It was a week where both oil and natural gas prices settled higher.
On the news front, Norwegian energy behemoth Equinor ASA EQNR announced the flow of first oil from the huge Mariner field in the UK North Sea, while British supermajor BP plc BP inked a new joint venture in India to set up 5,500 petrol pumps.
Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures edged up 0.7% to close at $54.87 per barrel, while natural gas prices rose 3.8% for the week to finish at 2.120per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Eni, TC Energy, Pioneer Natural Q2 Earnings)
The U.S. crude benchmark logged a slight gain after the federal government’s EIA report revealed shrinking fuel inventories amid robust demand. Heightened geopolitical tensions in the Middle East also contributed to the increase. However, prices were kept in check by the impact of slowing global economic growth in the backdrop of the U.S.-China trade war. A second weekly build in crude stockpiles also curbed the upward trend.
Natural gas prices gained too as the market participants chose to focus on a smaller-than-expected increase in natural gas supplies, with an added push in the wake of favorable short-term temperature prediction.
Recap of the Week’s Most Important Stories
1. Equinor announced its first oil extraction from the Mariner oil field in Britain’s North Sea. The start-up was originally planned for 2017 but went through a series of postponements due to reasons varying from tough weather conditions to informal labor strikes.
Mariner, located on the East Shetland Platform of the UK North Sea, is expected to produce nearly 55,000 barrels of oil per day (bpd), which might shot up to 70,000 bpd during peak production.
As one of the UK’s largest oil-energy projects, Mariner’s development activity is supported by a gross investment of US$7.7 billion, which is one of the biggest cash infusions for the industry in the last decade and is expected to generate 3 billion barrels of oil, an estimate above 50% of what was initially assumed. This massive endeavor is set to create 700 permanent jobs apart from 800 construction work opportunities worth $1.3 billion in the UK alone (Read more Equinor's Mariner Oil Platform Comes Online at UK's North Sea)
2. BP has once again partnered with Reliance India Limited (“RIL”), initiating a joint venture in the Indian fuel retailing business. In this partnership, RIL will have 51% stake in the ownership and the rest will be held by BP.
The joint venture aims to almost quadruple the existing 1400 fuel stations to 5,500 over the next five years. It further plans to focus more on providing packaged fuels and home delivery of fuels to customers and get an easy access to the Jamnagar refining facility of RIL in Gujarat with competitive advantages in supplying fuel.
Given that India is among the major countries that witnesses mounting demand for fuels, it is expected to be the fastest growing markets for the commodities around the world by mid 2020s. Further, BP predicted that over time, the number of passenger cars in the country will increase almost six-fold. Hence, the latest deal has reflected the integrated energy player’s intention to capitalize on India’s growing energy need. (Read more BP to Tap the Surging Indian Fuel Market Via Reliance Deal)
3. Halliburton Company HAL recently announced that it received nine subsea contracts from Australia-based Woodside Petroleum. These contracts were awarded for the SNE Field Development Phase 1 Offshore Senegal. The contract win calls for Zacks Rank #3 (Hold) Halliburton’s drilling and completion of 18 wells with an option to include up to another eight over an expected three-four-year period. It would encompass activities like drilling, logging, cementing, lower completions, e-line/slick line, coiled tubing and well-testing services among others.
The SNE Field Development Phase 1 drilling campaign, which is expected to start in late 2020 or early 2021, will lay its initial engineering work at the end of this year in Perth, Australia and later shift to Dakar, Senegal in 2020.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Halliburton contracts will provide services to Senegal’s first offshore deep-water oil development. The project will be operated by Woodside Petroleum that holds 35% of the stake while its partnerships in this field include Carin with 40%, FAR with 15% and Petrosen with 10% interests. The financial cost of the contract has been kept under wraps by Halliburton. Moreover, the contracts are contingent on Woodside’s positive SNE Field Development FID and final investment decisions. (Read more Halliburton Clinches Nine Offshore Contracts in Senegal)
4. Chesapeake Energy CHK reported second-quarter 2019 loss per share (excluding special items) of 10 cents, wider than the Zacks Consensus Estimate of loss of 7 cents. In the year-ago quarter, the company reported a profit of 15 cents a share.
Total capital expenditure increased to $559 million in the second quarter from $530 million in the year-ago period, primarily due to a rise in initial drilling and completion capital spending. At the end of the quarter under review, Chesapeake had a cash balance of $4 million. Net long-term debt was $9,701 million, leading to a debt-to-capitalization ratio of 69.6%.
The company issued its updated production guidance for 2019 in the range of 484,000-505,000 Boe per day. Notably, the company maintained its total capital budget for 2019 at $2,105-$2,305 million. (Read more Chesapeake Q2 Earnings Lag Estimates on Low Gas Volumes)
5. Delek US Holdings DK delivered a comprehensive beat in the second quarter of 2019, wherein it surpassed both earnings and sales estimates. Notably, robust contribution from the refining segment buoyed its results. The company posted adjusted net income per share of $1.17, comfortably surpassing the Zacks Consensus Estimate of 77 cents and increasing from the comparable year-ago profit of 92 cents.
Margin from the Refining segment was $178.3 million, slightly higher than $177 million recorded in the year-ago quarter. The segment’s results were aided by reduced RIN costs, completion of the Alkylation project at the Krotz Springs refinery and higher crack spreads, partially offset by lower Midland discount versus Cushing (on continued congestion in the Permian Basin).
In the reported quarter, Delek spent $86 million on capital programs (57% on the Refining segment). As of Jun 30, the company had cash and cash equivalents of $951.4 million and a long-term debt of $1,852.3 million, with a debt-to-capitalization ratio of 49.5%. During the quarter under review, Delek bought back shares worth $58.6 million. It is expected to repurchase an additional $40 million shares in the third quarter. The company declared quarterly dividend of 29 cents a share, marking a 3.6% sequential rise.(Read more Delek Q2 Earnings Beat on Refining Strength, Up Y/Y)
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 – was down 3.5% last week. The worst performer was Houston-based energy explorer Occidental Petroleum OXY whose stock fell 5.4%.
Longer-term, over six months, the sector tracker is down 12.5%. Offshore driller Transocean Ltd. RIG was the major loser during this period, experiencing a 47% 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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Delek US Holdings, Inc. (DK) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
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