It was a week when both oil and natural gas prices settled higher.
On the news front, Halliburton’s HAL board of directors authorized the payout to be cut, while another oilfield service provider National Oilwell Varco NOV suspended its payout to free up cash amid the uncertainties associated with the coronavirus.
Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures surged 12.6% to close at $33.25 per barrel, while natural gas prices rose 5.2% for the week to finish at 1.731 per million Btu (MMBtu). In particular, the oil markets extended their gain toward $35 a barrel.
Coming back to the week ended May 22, the crude benchmark recorded another big jump after a report from the Energy Information Administration ("EIA") revealed that domestic crude stockpiles fell unexpectedly, led by a big drawdown at the storage hub in Cushing. Overall, oil supplies have been steadily dwindling as easing lockdown measures improve the demand outlook. Further, the report was supportive in terms of U.S. producers scaling back operations and refinery runs rebounding from coronavirus lows. However, uncertainty associated with Chinese economic growth, plus the country’s growing tension with the United States, offset some of those gains.
Natural gas also ended higher on prospects of lower volumes. The gain reflected the cut in shale oil production that will also limit associated gas output, thereby reducing the supply glut
Recap of the Week’s Most Important Stories
1. In the wake of oil price plunge, Halliburton recently announced that the board of directors decided to slash quarterly dividend for the second quarter of 2020 by 75% to 4.5 cents from the current level of 18 cents. This dividend is payable Jun 24, 2020 to its shareholders of record on Jun 3. The dividend cut is anticipated to help this company achieve its purpose of preserving cash and maintaining ample liquidity amid the virus mayhem.
This Houston-based oilfield service provider realized that in order to enhance its operating efficiency despite the challenging market conditions, it has to curtail costs substantially. Halliburton’s board agreed on a 20% voluntary cutback in its annual pay. The move follows the company’s plans to trim its executives’ income and stall certain contributions made to employee retirement accounts.
To safeguard its cash position, the company reduced its 2020 capital expenditure by nearly 50% compared with the prior-year levels. It even implemented a $1-billion action plan to lower overhead and other expenses. (Halliburton Cuts Dividend in a Drastic Step to Preserve Cash)
2. Oilfield equipment supplier National Oilwell Varco recently put its dividend on ice until further notice, one of several steps it’s taking to preserve capital during coronavirus’ fallout. The dividend suspension is anticipated to help the company achieve its purpose of preserving cash and maintaining liquidity amid the virus mayhem.
The declaration and payment of any future dividends remain at the discretion of its board and depend on factors such as global economic conditions, Zacks Rank #3 (Hold) National Oilwell Varco’s financial results and cash requirements.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company used to pay a quarterly dividend of 5 cents per share. The halt of the payout would save $77 million per year, helping National Oilwell Varco to navigate these uncertain times.
3. Occidental Petroleum OXY and TOTAL S.A. TOT canceled the remaining part of the deal for Africa assets. Notably, the deal was signed between the two companies on May 5, 2019. TOTAL had entered into the deal with Occidental to acquire Anadarko’s assets in Africa (Algeria, Ghana, Mozambique, South Africa) for a total value of $8.8 billion.
TOTAL has already acquired Mozambique and South African assets from Occidental. However, Algerian authorities disapproved the sale of Occidental’s assets in the country to TOTAL. TOTAL has also decided not to acquire Occidental’s Ghana assets. The discontinuation of the said agreement will now allow Occidental to look for a third party to sell its Ghana assets. Nonetheless, Occidental has decided to retain and operate the Algerian assets. Due to the deal cancellation, Occidental will face difficulties but TOTAL will be able to preserve liquidity in these difficult times.
Finding a new buyer for its Ghana assets could be tricky for Occidental at this moment, as major oil and gas companies across the globe have started to cut down on planned capital expenditure to preserve liquidity amid the unprecedented drop in oil prices and demand. (Occidental, TOTAL Cancel Deal for Remaining Africa Assets)
4. ConocoPhillips COP recently received permission from the Petroleum Safety Authority, the Norwegian offshore safety watchdog, to use the Valaris JU-292 jack-up unit of Valaris plc at the Ekofisk field in the North Sea. ConocoPhillips has been utilizing the rig on a contract in Norway since last November. The contract is set to expire in the second month of the next year.
The consent from the regulatory authority allows ConocoPhillips to plug and abandon six wells at the field. Moreover, it pertains to the removal of five wells’ conductor casings, which have been plugged and abandoned earlier in the Ekofisk field, located in the southern area of the Norwegian sector in the sea.
The Ekofisk field — one of the largest fields in the Norwegian continental shelf — was discovered in 1969 and commenced production in 1971. At a water depth of 70-75 meters, it was the country’s first oil and gas producing field. It has a reservoir from the Cretaceous geological period with 300-meter high oil column. The reservoir is located 3000 meters below the sea level. (ConocoPhillips Gets Approval to Use Valaris Rig for Ekofisk)
5. In its weekly release, Baker Hughes Company BKR reported a 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 318 in the week through May 22, compared with the prior-week count of 339. The current national rig count is well below the prior year’s 983.
Investors should know that with the recent all-time low mark, the tally has touched record-low levels for three successive weeks, thanks to dented global energy demand owing to the coronavirus pandemic.
Oil rig count was 237 in the week through May 22, compared with 258 in the week ended May 15. 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 10 consecutive weeks. (US Oil & Gas Rig Tally Sets Record Lows for 3 Straight Weeks)
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 +6.2% -35.3%
CVX +2.7% -22.3%
COP +5.9% -28.4%
OXY +2.2% -64.3%
SLB +10.2% -52%
RIG +2.1% -71%
VLO +11.7% -32.5%
MPC +19.4% -42.8%
The Energy Select Sector SPDR – a popular way to track energy companies – was up 6.9% last week. The best performer was downstream operator Marathon Petroleum MPC whose stock jumped 19.4%.
Longer-term, over six months, the sector tracker is down 35.4%. Offshore driller Transocean Ltd. was the major loser during this period, experiencing a 71% 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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TOTAL S.A. (TOT) : Free Stock Analysis Report
National Oilwell Varco, Inc. (NOV) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
ConocoPhillips (COP) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
Baker Hughes Company (BKR) : Free Stock Analysis Report
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