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Oil & Gas Stock Roundup: Occidental's Q1 Earnings, Shell's Oil Find & More

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·8 min read
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It was a week when oil prices finished slightly higher, although natural gas remained flat.

On the news front, energy major Occidental Petroleum OXY reported March-quarter earnings. Meanwhile, Royal Dutch Shell RDS.A announced an oil discovery in the deepwater Gulf of Mexico and Marathon Petroleum Corporation MPC said it has concluded the $21 billion sale of its retail business Speedway.

Overall, it was a marginally positive week for the sector. West Texas Intermediate (WTI) crude futures inched up 0.7% to close at $65.37 per barrel, while natural gas prices ended the week flat at $2.96 per million British thermal units (MMBtu). In particular, the oil markets just about managed to maintain their forward momentum from the previous two weeks.

Coming back to the week ended May 14, oil prices moved up a little after a U.S. government data showed the second straight fall in domestic oil stocks, accompanied by a decrease in distillate inventories. However, the reopening of the Colonial Pipeline — a crucial piece of infrastructure that transports gasoline to the Southeast and East Coast — and the surging pandemic in India tempered the gains.

Meanwhile, natural gas remained essentially unchanged last week as an in-line inventory report and the ongoing strength in liquefied natural gas demand was offset by the prospect of tepid weather-related consumption.

Recap of the Week’s Most-Important Stories

1.  Oil and gas producer Occidental Petroleum reported first-quarter 2021 loss of 15 cents per share, narrower than the Zacks Consensus Estimate of a loss of 33 cents. The better-than-expected bottom line could be attributed to strong production and higher realized prices.

As of Mar 31, 2021, Occidental had cash and cash equivalents of $2,270 million compared with $2,008 million on Dec 31, 2020. At the end of the first quarter, the company had a long-term debt (net of current portion) of $35,466 million compared with $35,745 million on Dec 31, 2020. The decrease in the debt level was due to effective management of debt since the acquisition of Anadarko.

For first-quarter 2021, Occidental’s total capital expenditure was 579 million compared with $1,300 million invested in the year-ago period. It expects to invest $2.9 billion in 2021 to further strengthen the existing operations. A total of $2.53 billion was invested in 2020. Out of the 2021 projected capital expenditure, $1.2 billion will be invested in the Permian region to bring new wells online. (Occidental Q1 Loss Narrower Than Expected, Sales Top)

2.   A subsidiary of Royal Dutch Shell recently made a major oil discovery at the Leopard prospect in the Alaminos Canyon block 691 in the deep-water U.S. Gulf of Mexico (GoM). At multiple stages, the Leopard Well encountered more than 600 feet (183 meters) of net oil pay and an assessment is underway to further determine development options.  

Notably, Leopard is run by Shell (50%) and co-owned by Chevron. It is located about 20 miles east of the Whale discovery, 20 miles south of the recently reviewed Blacktip discovery and 33 miles from the Perdido host. The discovery well was drilled at a water depth of 2,070 meters by Transocean’s ultra-deepwater drillship Deepwater Thalassa.

Shell's Deepwater executive vice president Paul Goodfellow believes that Leopard is a lucrative add-on to the company's core portfolio and strengthens its supremacy in the Gulf of Mexico, particularly given its connectivity to established infrastructure and other discoveries in the Perdido Corridor. He added, "With our US Gulf of Mexico production among the lowest GHG intensity in the world, Shell remains confident about the GoM and this latest discovery will help us deliver on our strategy to focus on valuable, high-margin barrels as we sustain material Upstream cash flows into the 2030s." (Shell Hits Oil in Gulf of Mexico's Leopard Prospect)

3.  Marathon Petroleum recently concluded the sale of its Speedway business comprising approximately 3,900 c-stores in 35 states to Japan-based retail group Seven &i Holdings — the owner of the 7-Eleven convenience store chain — for $21 billion. The after-tax cash proceeds of this deal are expected to be $16.5 billion.

