It was a week where the price of oil spiked to its highest settlement since June 2015. However, natural gas futures fell sharply.
On the news front, Anglo-Dutch oil giant Royal Dutch Shell plc RDS.A announced the expansion of its electric vehicle charging business through a partnership with Munich-based venture IONITY, while Brazil’s Petrobras PBR started oil production from its Libra field off Rio de Janeiro.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures gained 4% to close at $58.95 per barrel, natural gas prices slumped 9.2% to $2.813 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Keystone XL's Approval, BP's Buyback & More)
The U.S. oil benchmark rallied to two-and-half year high on expectations that OPEC and other major producers will agree to expand their output-cut deal beyond March when they meet at the end of the month. The agreement, already renewed once, keeps 1.8 million barrels a day off the market in an attempt to clear a supply glut.
Further support came from the U.S. Energy Department's inventory release, which showed a decline in crude stockpiles.
The shutdown of TransCanada Corporation’s 590,000 barrel-per-day Keystone oil pipeline – one of the largest from Canada to the United States – due to a leak and subsequent cleanup operations, was also bullish for oil prices.
Meanwhile, natural gas futures logged a big decline following a smaller-than-expected decrease in supplies. Unfavorable weather forecasts and strength in the commodity’s production also fueled the downside.
Recap of the Week’s Most Important Stories
1. In a bid to bolster its electric-vehicle (EV) charging business, European oil giant Royal Dutch Shell plc is set to collaborate with EV-focused charging operator IONITY.
IONITY— one of the most significant developments in the EV infrastructure — is a joint venture (JV) formed by world’s major carmakers namely BMW Group, Daimler AG, Ford Motor Company, and Volkswagen Group with Audi and Porsche. The Munich-based JV, set up only a few weeks ago, aims at designing around 400 high-power charging stations across Europe by 2020.
Per the deal, Shell is likely to launch around 80 charging networks across Europe by 2019. The charging stations will be deployed in Belgium, Britain, France, the Netherlands, Austria, the Czech Republic, Hungary, Poland, Slovakia and Slovenia. The charging points to be installed by the partnership are likely to top up the electric vehicles in around 5-8 minutes.
With this deal, Shell wants to cash in on the wide acceptance of the electric cars and thereby increase customer base and revenues. Shell believes that the deal will provide customers range of refueling choices in future and bring diversification to its asset portfolio. (Read more: Shell Partners With IONITY to Rev Up EV Business)
2. Petrobras and its partners have initiated oil production in the Libra block of Santos Basin. The offshore oil field is located 200 kilometers south of Rio de Janeiro. The Libra field — one of the biggest pre-salt oil fields in Brazil — was discovered in 2010 and has recoverable oil resources in the range of 7.9-15 billion barrels.
The Brazilian state-run integrated energy company reported that production was initiated through the Pioneer of Libra floating production, storage and offloading (FPSO) unit in the pre-salt of Santos Basin. The FPSO vessel is the company's first unit capable of reinjecting all the gas produced during the tests that will induce the flow of crude oil. The unit has a processing capacity of 50,000 barrels of oil and 4 million cubic meters of gas per day.
Brazil has huge oil reservoirs that lie below the Espírito Santo, Campos and Santos basins in deep and ultra-deep water. These reserves, estimated to hold 50 billion barrels, are widely thought to be the most important oil finds in recent years. Petrobras is the operator in most of these exploration areas, and holds interests in the range of 20-100%. (Read more Petrobras Starts Production in Libra Field of Santos Basin)
3. BP plc BP has decided to divest a package of interests in the Bruce assets in the North Sea to Serica Energy plc. The Zacks Rank #1 (Strong Buy) company expects to conclude the sale and transfer of operatorship in the third quarter of 2018, subject to various approvals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The assets, which consist of the Bruce, Keith and Rhum fields along with three bridge-linked platforms and related subsea infrastructure, are currently operated by BP.
Per the agreement, BP will receive an initial payment of £12.8 million from Serica Energy. In total, BP anticipates payments of roughly £300 million from the transaction. Investors should know that the integrated energy player will get the lion’s share of the expected proceeding the coming four years.
Discovered in 1974, the Bruce field was commissioned in 1993. Keith was tied to it in 2000. Rhum — a high pressure, high-temperature satellite field located 40 kilometers to the north of Bruce — was brought online in 2005. (Read more BP to Divest Interests in Bruce Assets to Serica Energy)
4. Stone Energy Corp. SGY recently received approval from its boards of directors to merge with Talos Energy LLC. The companies will create a leading exploration and production firm with extensive operations in offshore resources. Stone Energy anticipates the agreement to close either by the first quarter of 2018 or beginning of the second quarter.
Per the accord, every stockholder of Talos Energy will receive one Stone Energy share. The companies added that the initial market capitalization of Talos Energy Inc. – the proposed name of the combined entity – will be $1.9 billion, taking into consideration Stone Energy’s share price of $35.49 as of Nov 20.
Stone Energy will likely hold 37% stake in the combined entity while the remaining will be owned by Talos Energy. The newly-formed company will trade under the ticker mark "TALO" on the NYSE. (Read Stone Energy Board Okays Merger Deal With Talos Energy)
5. In a bid to transform itself into a Denver-Julesburg (DJ) Basin pure play, leading upstream player Bill Barrett Corp. BBG inked a deal to divest its remaining non-core assets in the Uinta Basin. The deal is valued at $110 million to undisclosed buyers. Subject to satisfactory conditions, the deal is set for closure by Dec 31, 2017.
During the third quarter, these assets under sale consideration accounted for 2,300 barrels of oil equivalent (BOE/d) production per day. As of Dec 31, 2016, these assets had estimated proved reserves of 12 million barrels of oil equivalent.
The divestiture is expected to streamline the company’s portfolio and cost structure along with strengthening its balance sheet and liquidity. The proceeds will be utilized to fund the two-rig program in 2018.The company which boasts a strong acreage position in the northeast Wattenberg field of the DJ Basin plans to use the cash proceeds from the sale for extended-reach lateral horizontal development activity. (Read more Bill Barrett to Offload Uinta Assets for $110 Million)
The following table shows the price movement of some the major oil and gas players over the past week and during the last 6 months.
Last 6 Months
Reflecting the week’s bullish oil market sentiment, the Energy Select Sector SPDR – a popular way to track energy companies – generated a +1.2% return last week. The best performer was Houston-based energy explorer Occidental Petroleum Corp. OXY whose stock jumped 1.9%.
Longer-term, over 6 months, the sector tracker is up 0.9%. Downstream operator Valero Energy Corp. VLO was the major gainer during this period, experiencing a 31.5% price appreciation.
What’s Next in the Energy World?
As usual, market participants will be closely tracking the regular releases i.e. the U.S. government statistics on oil and natural gas - one of the few solid indicators that comes out regularly. Energy traders will also be focusing on the Baker Hughes data on rig count.
However, Thursday’s OPEC meeting in Vienna remain the primary focus this week, with participating nations expected to extend their output cut agreement.
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