It was a week when both oil and natural gas prices registered decreases.
On the news front, oilfield services biggie Halliburton HAL completed the sale of its Russian operations, while Italy-based energy major Eni E agreed to purchase its European peer BP’s gas business in Algeria. Developments associated with Liberty Energy LBRT, SM Energy SM and Cheniere Energy LNG also made it to the headlines.
Overall, it was another bearish seven-day period for the sector. West Texas Intermediate (WTI) crude futures lost a marginal 0.1% to close at $86.79 per barrel, while natural gas prices declined 9% to end at $7.996 per million British thermal units (MMBtu).
U.S. oil prices moved slightly lower after the Energy Information Administration ("EIA") showed builds in oil and fuel stockpiles in its latest weekly release.
Natural gas notched a much bigger weekly loss, primarily due to unfavorable weather forecasts and a spurt in production
Recap of the Week’s Most-Important Stories
1. Houston, TX-based provider of technical products and services to drillers of oil and gas wells, Halliburton, recently declared that it is no longer in charge of operations in Russia. The company has wound up the sale of its operations to a Russia-based management team comprising its former employees.
The management team, BurService LLC, is the new owner and operator of HAL’s former business and assets in Russia. BurService is independent of Halliburton. Although the terms of the sale were not disclosed, HAL’s Russian assets were valued at around $340 million prior to the exit.
In March, Halliburton suspended its operations in Russia in response to U.S. sanctions over Moscow’s military action in Ukraine and mentioned that it would further close down its operations in the country. (Halliburton Concludes Sale of Its Operations in Russia)
2. Rome-based energy biggie Eni signed an agreement to acquire British supermajor BP’s Algeria business, including two major natural gas fields. The acquisition involves BP’s stakes in the In Salah and In Amenas gas fields in southern Algeria. BP holds a 45.89% stake in In Amenas and a 33.15% stake in In Salah. Both fields are operated by BP and partners.
In 2021, the fields produced 11 billion cubic meters of gas and 12 million barrels of condensates and LPG. Eni expects production to increase as a result of the agreement. The company currently produces 100,000 barrels of oil equivalent per day (Boe/d). It expects its Algeria production to reach 120,000 Boe/d in 2023.
Eni has been planning to acquire stakes in the In Amenas and In Salah gas fields for several months. The agreement aligns with the company’s strategy to address the challenges of delivering secure and sustainable energy to customers. The acquisition will address Europe’s gas requirements and strengthen the company’s presence in Algeria. (Eni to Buy Algeria Fields to Address Gas Demand in Europe)
3. Liberty Energy — the North American oilfield services firm — recently declared that it has made an investment in Natron Energy. The California-based company, Natron Energy, specializes in manufacturing sodium-based batteries.
LBRT and Natron will work in partnership to introduce sodium-ion batteries as an energy storage solution to provide uninterruptible backup power for Liberty’s digiFrac electric frac pumps. According to Liberty Energy, digiFrac is the industry’s first purpose-built, fully integrated electric frac pump with high power density and considerably lesser emissions compared with others available in the market.
“Together, Liberty’s digiFrac and Natron’s batteries will advance environmental, social and corporate governance (ESG) goals of reducing emissions, maintaining high safety standards, and delivering a low total cost of ownership solution to Liberty’s customers,” commented Ron Gusek, president of Liberty Energy. (Liberty Invests in Sodium-Ion Battery Producer Natron)
4 SM Energy announced that it has hiked the quarterly dividend to 15 cents per share, reflecting an increase from the last paid dividend of 1 cent per share. The North American upstream operator, which currently has 123 million shares outstanding, will be paying out on Nov 7 to shareholders of record as of Oct 25.
SM Energy also announced a share repurchase program of up to $500 million. The company is authorized to repurchase shares through Dec 31, 2024, which represents 9.6% of its current market capitalization.
Although SM Energy’s dividend yield had been much lower than its industry for the most part of the last three years, the dividend hike is a positive indicator of the company’s performance. This means that the exploration and production player is performing well and cash flows are improving. (SM Energy Hikes Quarterly Dividend, Declares Share Buyback)
5 The U.S. Environmental Protection Agency (“EPA”) recently stated that it has rejected Cheniere Energy’s appeal to exempt turbines at its two U.S. Gulf Coast liquefied natural gas export terminals from a hazardous pollution rule. Under the U.S. Clean Air Act, the rule enforces curbs on the emission of known carcinogens like formaldehyde and benzene from stationary combustion turbines.
LNG had earlier asked the Biden-led U.S. administration to exempt it from the limits on the emission of cancer-causing pollutants, arguing that it could force the Zacks Rank #1 (Strong Buy) company to shut operations for an extended period. This would jeopardize the country's efforts to scale up LNG supplies to Europe.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The turndown by the EPA, however, raises questions as to whether the firm will have to cut its exports of the supercooled fuel to set up new pollution control equipment at its units when Europe is relying heavily on the augmented shipments of LNG from the United States to offset slashed Russian imports. (Cheniere's Pollution Rule Exemption Plea Denied by EPA)
The following table shows the price movement of some major oil and gas players over the past week and during the last six months.
Company Last Week Last 6 Months
XOM +1% +12.3%
CVX +1.3% -6.7%
COP +1.6% +14.1%
OXY -4.4% +12.8%
SLB +4.6% -10.3%
RIG +5.3% -17.3%
VLO -0.4% +21.5%
MPC +0.9% +24.4%
With oil being essentially unchanged for the week, stocks had mixed fortunes. The Energy Select Sector SPDR — a popular way to track energy companies — edged up 0.1% last week. But over the past six months, the sector tracker has increased 4.1%.
What’s Next in the Energy World?
Following last week’s sliding fortunes for oil and gas, market participants will closely track the regular releases to look for further guidance on the direction of prices. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that come out regularly — will be on energy traders' radar.
Data on rig count from the oilfield service firm Baker Hughes, which is a pointer to the trends in U.S. crude/natural gas production, is closely followed too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand loss from another round of coronavirus curbs in China will be the other factors that will dictate the near-term price movement of the commodities.
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