Apart from providing the leading independent refiner, transporter and marketer of petroleum products with a much-needed cash infusion, the disposal of the Speedway-branded gas stations at a premium price is expected to enhance its shareholder value. As stated earlier, $2.5 billion of the sales proceeds will be utilized to service Zacks Rank #3 (Hold) Marathon Petroleum’s long-term structural debt.

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

Marathon Petroleum's board members also approved a $7.1-billion share repurchase authorization. This Findlay, OH-based company now has the authority to buy back up to $10 billion of its common shares in addition to the previously sanctioned $2.9 billion. There is no time limit to this authorization. (Marathon Closes Divestment of $21B Speedway Business)

4.  Bonanza Creek Energy BCEI entered a definitive agreement with Extraction Oil & Gas XOG to merge in an all-stock deal of equals, wherein shareholders of both companies will have equal percentage shareholdings in the combined entity. Notably, the deal, which is valued at $2.6 billion, is expected to be completed in the third quarter of 2021.

The merged entity, renamed as Civitas Resources Inc., will be regarded as the largest pure-play oil and gas company in the Denver-Julesburg (“DJ”) Basin of Colorado. In fact, a majority of the companies’ operations are based in the DJ Basin, spreading across the Front Range and parts of Wyoming and Nebraska.

The merger is expected to form one of the most durable and advanced producers in the DJ Basin. Moreover, it would create the fourth-largest oil and gas producer in Weld County. Civitas will operate on approximately 425,000 net acres, with a production capacity of 117,000 barrels of oil equivalent per day. Importantly, the deal is expected to add free cash flow and other per-share metrics along with annual expenses and capital savings worth $25 million. (Bonanza to Merge With Extraction in $2.6B All-Stock Deal)

5.  Laredo Petroleum LPI entered an agreement to purchase the exploration and production assets of Sabalo Energy LLC and a non-operating partner for nearly $715 million. The transaction involves $625 million in cash and 2.5 million shares of Laredo common equity shares, subject to customary closing price adjustments.

The acquisition comprises 21,000 contiguous net acres, which offsets Laredo's existing Howard County leasehold with 120 operated oil-weighted locations and 150 non-operated locations. The assets currently have a low-decline production capacity of 14,500 barrels of oil equivalent per day, with an estimated next 12-month oil decline of 35%. Notably, proved developed producing (“PDP”) reserves are estimated at 30 thousand barrels of oil equivalent.

Further, Laredo decided to divest 37.5% of its operating PDP reserves in Reagan and Glasscock counties to an affiliate of Sixth Street Partners LLC.  Laredo will receive $405 million and extra potential cash flow-based earn-out payments for the next six years. Importantly, the divestiture does not include the Howard and Western Glasscock acreage obtained in late 2019. (Laredo Announces Acquisition of Sabalo Energy Assets)

Price Performance

The following table shows the price movement of some the major oil and gas players over past week and during the last six months.

Company    Last Week    Last 6 Months

XOM                  -1.2%               +67.1%
CVX                  -0.5%                +31.5%
COP                 -0.2%                +48.8%
OXY                  -8.4%               +105.1%
SLB                  +2.9%                +70.5%
RIG                  +0.5%                +226.8%
VLO                 +2.2%                 +59.3%
MPC                +0.1%                 +59.6%

The Energy Select Sector SPDR — a popular way to track energy companies — edged down 0.3% last week. The worst performer was Houston-TX based biggie Occidental Petroleum whose stock slumped 8.4%.

However, over the past six months, the sector tracker has surged 54.5%. Offshore driller Transocean Ltd. RIG was the major gainer during the period, experiencing a 226.8% price appreciation.

What’s Next in the Energy World?

As global oil consumption outlook strengthens amid the OPEC+ led calibrated supply cuts and successful vaccine deployments, 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’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 energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. Finally, news related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.

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Transocean Ltd. (RIG) : Free Stock Analysis Report
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
Bonanza Creek Energy, Inc. (BCEI) : Free Stock Analysis Report
Laredo Petroleum, Inc. (LPI) : Free Stock Analysis Report
Extraction Oil & Gas, Inc. (XOG) : Free Stock Analysis Report
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