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Oil & Gas Stock Roundup: Occidental's 2nd Dividend Cut, Williams' Solar Push & More

Nilanjan Choudhury

It was a week when both oil and natural gas prices settled higher.

On the news front, oil and gas producer Occidental Petroleum OXY slashed its quarterly dividend for the second time in four months, while North American energy infrastructure provider Williams Companies WMB plans to develop solar energy to power its operations in nine states.  

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained 6.7% to close at $35.49 per barrel, while natural gas prices rose 6.8% for the week to finish at 1.849 per million Btu (MMBtu). In particular, the oil markets extended gains to trade above $35 per barrel for the largest monthly increase on record.

Coming back to the week ended May 29, the crude benchmark recorded another climb after U.S. government data revealed a drop in gasoline stockpiles and big drawdown at the storage hub in Cushing. The report was also supportive in terms of U.S. producers scaling back operations. Weekly figures show output has dropped to 11.4 million barrels per day, since reaching 13.1 million in the second week of March. Oil prices were also supported by the continued decline in rig count, which currently sits at its lowest since 2009.

Natural gas ended higher too 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.  Occidental Petroleum announced that the board of directors has decided to slash quarterly dividend again to preserve liquidity amid weak commodity prices and demand. The new quarterly dividend will be 1 cent down from the prior rate of 11 cents. The new dividend will be payable on Jul 15 to shareholders on record as of Jun 15, 2020.

Earlier in March 2020, the company slashed quarterly dividend by 86% to 11 cents for the first time in three decades to ensure enough liquidity to service its debts.

In the 2021 to 2022 time period, Occidental will have to repay debt worth $11.1 billion. However, the current weak commodity price scenario, declining demand trends and lower probability of selling non-core assets will hinder the company’s debt reduction plan. Plus, the cancellation of the TOTAL African asset deal will aggravate problems. Hence, cutting down dividend again was one of the ways for Occidental to preserve liquidity. The decision to cut dividend twice is expected to enhance liquidity by $2.8 billion annually. (Occidental to Cut Dividend Again to Preserve Liquidity)

2.   Williams Companies recently announced its plan to install solar projects with capacities around one and 40 megawatt (MW) on lands nearby its existing facilities. The solar power installations are expected to come online in late 2021.

To this end, the Zacks Rank #2 (Buy) company has already identified initial sites suitable for solar photovoltaic (PV) plants in nine states comprising Alabama, Colorado, Georgia, Louisiana, New Jersey, North Carolina, Ohio, Pennsylvania and Virginia.  Of these, Colorado will be the first region wherein Williams will earmark spots for solar installations.

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

This U.S. natural gas processing and transmission firm aims to produce solar electricity for its operations by capitalizing on the federal and state tax credits as well as lowering losses on long-haul transmissions. Per the company, the declining cost of solar technology and available tax credits make solar plants cost competitive in comparison to traditional combined cycle power generation. (Williams to Build 1-40 MW Solar Stations Across 9 US States)

3.   EQT Corporation EQT recently trimmed its second-quarter production guidance. Moreover, the company closed the divestment of non-core assets in Pennsylvania and West Virginia for a total of $125 million in cash. Yesterday, the stock rose 7.4% following the news.

Due to demand destruction caused by coronavirus-induced lockdowns, the company decided to reduce gross production by 1.4 billion cubic feet of natural gas equivalent per day (Bcfe/d), earlier this month. The curtailment is expected to be on a temporary basis. If the situation persists through the rest of the second quarter, total quarterly sales volume will likely be in the range of 315-335 Bcfe. The metric is around 45 Bcfe lower than the previous guidance range of 360-380 Bcfe. It achieved sales volumes of 370 Bcfe in the year-ago quarter. However, the upstream energy player anticipates its full-year 2020 production and financial guidance to remain unchanged.

Moreover, second-quarter total operating costs are expected toward the higher limit of the guided range of $1.34-$1.46 per thousand cubic feet equivalent (Mcfe). In the year-ago quarter, the company’s total operating costs were $1.52 per Mcfe. (EQT Corp. Slashes Q2 Output View, Closes Asset Divestment)

4.   ConocoPhillips COP recently completed the divestment of northern Australia and Timor-Leste assets to Australian oil and gas company Santos under a revised deal. ConocoPhillips intends to use the proceeds from the transaction for general corporate purposes.

The acquirer will now pay to ConocoPhillips $1.265 billion, which is a discount to the $1.390 billion price announced last October. The discounted selling price of the assets was a result of low energy demand stemming from coronavirus-induced lockdowns and reduced commodity prices. However, the contingent payment has risen from $75 million to $200 million, subject to a final investment decision on the Barossa gas field development. However, the total consideration of the deal remains unchanged.

ConocoPhillips will maintain strategic presence in the country while focusing on the Australia Pacific LNG project and exploration activities. The company has invested more than $20 billion in the country since 2004 and created in excess of 4,000 direct jobs. (ConocoPhillips Closes Australian Asset Divestment to Santos)

5.    In its weekly release, Baker Hughes Company BKR reported another 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 301 in the week through May 29, compared with the prior-week count of 318. The current national rig count is well below the prior year’s 984.

Investors should know that with the recent all-time low mark, the tally has touched record-low levels for four successive weeks, thanks to dented global energy demand owing to the coronavirus pandemic.

Oil rig count was 222 in the week through May 29, compared with 237 in the week ended May 22. 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 11 consecutive weeks. (US Oil & Gas Rig Tally Hits Record Lows for 4 Straight Weeks)

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                  +2%              -33.9%
CVX                   +1.6%          -22.4%
COP                  -2.5%           -28.2%
OXY                   -8.4%           -64.6%
SLB                   +5.1%          -48.1%
RIG                     -7%             -72.1%
VLO                    +1.5%         -29.7%
MPC                  -1.2%           -42%

The Energy Select Sector SPDR – a popular way to track energy companies – edged up 0.7% last week. The best performer was oilfield services behemoth Schlumberger SLB whose stock jumped 5.1%.

Longer-term, over six months, the sector tracker is down 33.9%. Offshore driller Transocean Ltd. RIG was the major loser during this period, experiencing a 72.1% 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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Transocean Ltd. (RIG) : Free Stock Analysis Report
EQT Corporation (EQT) : Free Stock Analysis Report
Schlumberger Limited (SLB) : Free Stock Analysis Report
ConocoPhillips (COP) : Free Stock Analysis Report
Williams Companies, Inc. The (WMB) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
Baker Hughes Company (BKR) : Free Stock Analysis Report
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