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Oil & Gas Stock Roundup: Occidental's Land Deal, TOTAL's FID & More

Nilanjan Choudhury
·8 mins read

It was a week wherein oil futures were largely unmoved but gas prices hit another multi-month high.

On the news front, Occidental Petroleum OXY agreed to sell more than five million acres of land and mineral rights in Wyoming, Colorado and Utah, while TOTAL SE TOT and its partners took the final investment decision (“FID”) for the third phase of the Mero project offshore Rio de Janeiro.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained a miniscule 0.1% to close at $42.34 per barrel, while natural gas prices were up 3.9% for the week to finish at 2.288 per million Btu (MMBtu).

The crude benchmark was little changed with large but opposing forces at work. The commodity got a leg up after a report from the EIA showed a fourth-straight weekly stockpile draw with the world's biggest oil consumer. Another piece of optimistic news was the fall in gasoline supplies, while storage at the Cushing hub fell for the first time since July. At the same time, investors remain worried about a fresh wave of the virus in many countries, which has created doubts over the trajectory of oil’s demand recovery. To add to the uncertainty, U.S. energy companies added oil rigs last week, with the tally rising for the first time since July.

Meanwhile, natural gas rallied to its highest in 2020 due to record cooling demand and expectations of continued hot weather, which is likely to translate into the burning of more fuel to feed higher electricity consumption for air-conditioning. The steady improvement in shipments of LNG for export and potential supply disruptions due to twin hurricane forecasts to hit the Gulf of Mexico are the other positives in the natural gas story.

Recap of the Week’s Most-Important Stories

1.  Occidental Petroleum announced that it has entered into an agreement to divest its Wyoming, Colorado, and Utah Land Grant assets to Orion Mine Finance (Orion) for nearly $1.33 billion.

This deal, which is expected to close in fourth-quarter 2020, includes the company’s 4.5 million mineral acres and 1 million fee surface acres. The agreement does not include nearly 2.5 million mineral acres derived from the land grant in Colorado, including Occidental’s core DJ Basin position.

This deal in a way will assist the company to meet the $2 billion non-core asset divestment target set for 2020. The net proceeds from the deal will help Occidental meet debt obligations and fund growth projects. When TOTAL SE (TOT - Research Report) canceled the agreement to acquire the remaining part of Occidental’s Africa assets, it created serious challenges for the latter to find a new buyer amid declining commodity prices. (Occidental to Sell $1.33B Assets as Part of Divestment Goal)

2.  TOTAL SE, along with its partners in the Libra Consortium, has taken a decision to launch the third phase of the Mero project (Libra block), located deep offshore, 111.8 miles (180 kilometers) off the coast of Rio de Janeiro.

The Libra Consortium is operated by Petrobras (that holds a 40% interest. Other partners include TOTAL and Royal Dutch Shell RDS.A with a 20% stake each, and CNOOC Limited and CNPC having a 10% interest each.

This Phase 3 floating production storage and offloading (FPSO) vessel will have a liquid treatment capacity of 180,000 barrels per day and is expected to start operations by 2024. Phase 1 is expected to begin operation in 2021 and Phase 2 is likely to be operative in 2023. Both Phase 1 and Phase 2 FPSO will have a liquid processing capacity of 180,000 barrels per day. (TOTAL and Partners Launch Phase 3 of Mero Field in Brazil)

3.  Chevron CVX has decided to stall Train 1 at the Gorgon LNG project offshore Western Australia to inspect the damage. The stoppage is expected to be effective early October soon after the Train 2 re-enters service somewhere around early September. Train 2 was halted in May after welding cracks were discovered. If issues are found while inspecting the first train, it could be offline for a period of 45-90 days.

A temporary suspension of the Gorgon Train 3 plant is also expected to take place in early 2021, based on the results of repairs made to the other trains. All three trains were built at the same fabrication yard in South Korea with the first two coming online in 2016 and the Train 3 commencing operations in 2017.

While Chevron is the chief operator of Gorgon LNG project holding 47.3% stake, Exxon Mobil Corporation (XOM) and Royal Dutch Shell plc own a 25% interest each. The remainder is held by Osaka Gas, Tokyo Gas and Chubu Electric Power. (Chevron to Halt Gorgon Project Trains 1 & 3 for Fault Checking)

4.  Petrobras PBR recently inked a deal with SPE Fazenda Belém S.A., a unit of oil field operator 3R Petroleum, as it aims to divest its interest in the onshore fields of Fazenda Belém and Icapuí. Per management, the plan is in line with the company’s strategy to cut costs and improve its capital allocation. This state-run energy giant is the sole owner of the two fields and intends to sell full operating ownership of the project.

The two above-mentioned fields, located in the Potiguar Basin of Ceara, Brazil, are together known as the Fazenda Belém cluster. The sale of the two fields is priced at $35.2 million, of which $8.8 million has already been paid at the time of signing the contract. Management of this Zacks Rank #3 (Hold) company further informed that another $16.4 million will be paid at the close of the transaction and the residual $10 million will be paid in the first 12 months from the date of the deal’s conclusion.

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

Per Petrobras, the transaction value does not take into account the adjustments due and are subject to compliance with prior conditions, such as the consent by the National Agency of Petroleum, Natural Gas and Biofuels (ANP).(Petrobras to Sell Off Fazenda Belem Cluster Stake)

5.   In its weekly release, Baker Hughes Company BKR reported an increase in the U.S. rig count. Rigs engaged in the exploration and production of oil and natural gas in the United States rose for the first time since March to 254 in the week through Aug 21, compared with the prior-week’s all-time low mark of 244, thanks to recovering oil prices. The current national rig count is, however, well below the prior year’s 916.

Oil rig count was 183 in the week through Aug 21 compared with 172 in the week ended Aug 14. Notably, the tally has increased the most since the week ended Jan 17. Investors should also note that the current tally of oil rigs, far from the peak of 1,609 attained in October 2014, is  below the year-ago 754.

The natural gas rig count of 69 was lower than the prior-week count of 70. Moreover, the count of rigs exploring the commodity is lower than the prior-year week’s 162. Importantly, per the latest report, the number of natural gas-directed rigs is 95.7% below the all-time high of 1,606 recorded in 2008. (US Oil & Gas Plays Witness Uptick in Rig Tally After 23 Weeks)

Price Performance

The following table shows the price movement of some the major oil and gas players over past week and during the last 6 months.

Company    Last Week    Last 6 Months

XOM               -5.1%              -25.1%
CVX                -4.5%             -16.7%
COP               -6.5%             -31.1%
OXY               -10.1%            -65.5%
SLB               -7.4%              -36.8%
RIG               -47.7%            -69.9%
VLO              -3.4%              -29.6%
MPC             -6.3%              -34.1%

The Energy Select Sector SPDR — a popular way to track energy companies — lost 5.7% last week. The worst performer was offshore driller Transocean Ltd. RIG whose stock slumped 47.7%.

For the longer term, over six months, the sector tracker is down 28.3%. Transocean was the major loser during this period too, experiencing a 69.9% price plunge.

What’s Next in the Energy World?

As global oil consumption gradually ticks up from the depths of coronavirus, 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 comes 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 also closely followed.

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Transocean Ltd. (RIG) : Free Stock Analysis Report
 
TOTAL S.A. (TOT) : Free Stock Analysis Report
 
Petroleo Brasileiro S.A. Petrobras (PBR) : Free Stock Analysis Report
 
Chevron Corporation (CVX) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
Baker Hughes Company (BKR) : Free Stock Analysis Report
 
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