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Oil & Gas Stock Roundup: Equinor's GoM Boost, Schlumberger's Asset Sale & More

Nilanjan Choudhury
The ongoing consolidation has changed the oilfield service industry's supply dynamics and improved their pricing power.

It was a week where oil prices hit their highest since May 1 and natural gas futures tallied a small gain.

On the news front, Norway’s Equinor ASA EQNR agreed to shell out $965 million in cash to buy an additional 22.45% stake in the deepwater Caesar Tonga oilfield in the U.S. Gulf of Mexico. Meanwhile, oilfield services behemoth Schlumberger Limited SLB announced the sale of several drilling assets for $400 million.

Overall, it was a positive week for the sector. West Texas Intermediate (WTI) crude futures rose 1.8% to close at $62.76 per barrel, while natural gas prices edged up 0.5% for the week to finish at $2.631 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Diamondback and Marathon Petroleum Report Q1 Earnings)

The U.S. crude benchmark was buoyed by the rising threat of supply disruptions due to mounting tensions in the Middle East. The escalating tension was enough to offset the impact of U.S. Energy Department's latest inventory release. The report showed that crude stockpiles recorded an unexpected weekly build, ballooning to their highest since September 2017.

Natural gas prices also gained as anticipated increase in power sector demand due to warmer weather forecasts overshadowed a larger-than-expected increase in supplies.

Recap of the Week’s Most Important Stories

1.   Equinor ASA recently announced that the company has exercised preferential rights to obtain a 22.45% additional stake from Royal Dutch Shell plc RDS.A in the Caesar Tonga oil field. Through this deal, Equinor will be able to increase its interest in the oil field, located in the U.S. Gulf of Mexico (GoM), from 23.55% to 46% for $965 million in cash.

Located 290 kilometers southwest of New Orleans, the oil field — which came online in early-2012 — is one of the biggest deepwater resources in the prolific GoM. Currently, Equinor’s net production from the field stands at 18,600 barrels of oil equivalent per day. The latest deal will further increase the company’s footprint in the productive basin. The transaction has an effective date of Jan 1, 2019. Notably, this year, it will start drilling the Monument prospect in the region.

While Anadarko Petroleum Corporation is the operator of the Caesar Tonga field with a 33.75% stake, Chevron holds the remaining 20.25% interest. (Read more Equinor to Boost US GoM Footprint via Caesar Tonga Purchase)

2.    Schlumberger recently announced an accord with Wellbore Integrity Solutions, a subsidiary of a private equity firm.

The deal entails the largest oilfield service player’s intention to divest several drilling assets that are not complementing its business for a consideration of roughly $400 million. The agreement, which will see Schlumberger exit from the tubulars space, is likely to close by 2019-end.

Schlumberger added that its center of interest is to develop a core drilling strategy with the sale of non-core assets. Notably, the company’s core strategy includes developing technologies related to automation. The non-core operations that Schlumberger has agreed to sell include businesses and related properties of three subsidiaries - Thomas Tools, DRILCO, and Fishing and Remedial services. (Read more Schlumberger, Wellbore Integrity Solutions Ink $400M Deal)

3.    After missing earnings estimates in the trailing three quarters, Cheniere Energy, Inc. LNG delivered a comprehensive beat this time around, with both the top and bottom lines surpassing the Zacks Consensus Estimate. The largest U.S. liquefied natural gas (‘LNG’) exporter reported first-quarter 2019 net earnings per share of 54 cents, significantly beating the Zacks Consensus Estimate of 29 cents. Higher-than-expected revenues on the back of increasing volumes of LNG exports led to the outperformance.

The company posted first-quarter 2019 adjusted EBITDA of $650 million, with DCF of more than $200 million. During the quarter, Cheniere Energy shipped 87 cargoes, reflecting an increase of 30% from a year ago. Total volumes of LNG exported in the reported quarter were 309 trillion British thermal units (TBtu) compared with 241TBtu in the year-ago period.

Overall costs and expenses rose 11% from the corresponding quarter last year to $1,655 million. As of Mar 31, Cheniere Energy had approximately $1,093 million in cash and cash equivalents. It recorded $28,726 million in net long-term debt (with a debt-to-capitalization ratio of 93%). (Read more Cheniere Energy (LNG) Q1 Earnings Top Estimates, Down Y/Y)

4.    Exxon Mobil Corporation XOM, along with its partners in the P’nyang natural gas field in Papua New Guinea recently agreed to divest a stake to an Australian energy company Santos Ltd. Per a binding letter of intent signed between the companies, Santos will become a 14.3% stakeholder in the Petroleum Retention License 3 for $187 million.

The deal — expected to close by the end of June 2019 — will likely support the planned expansion of ExxonMobil-operated $19 billion PNG LNG project. Santos already holds 13.5% stake in the PNG LNG project.

Another partner in the PNG LNG project, Oil Search Limited — which will vend a 1.65% interest in the field for $21.6 million — will now hold 36.86% stake in the field. Notably, the same amount of interest will likely be held by ExxonMobil, following the completion of the transaction. Also, a bunker brokerage firm, Merlin Petroleum, will own 11.96% stake in the field. (Read more ExxonMobil to Divest Papua New Guinea Field Stake to Santos)

5.     Anadarko Petroleum Corporation APC recently announced that it has entered into a Sale and Purchase Agreement (‘SPA’) with Japanese power major JERA and Taiwanese oil and gas company CPC. Per the contract, the companies will buy LNG from Anadarko’s proposed Mozambique project.

The agreement calls for Mozambique LNG1 Company Pte. Ltd. to supply 1.6 million tons per annum of liquefied gas to JERA Co., Inc (JERA) and CPC Corporation, Taiwan. Mozambique LNG1 Company is the jointly-owned sales entity of the Mozambique Area 1. Apart from Zacks Rank #1 (Strong Buy) Anadarko, the co-venturers in Area 1 include six other entities.

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

The company is on track to complete the Mozambique LNG project and making a final investment decision in the first half of 2019, post securing final approvals. The deal brings company’s total long-term agreements to 11.1 million tons annually. (Read more Anadarko Petroleum Signs Long-Term SPA with JERA and CPC)

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

-0.8%

-2.1%

CVX

-0.2%

+2.8%

COP

+0.3%

-4.6%

OXY

-4%

-25.8%

SLB

-1.4%

-17.9%

RIG

-0.7%

-20.2%

VLO

+1.1%

+3.6%

MPC

-1.2%

-18.2%

The Energy Select Sector SPDR – a popular way to track energy companies – edged down 0.5% last week. The worst performer was Houston-based energy explorer Occidental Petroleum OXY whose stock slumped 4%.

Longer-term, over six months, the sector tracker is down 3.3%. Occidental Petroleum was again the major loser during this period, experiencing a 25.8% price decline.

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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Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
Anadarko Petroleum Corporation (APC) : Free Stock Analysis Report
 
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
Statoil ASA (EQNR) : Free Stock Analysis Report
 
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