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Oil & Gas Stock Roundup: ConocoPhillips' Australia Asset Sale, Phillips 66's Buyback & More

Nilanjan Choudhury

It was a week where oil prices rallied but natural gas futures ended lower.

On the news front, world’s largest independent oil and gas producer ConocoPhillips COP entered into an agreement to sell some of its portfolio in Australia for $1.39 billion. Meanwhile, downstream major Phillips 66 PSX launched a $3 billion new buyback program.    

Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures rose 3.6% to close at $54.70 per barrel, natural gas prices moved down 5.9% for the week to finish at 2.214 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: ExxonMobil & Shell's Q3 Updates, ConocoPhillips' Dividend Hike)

The U.S. crude benchmark finished higher last week, helped by positive murmurings about the U.S.-China trade negotiations and data showing drop in domestic product inventories. Prices were also supported by rising geopolitical tensions in the Middle East.   

Meanwhile, natural gas prices finished lower after the weekly inventory release showed a slightly larger-than-expected increase in supplies amid overwhelming production. 

Recap of the Week’s Most Important Stories

1.  ConocoPhillips has announced an accord with Santos Ltd to divest its Australia-West properties. The deal, anticipated to conclude in the March quarter of 2020, will likely generate proceeds of $1.39 billion.

The assets to be divested include the company’s 37.5% stakes in Barossa offshore project that entails the development of Barossa and Caldita gas-condensate fields. The agreement also encompasses the company’s 50% interests in the Athena field and 40% stakes in Poseidon field. Moreover, ConocoPhillips will divest its 56.9% stake in the Darwin liquefied natural gas (LNG) facility. Notably, the LNG plant has a production capacity of 3.7 million tons per annum (MTPA). The offshore field — Bayu-Undan —provides gas to the facility.

The leading exploration and production player stated its aim to utilize the procced for general corporate purposes. Investors should know that the sale reflects the company’s strong focus on the profitable shale plays in the United States. In other words, ConocoPhillips will be allotting its capital for other developments that are likely to generate lucrative returns for shareholders in the long run. (Read more ConocoPhillips Inks Deal to Sell $1.4B Australia-West Assets)

2.   Phillips 66 announced an authorization by the board of directors for a new share repurchase program. With this move, the company has been permitted to repurchase up to $3 billion of common stock.

Following the latest approval, its share repurchase program authorized since 2012 aggregates $15 billion. Thus, Phillips 66 has been strongly committed in returning cash to its shareholders through both dividend payments and stock repurchases. The company stated that it has returned more than $24 billion of capital to its shareholders since 2012.

Phillips 66 has also revealed long-term capital allocation program. The company is planning to allocate roughly 60% of its operating cash flow for business investments. The remaining 40% is likely to be returned to its shareholders via share buybacks and dividend payments. This reflects the company’s overall strong operations and competitive strength in all the business segments that include midstream, chemicals and refining. (Read more Phillips 66 Rewards Shareholders With Stock Buyback Program)

3.   BP plc BP recently announced that third-quarter production levels were dented by turnaround activities in some of the high-margin regions served. Moreover, in mid-July, output from the U.S. Gulf of Mexico was affected by Hurricane Barry that caused the closure of its facilities for almost 14 days. The Zacks Rank #3 (Hold) company’s third-quarter production level was cut by 100 thousand barrels of oil equivalent per day (MBoe/d). The lower production may have affected its revenues in third-quarter 2019.

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

The company also stated that it had commenced a $10-billion asset divestment program — following a $10.25-billion acquisition of BHP’s onshore assets in 2018 — that was primarily scheduled to be completed in 2020. Given the pace of divestments, the company is now expected to reach its target by 2019-end.

The divestment program incorporates the sale of its Alaskan properties for $5.6 billion to Hilcorp and vending of four legacy U.S. gas assets to undisclosed parties. Owing to the divestments, the company recorded an impairment charge of $2-$3 billion in third-quarter 2019. The move is expected to offset some of its debt burden, which surged following the acquisition of BHP assets. Notably, BP currently has a debt-to-capitalization of 39.3%, way above the industry average of 21.2%. (Read more BP's Q3 Output Takes a Blow, Divestments Ahead of Schedule)

4.  TOTAL S.A. TOT ventured into the natural gas market in India through the acquisition of a 37.4% stake of Adani Gas Ltd. for $600 million. This strategic deal will expand TOTAL’s natural gas footprint in India where demand for the commodity is rising and the government is supporting its increasing usage.

India’s government is going to invest $60 billion in developing its natural gas supply and distribution infrastructure, and aims to more than double the share of natural gas in its energy base to 15% by 2030 from the current level of 6.2%. The investment will help in the development of national gas grid and import terminals by 2024.

TOTAL’s acquisition of interest in Adani will give it access to several assets across the gas value chain, notably two imports and regasification liquefied natural gas (LNG) terminals. Adani currently supplies gas in five cities and has the right to develop city gas distributions in other 38 geographies.

Over the next decade, Adani targets to reach 6 million homes. TOTAL will benefit from Adani’s existing presence in the market in India and use its global experience in LNG trading for the benefit of the customers therein. (Read more TOTAL to Gain From Adani Venture as India Invests $60B in Gas)

5.   Kinder Morgan, Inc. KMI has brought the new Elba Island liquefied natural gas (“LNG”) export plant online within a week of receiving green signal from U.S. regulators. This marks the start of production from the first liquefaction unit of the 10 planned trains under the project. The LNG terminal is expected to help Kinder Morgan to reap profits from growing domestic natural gas production and rising demand for cleaner energy sources around the globe.

The $2-billion Elba Liquefaction project — located in Georgia — is a joint venture between Kinder Morgan and EIG Global Energy Partners. The midstream giant owns 51% of the project, while the rest is held by EIG Global Energy. Notably, this is the smallest of the LNG export terminals in the country, per S&P Global Platts. The unit that recently came online has a nameplate capacity of around 33 million cubic feet per day.

Start-up activities for the second and third trains are currently in the pipeline, while commissioning processes for the fourth, fifth and sixth trains are proceeding. The company is working on the construction of the rest of the trains. Once the whole project comes online, the facility will likely have around 2.5 million tons per year of LNG for export. (Read more Kinder Morgan Brings Elba Island LNG Terminal Online)

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

0%

-14.2%

CVX

+2%

-3.3%

COP

+5.5%

-15.4%

OXY

-4.5%

-36.1%

SLB

+1.9%

-29.8%

RIG

+7.8%

-46.1%

VLO

+4.1%

+1%

MPC

+4.4%

+4.3%

 

The Energy Select Sector SPDR – a popular way to track energy companies – was up 0.9% last week. The best performer was Offshore driller Transocean Ltd. RIG whose stock gained some 7.8%.

On the other end of the spectrum this time, Transocean was the major loser during this period, experiencing a 46.1% 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. Meanwhile, the 2019 Q3 reporting season gets under way later this week.

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Phillips 66 (PSX) : Free Stock Analysis Report
 
BP p.l.c. (BP) : Free Stock Analysis Report
 
TOTAL S.A. (TOT) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
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