Oil & Gas Stock Roundup: Pembina's Asset Buy, Transocean's Rig Deal & More
It was a week when oil prices snapped their losing streak while natural gas futures continued the southward journey.
The headlines revolved around Canadian energy infrastructure provider Pembina Pipeline’s PBA acquisition of certain joint venture interests from Enbridge and offshore driller Transocean’s RIG contract award. Developments associated with Equinor EQNR, Chevron CVX and Canadian Natural Resources CNQ also grabbed attention.
Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures edged up around 0.3% to close at $71.43 per barrel, but natural gas prices moved down 3.5% to end at $2.49 per million British thermal units (MMBtu).
The crude price action turned marginally positive after seven consecutive weeks of declines. This turnaround could be attributed to the Energy Information Administration report showing a significantly larger-than-expected decline in domestic oil inventories. Also boosting commodity prices, the Fed indicated that it would cut interest rates in 2024.
Meanwhile, natural gas slumped to a six-month low, overwhelmed by high production and insipid weather-related demand.
Recap of the Week’s Most Important Stories
1. Pembina Pipeline, a leading Canadian midstream company, announced that it would purchase fellow operator Enbridge’s remaining interests in the Alliance Pipeline, Aux Sable pipelines and NRGreen joint ventures for C$3.1 billion.
This deal will see Pembina take full ownership of its critical assets, strengthening its position as a leader in transporting natural gas across North America. This strategic move is also expected to significantly boost Pembina’s growth and profitability in the years to come.
The Alliance Pipeline is a critical natural gas transportation system that operates across Canada and the United States. Spanning approximately 3,888 kilometers (2,414 miles), it carries natural gas from western Canada to the Chicago market. The Aux Sable processing plant, located in Illinois, is strategically connected to the Alliance Pipeline and is responsible for processing natural gas liquids (NGL) from the pipeline. (Pembina to Buy Enbridge’s Assets in a C$3.1-Billion Deal)
2. Transocean, an international provider of offshore contract drilling services for oil and gas wells, announced a significant contract for its Transocean Barents rig in the Romanian Black Sea. The contract is expected to contribute approximately $251 million to Transocean’s backlog, excluding full compensation for mobilization and a demobilization fee.
The Zacks Rank #3 (Hold) company revealed that it has inked a minimum 540-day contract with OMV Petrom S.A. at a daily rate of $465,000, excluding additional services. The program is slated to commence in the first quarter of 2025, marking a strategic move for Transocean into the challenging environmental conditions of the Romanian Black Sea.
You can see the complete list of today’s Zacks #1 Rank stocks here.
According to Transocean, the day rate for the contract includes provisions for additional services. Moreover, for each day beyond the initial 540 days, including two option periods, the operating day rate will increase to $480,000. This provides RIG with the potential for additional revenues if the contract extends beyond the originally stipulated duration. (Transocean Signs a $251M Contract for Barents Rig)
3. Equinor reached an agreement to acquire energy biggie Shell’s share at the Linnorm gas discovery in the Norwegian Sea. Per the deal, Equinor is set to obtain a 30% stake in the PL 255 license, which encompasses the Linnorm gas discovery. The agreement depends on the Stavanger, Norway-headquartered integrated major’s becoming the operator instead of Shell. The deal is scheduled to be completed in the first quarter of 2024.
The Linnorm discovery is the biggest untapped gas find on the Norwegian Continental Shelf, with an estimated 25-30 billion cubic meters of recoverable gas resources. This surpasses the remaining gas reserves in each of the active fields Aasta Hansteen, Martin Linge and Gina Krog.
With the acquisition, Equinor aims to strengthen its presence in the Halten area, aligning with its strategy to enhance its portfolio on the Norwegian Continental Shelf. Equinor currently operates productive hubs in this region and continues to identify appealing opportunities for further development. (Equinor Signs Deal to Acquire Shell's Linnorm Gas Stake)
4. U.S. supermajor Chevron is making significant cutbacks in its oil-refinery investments in California, citing what it deems as "adversarial" policies toward fossil fuels in the state. The San Francisco Bay area-based oil giant has cut spending in California by "hundreds of millions of dollars since 2022," according to comments submitted to the California Energy Commission.
Chevron, a major supplier of jet fuel to airports in San Francisco and Los Angeles, says it's doing this because of the tough business environment and not making enough profit due to California's strict fuel standards and carbon cap-and-trade program.
Chevron's decision to cut spending comes amid California lawmakers' considerations to limit profits for refiners within the state. This move could affect the already high prices at gas pumps in California. Governor Gavin Newsom has ambitious environmental goals, aiming for an 85% reduction in climate-damaging emissions by 2045. (Chevron at Odds With California Goals, Cuts Investment).
5. Canadian Natural Resources, a leading North American energy producer, revealed its 2024 budget, allocating C$5.4 billion to fuel its growth ambitions. This disciplined plan prioritizes both near-term production increase and long-term capacity expansion, marking a strategic move in the face of a fluctuating energy landscape. It's packed with insights into CNQ's business strategy for the coming year.
As far as production is concerned, the company’s targeted 2024 exit rate of 1,455 thousand barrels of oil equivalent per day (MBOE/d) represents an increase of 40 MBOE/d over the expected 2023-end production, showcasing CNQ's commitment to boosting output.
The company's projections also extend to specific sectors, with thermal and oil sands mining expected to reach 724,000-743,000 barrels per day (bpd) in 2024. This contrasts with the prior-year guidance of 705,000-729,000 bpd. Notably, the addition of four new pads contributes to this optimistic outlook. (Canadian Natural Unveils Ambitious Growth Plan for 2024).
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 +1.4% -3.3%
CVX +3.5% -4.8%
COP +2.2% +9.5%
OXY +3.7% +1.4%
SLB +6.9% +9.4%
RIG +4.4% -1.6%
VLO +4.7% +15.5%
MPC +3.7% +34%
With oil moving up for the week, stocks were mostly positive. The Energy Select Sector SPDR — a popular way to track energy companies — rose 2.5% last week. Over the past six months, the sector tracker has increased 4.1%.
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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Chevron Corporation (CVX) : Free Stock Analysis Report
Transocean Ltd. (RIG) : Free Stock Analysis Report
Canadian Natural Resources Limited (CNQ) : Free Stock Analysis Report
Pembina Pipeline Corp. (PBA) : Free Stock Analysis Report
Equinor ASA (EQNR) : Free Stock Analysis Report
