Oil & Gas Stock Roundup: Patterson-UTI's Merger With NexTier Hits Headlines
It was a week when both oil and natural gas prices posted gains.
On the news front, the headline came from the merger agreement between energy services companies Patterson-UTI Energy PTEN and NexTier Oilfield Solutions NEX. Developments associated with Phillips 66 PSX, Ovintiv OVV and APA Corporation APA also made it to the headlines.
Overall, it was a bullish seven-day period for the sector. West Texas Intermediate (WTI) crude futures increased 2.3% to close at $71.78 per barrel, while natural gas prices jumped 16.9% to end at $2.63 per million British thermal units (MMBtu).
In particular, the crude price action flipped to the positive after two weeks, as signs of moderating U.S. inflation, a pause on rate hikes and China’s economic stimulus plans propped up the commodity.
Meanwhile, natural gas performed even better following a lower-than-expected increase in stockpiles held in underground storage in the lower 48 states, a hint of tightening supply and predictions of strong cooling demand.
Recap of the Week’s Most Important Stories
1. U.S. oilfield service firms Patterson-UTI Energy and NexTier Oilfield Solutions last week announced a definitive agreement to combine through an all-stock deal totaling $1.9 billion.
The “merger of equals” deal has been unanimously approved by both companies’ boards, though it is still subject to clearance by their shareholders and regulators. The transaction is expected to close by the end of this year. The current stockholders of Patterson-UTI Energy will own approximately 55% of the combined company, with NEX shareholders owning the rest. The combined company will operate under the Patterson-UTI Energy name and trade under the ‘PTEN’ ticker, while its well completions brand will be called NexTier.
The merged firm is expected to generate some $200 million worth of annual cost savings and operational synergies within a year and a half of closing. Investors should know that Patterson-UTI possesses the second-largest onshore drilling rig fleet in the United States, while NexTier has been boosting its fracking expertise over the last few years by way of inorganic growth. It’s worth mentioning that almost two-thirds of this newly combined fleet will be dual-fuel in nature — capable of running on both diesel and natural gas to enhance efficiency and reduce carbon emissions. (Patterson-UTI, NexTier Combine to Create Oil Services Giant)
2. Phillips 66 has completed the acquisition of all publicly held common units in DCP Midstream for $3.8 billion. As of Jun 15, DCP Midstream’s common units are no longer listed on the New York Stock Exchange. The acquisition will double the refining giant’s stake in DCP Midstream to 86.8%.
DCP Midstream’s assets gather, process and transport natural gas and natural gas liquids from the major U.S. shale plays, including the Permian Basin, Eagle Ford, the Ardmore and Anadarko Basins in Oklahoma and the Denver-Julesburg Basin in Colorado.
Phillips 66 focuses more on midstream, renewables and chemical operations, making its business model more stable. The acquisition provides Phillips 66 with natural gas processing in important regions, increased fractionation capacity and long-haul pipelines appearing from the Denver-Julesburg and Permian basins. Owning those assets offers Phillips 66 enhanced flexibility. (Phillips 66 Acquires All Public DCP Midstream Units)
3. Upstream operator Ovintiv made significant updates to its production and capital spending guidance for the second quarter of 2023 and the full year. These revisions are a result of the timely closure of the $4.275 billion acquisition of core Midland Basin assets and the $875 million sale of Bakken shale assets. Ovintiv's revised projections emphasize its commitment to delivering exceptional results that align with its position as an industry leader.
The Zacks Rank #3 (Hold) company expects total production of 520,000-540,000 barrels of oil equivalent per day (boe/day) in the second quarter of 2023. It also anticipates oil and condensate output in the range of 175,000-179,000 barrels per day (bbl/day), and capital spending in the band of $670-$710 million during the same time frame.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Ovintiv has also updated its full-year production and capital spending guidance to reflect the evolving market conditions. The company now expects production in the range of 521,000-546,000 boe/day. The oil and condensate output is estimated between 186,000 bbl/day and 196,000 bbl/day. Ovintiv now projects capital expenditure of $2.68-$2.98 billion. (Ovintiv Revises Guidance for Q2 and Full-Year 2023)
4. APA Corporation’s subsidiary Apache announced that it is set to cease North Sea drilling and reduce its British workforce because high taxes have made operations less competitive in the U.K. However, the U.S. oil and gas finder did not disclose the number of jobs that will be lost as a result of this move.
The U.K. imposed a windfall profit tax on oil and gas companies in May 2022. In November, U.K. prime minister, Rishi Sunak, doubled the tax to 35%, making the sector's overall tax rate one of the highest in the world at 75%. Profits from oil and gas extraction in the U.K. are subject to the tax until March 2028.
Producers in the North Sea have requested the government to amend the Energy Profits Levy to include an oil price floor because it might jeopardize investment and reduce output at a time when Britain is trying to increase domestic production. (APA's Unit Ceases Drilling & Cuts Jobs in UK Due to High Taxes)
Price Performance
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 -2.1% -3.7%
CVX -1% -8.9%
COP +1% -6.9%
OXY -2% -6.8%
SLB +0.5% -7.7%
RIG -0.2% +40%
VLO +0.7% -6.3%
MPC +0.2% +0.3%
With oil and gas both moving up for the week, stocks were mostly positive. The Energy Select Sector SPDR — a popular way to track energy companies — edged down 0.6% last week. Over the past six months, the sector tracker has decreased 9.3%.
What’s Next in the Energy World?
As usual, market participants will closely track the regular releases to look for guidance on the direction of the commodities. 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.
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Patterson-UTI Energy, Inc. (PTEN) : Free Stock Analysis Report
APA Corporation (APA) : Free Stock Analysis Report
Phillips 66 (PSX) : Free Stock Analysis Report
NexTier Oilfield Solutions Inc. (NEX) : Free Stock Analysis Report
Ovintiv Inc. (OVV) : Free Stock Analysis Report
