project will have the capacity of providing clean power to more than 1 million homes when it starts commercial operation from 2022-end. (TOTAL to Buy Stake in Seagreen 1, Boost Renewable Portfolio)

3.   HollyFrontier Corporation HFC recently announced that its Cheyenne Refinery will shift from refining petroleum to producing renewable diesel fuel processed from soybean oil. This conversion to renewable diesel production will induce termination of HollyFrontier’s petroleum refining operation and a cutback in workforce at the Cheyenne refinery.

Further, the company plans to construct a pre-treatment unit for both its Cheyenne and Artesia diesel refinery units. With this transition, the company hopes to produce more than 200 million gallons of renewable diesel every year with the Cheyenne refinery producing nearly half that amount.

 HollyFrontier’s decision follows the rise in demand for renewable diesel and other lower carbon fuels. The company is grabbing a decent market share on the back of changing consumer tastes and adequate aid obtained from federal and state government-sponsored stimulus packages. This paradigm shift will spawn a huge scope for HollyFrontier to infuse capital for organic growth, which in turn, will boost its profit margins as well as fortify its presence in helming environmentally-friendly projects. (HollyFrontier's Cheyenne Refinery to Adapt to Diesel Unit)

4.   Petrobras PBR announced that it exported 1.11 million tons of fuel oil in May 2020, skyrocketing 231% from the volume exported in the same month of 2019. Moreover, this export figure reflects a 10% rise from the preceding record set in February this year, before the coronavirus pandemic triggered suspension of activities around the world.

The oil industry is reeling under the adverse impact of COVID-19 that jeopardized growth in most sectors. For instance, fuel demand took a huge hit following large-scale travel constraints imposed globally. Despite such challenging market conditions, this Rio de Janeiro-based company was able to produce record fuel exports, last month. To some extent, Petrobras’ enforcement of new global specifications for marine fuels that lowered the limit of sulfur content in crude oil from 3.5% to 0.5% was responsible for its improved market share, globally.

In a separate press release, this Brazilian state-run energy giant informed that the divestment procedure of its stakes in five power plants in the Latin American country is already on track. Those are, namely BrasympeEnergia SA, EnergéticaSuape II SA, TermoelétricaPotiguar SA, CompanhiaEnergéticaManauara SA and BrentechEnergia SA. (Petrobras' May Fuel Export Creates Milestone Despite Coronavirus)

5.    In its weekly release, Baker Hughes Company BKR reported another drop in the U.S. rig count. Rigs engaged in the exploration and production of oil and natural gas in the United States fell to an all-time low of 284 in the week through Jun 5, compared with the prior-week count of 301. The current national rig count is well below the prior year’s 975.

Investors should know that with the recent all-time low mark, the tally has touched record-low levels for five successive weeks, thanks to dented global energy demand owing to the coronavirus pandemic.

Oil rig count was 206 in the week through Jun 5, compared with 222 in the week ended May 29. Since crude prices are in the bearish territory, explorers are cutting their capital budget considerably. This led the weekly tally of oil rigs to fall for 12 consecutive weeks. (US Oil & Gas Rig Tally Hits Record Lows for 5 Straight Weeks)

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               +16.7%           -23.2%
CVX                +9.9%             -12%
COP               +15.2%           -18.6%
OXY                +60.5%           -34.7%
SLB                +19.9%           -36.4%
RIG                 +88%              -56.2%
VLO                +12%              -18.3%
MPC               +18.3%           -27.8%

The Energy Select Sector SPDR – a popular way to track energy companies – gained 15.7% last week. The best performer was offshore driller Transocean Ltd. RIG whose stock surged 88%.

Longer-term, over six months, the sector tracker is down 21.4%. Transocean was on the other end of the spectrum this time, experiencing a 56.2% price plunge.

What’s Next in the Energy World?

As global oil consumption gradually ticks up, 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 statistics on oil and natural gas - one of the few solid indicators that comes out regularly - and the Baker Hughes data on rig count, will be on the energy traders' radar.

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Transocean Ltd. (RIG) : Free Stock Analysis Report
TOTAL S.A. (TOT) : Free Stock Analysis Report
Petroleo Brasileiro S.A. Petrobras (PBR) : Free Stock Analysis Report
BP p.l.c. (BP) : Free Stock Analysis Report
HollyFrontier Corporation (HFC) : Free Stock Analysis Report
Baker Hughes Company (BKR) : Free Stock Analysis Report
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