Oil & Gas Stock Roundup: Shell's Q2 Update, Eni's Ghana Find & More

·7 min read

It was a week when both oil and natural gas prices registered small declines.

On the news front, energy biggie Royal Dutch Shell (RDS.A) issued an update on its upcoming Q2 earnings, while another European major Eni SpA E made an oil discovery offshore Ghana.

Overall, it was a not-so-good week for the sector. West Texas Intermediate (WTI) crude futures lost 0.8% to close at $74.56 per barrel and natural gas prices moved down 0.7% to end at $3.674 per million British thermal units (MMBtu). In particular, the oil market hit a speed bump after posting a gain in the previous six weeks.

Coming back to the week ended Jul 9, oil prices finished marginally lower on uncertainties stemming from OPEC+’s stalled meeting — one that has been held up due to differences between the United Arab Emirates and Saudi Arabia. The commodity’s negative price reaction was also blamed on coronavirus’ delta variant-induced fresh travel curbs that might inflict another blow to fuel consumption.

Natural gas edged down too as a reprieve from the very high temperatures brought about a decline in cooling demand.

Recap of the Week’s Most-Important Stories

1.  Royal Dutch Shell will distribute 20-30% of cash flow from operations to shareholders starting from the second quarter, it said in an update on Wednesday. The company credited “strong operational and financial delivery, combined with an improved macro-economic outlook” for the higher payouts.

Shell released a preliminary report for the April-June period wherein it also vowed to keep a tight lid on capital expenditures as it aims to spend less than $22 billion for the year. The performance of Anglo-Dutch firm’s trading division, which was instrumental in helping the supermajor partly cushion the impact of the coronavirus-induced oil price slump, is likely to be “significantly below average” for the Integrated Gas division and “average” for the Oil Products business.

In its latest update, Shell further informed that it is expected to have reduced its debt load in the second quarter though the quantum of reduction could be partly offset by changes in working capital. (Shell Aims to Boost Returns on Stronger Outlook)

2.   Eni recently announced a major oil find in the Eban exploration prospect, located offshore Ghana. The new discovery is expected to boost its footprint in Ghana, where it has been operating since 2009, and has a gross daily production volume of around 80,000 barrels of oil equivalent.

The Eban - 1X exploration well lies in the Cape Three Points Block 4, wherein the company made the Akoma discovery in 2019. Its early estimates suggested that the Eban-Akoma complex will have a potential of 500-700 million barrels of oil equivalent.

The exploration well is located around 8 kilometers Northwest of Sankofa Hub, wherein the John Agyekum Kufuor floating production storage and offloading vessel is working. As such, the company is expected to use the subsea tie-in option and connect the new find to the existing infrastructure. This will allow Eni to fast track the discovery to production. Also, the move will increase peak production from the site. (Eni Makes Oil Discovery in Eban Well Offshore Ghana)

3.  Patterson-UTI Energy PTEN has agreed to buy Pioneer Energy Services Corp. for $295 million, which comprises the debt load of Pioneer to be cleared by the acquirer.

The purchase price includes the issuing of up to 26,275,000 shares of Patterson-UTI common stock as well as a cash payment of $30 million. The deal is scheduled to be concluded in the fourth quarter of 2021, contingent on regulatory clearances, usual closing conditions, and Pioneer shareholders’ approval. With the buyout of Pioneer, Zacks Rank #2 (Buy) Patterson-UTI will possess 166 super-spec rigs in the United States with nearly 50 % being outfitted with alternative power sources to minimize emissions.

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

This takeover also expands Patterson-UTI’s geographic reach into foreign markets with the addition of eight rigs in Colombia where Pioneer has served for the past 14 years with a well-recognized operations staff and set-up. (Patterson-UTI Inks Acquisition Deal With Pioneer Energy)

4.  Chevron CVX and partners decided to proceed with a $4-billion investment of the Jansz-Io compression (J-IC) project offshore Australia to keep customers in Asia supplied with gas for decades. The project is an upgrade to the existing Gorgon development, one of the world's largest natural gas projects in Australia. Chevron Australia, a subsidiary of Chevron, is the operator with a 47.3% ownership interest in the Gorgon gas project.

J-IC marks a major capital investment for the company in Australia, since the Gorgon Stage 2 project approval in 2018. Notably, the project’s goal is to utilize the low-pressure reserves from the Jansz-Io field and maintain plateau production rates for the Gorgon facilities situated on the Barrow Island. The Jansz-Io field is located nearly 70 kilometers (km) northwest of the Gorgon gas field and 220 km off the north-west coast of Western Australia.

The project involves the manufacturing and installation of a 27,000-tonne floating Field Control Station, which will be normally unattended. Moreover, it involves the installation of nearly 6,500 tonnes of subsea compression infrastructure and a 135-km long underwater power cable that will be connected to the Barrow Island. Chevron expects the construction and installation works to complete in five years. (Chevron to Proceed With J-IC Project in Australia)

5.  TechnipFMC FTI recently secured a major contract from Tullow Oil’s TUWOY Ghana subsidiary for integrated engineering, procurement, construction and installation (iEPCI) on the Jubilee South East development, located off the coast of Ghana. Jubilee South East is an extension of the Jubilee field. The contract is worth a value between $75 million and $250 million.

The agreement will be TechnipFMC’s first iEPCI project with Tullow Ghana, which will include the delivery and offshore installation of all key subsea equipment comprising manifolds and related controls, flexible risers and flowlines, umbilicals, and subsea structures.

With the construction of a number of subsea structures including production and water injection manifolds carried out in Ghana, TechnipFMC views this project as a chance to expand its local content. (TechnipFMC Seals EPCI Deal for Jubilee South East Project)

Price Performance

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

Company    Last Week    Last 6 Months

XOM                  -3.1%             +28.4%
CVX                  -1.9%              +12%
COP                 -4.2%              +30.5%
OXY                  -7.2%              +47.7%
SLB                  -4.9%              +22.2%
RIG                  -11.6%             +64.1%
VLO                 -7.4%               +19.8%
MPC                -3.9%               +31.8%

The Energy Select Sector SPDR — a popular way to track energy companies — was down 3.4% last week. The worst performer was offshore driller Transocean Ltd. RIG whose stock lost 11.6%.

But over the past six months, the sector tracker has surged 23%. On the other end of the spectrum this time, Transocean was the major gainer, experiencing a 64.1% price appreciation.

What’s Next in the Energy World?

As the global oil consumption outlook strengthens amid the OPEC+ led calibrated supply cuts and successful vaccine deployments, market participants will be closely tracking the regular releases to watch for signs that could further validate the upward momentum. 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 energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance. Finally, investors will look for updates on the OPEC+ stalemate.

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Chevron Corporation (CVX) : Free Stock Analysis Report
Transocean Ltd. (RIG) : Free Stock Analysis Report
PattersonUTI Energy, Inc. (PTEN) : Free Stock Analysis Report
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
Eni SpA (E) : Free Stock Analysis Report
TechnipFMC plc (FTI) : Free Stock Analysis Report
Tullow Oil PLC (TUWOY) : Free Stock Analysis Report
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