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Oil & Gas Stock Roundup: SHEL OKs Project Down Under, CVX Gets Venezuela Reprieve

·7 min read


It was a week wherein oil prices just maintained their winning streak but natural gas futures lost some steam.

On the news front, London-based oil biggie Shell SHEL gave the go-ahead to develop the Crux gas field in Western Australia, while U.S. peer Chevron CVX got its Venezuela license renewed by the Biden government. Developments associated with Cenovus Energy CVE, Phillips 66 PSX and PDC Energy PDCE also made it to the headlines.

Overall, it was a mixed seven-day period for the sector. West Texas Intermediate (WTI) crude futures gained 3.3% to close at $118.87 per barrel but natural gas prices lost around 2.3% to end at $8.523 per million British thermal units (MMBtu). In particular, the oil market managed to maintain its forward momentum from the previous five weeks.

Coming back to the holiday-shortened week ended Jun 30, the positive oil price action, despite the OPEC+ announcement to raise production, could be attributed to the anticipated demand rebound following China’s easing of strict COVID-19 curbs. The Energy Information Administration’s ("EIA") latest report showing a steep drawdown in crude and product stockpiles further pointed to the strained market fundamentals and propped up prices. As it is, the uptick also reflected concerns about supplies from Russia, which is one of the world's largest producers of the commodity.

Meanwhile, natural gas finished down from their lofty levels due to stepped-up production and subdued cooling demand.

Recap of the Week’s Most-Important Stories

1.  Shell, Europe’s largest oil company, announced recently that its Australian subsidiary, along with its joint venture partner, SGH Energy, decided to approve the development project of the Crux natural gas field, situated off the coast of Western Australia.

The development of the project is anticipated to cost around $2.5 billion and the construction will begin in 2023, with the first gas expected to be pumped in 2027. The production at Crux will feed the 3.6 million ton a year Prelude floating liquefied natural gas (“FLNG”) facility by supplying up to 550 million standard cubic feet of gas per day to the FLNG facility.

Shell mentioned that this project forms an essential part of its portfolio and that the natural gas output from it would help its Asian customers move from coal to gas as a cleaner-burning fuel and also provide a secure energy source. “The project will help us to meet the increasing demand for LNG as the energy market transitions to a lower-carbon future,” Shell added. (Shell to Go Ahead With $2.5B Crux Project in Australia)

2.   The Biden government in the United States has issued a sanctions waiver for the oil major — Chevron — and other energy services companies so that they have a minimal existence in the South-American country of Venezuela and keep operating in the oil-abundant nation. The waiver, which will have its effects for another six months until Dec 1, 2022, retains stringent curbs intended to stop Chevron from drilling, lifting, purchasing, or processing Venezuelan-origin crude or oil products.

The license issued by the U.S. Treasury Department allows Chevron and others to perform only the basic upkeep of wells Chevron operates jointly with the Venezuelan state-run oil giant PDVSA, crushing the hopes of those who wanted to see a recommencement of exports to ease pricing pressure on American gas stations.

In 2020, the U.S. government barred Chevron from selling crude from the group of joint ventures it has in Venezuela, in which PDVSA is the majority shareholder, and enforced it to halt importing diesel into Venezuela. (Chevron Venezuela Curbs Prolonged by the US Government)

3   Canadian integrated oil and gas firm Cenovus Energy and partners decided to resume the West White Rose project off Newfoundland and Labrador’s coast after remaining suspended for two years due to the pandemic.

The West White Rose project’s construction work, which is about 65% complete, will fully resume next year. Cenovus, carrying a Zacks Rank #1 (Strong Buy), and partners have worked to significantly de-risk the project in the past 16 months.

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

The first oil from the West White Rose project is expected to be achieved in 2026. Peak production is anticipated to reach 80,000 barrels per day by 2029-end. Notably, the project is expected to obtain 200 million barrels of light crude oil and extend the field’s life by 14 years. (Cenovus to Restart West White Rose Project in Canada)

4   Phillips 66 signed a letter of intent with FreeWire Technologies for its first electric vehicle (EV) charging program in the United States. The agreement highlights the refining giant’s pledge to pursue low-carbon solutions in support of the Paris Agreement.

Energy companies are increasingly investing in EV chargers as demand for the same is expected to grow significantly in the future. The companies are working together to provide consumers with electric fueling stations to meet their requirements for rapid, on-the-go charging.

Phillips 66 seeks to expand its electric fuel charging capabilities through its existing U.S. retail network sites to meet the rising demand for EVs. The company will leverage its strong retail presence of 7,000 U.S. sites with FreeWire’s battery-enabled chargers. (Phillips 66, FreeWire to Work for US EV Charging Program)

5.   PDC Energy, the Denver, CO-based independent upstream operator, recently announced its updated annual outlook for the year 2022 after it closed the acquisition of Great Western Petroleum. PDC Energy’s management came out with pro-forma estimates earlier this year when the acquisition was made public, with an intended second-quarter closing. The revised guidance is largely in line with earlier forecasts but with some changes.

The total oil and gas production outlook was raised by about 4.3% from the earlier number to 242.5 thousand barrels of oil equivalent per day (Mboe/d) (midpoint). The capital expenditure guidance now stands in the range of $950-$1,000 million, up from its earlier figure in the $900-$1,000 million range.

Due to PDCE’s updated price deck and the assuming price realizations of $95 per barrel of oil and natural gas at $6 per million British thermal units (MMBtu), management now anticipates generating $1.7 billion in adjusted free cash flow. The earlier guidance for the same stood at $1.3 billion, with prices assumed at $75 per barrel of oil and natural gas at $4 per MMBtu. (PDC Energy Declares Revised Guidance for Full-Year 2022)

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                 +1.5%              +60.5%
CVX                  -0.4%              +52.2%
COP                 +3.1%             +61.2%
OXY                  -0.8%              +133.3%
SLB                  -1.2%              +57.4%
RIG                   +0.7%             +44.2%
VLO                  +2.7%              +97%
MPC                 +3.4%              +74%

The Energy Select Sector SPDR — a popular way to track energy companies — rose 1.1% last week. Over the past six months, the sector tracker has increased 59.8%.

What’s Next in the Energy World?

Oil prices ended near $120 last week, primarily reflecting the view that the OPEC+ decision to produce more of the commodity will fall short of compensating the output loss from Russia and demand boosts from the summer driving season, plus the easing of lockdowns in China. The elevated crude prices, surging demand for motor fuels and the effect of the Russian invasion of Ukraine have also resulted in gasoline and diesel prices reaching record highs.

Amid this backdrop, market participants will closely track the regular releases to look for further guidance on the direction of prices. 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 production, is closely followed too. News related to the ongoing Russia-Ukraine geopolitical conflict and the potential demand boost from the easing of coronavirus lockdowns in China will be the other factors that will dictate the near-term price movement for oil.



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