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Oil & Gas Stock Roundup: Shell's Canada Asset Sale, Marathon Oil's UK Exit & More

Nilanjan Choudhury

It was a week where oil prices eked out another gain. Meanwhile, natural gas futures erased some of the sharp losses that have taken the commodity to lows not seen since May 2016.

On the news front, Royal Dutch Shell RDS.A agreed to sell gas assets in Alberta for C$190 million, while Marathon Oil MRO closed the divestment of its North Sea assets.

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures rose 1.8% to close at $58.47 per barrel, while natural gas prices moved up 5.6% for the week to finish at $2.308 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Anadarko's Mozambique FID, Archrock's Acquisition & More)

The U.S. crude benchmark hit the highest settlement level since May 22 with OPEC and its allies agreeing to extend their supply cut deal until March 2020. Signs of progress in the resolution to the US-China trade spat also send oil prices higher. On a further bullish note, the U.S. Energy Department's latest inventory release showed that crude stockpiles slumped nearly 13 million barrels in the biggest weekly drawdown since September 2016 as exports hit a record high.

Natural gas prices also gained following a smaller-than-expected increase in weekly supplies and expectations of above-average temperatures over the next few days that could trigger strong power sector demand for the fuel.

Recap of the Week’s Most Important Stories

 

1.  Royal Dutch Shell is set to jettison natural gas assets in Alberta to Canada’s Pieridae Energy for C$190 million ($144.77 million). Pieridae intends to use the production from these assets to secure natural gas supply required for the first train of the flagship Goldboro LNG project.

Per the deal, the Anglo-Dutch giant will offload all upstream and midstream assets in Alberta’s Foothills region. The upstream assets to be acquired by Pieridae netted approximately 29,000 barrels of oil equivalent per day to Shell in first-quarter 2019. This constituted about 120 million cubic feet per day (MMcf/d) of natural gas, 5,600 barrels per day (bbl/d) of natural gas liquids, and 3,200 bbl/d of condensate and light oil.

Pieridae will also acquire three sour gas plants namely Jumping Pound, Caroline and Waterton, with a combined capacity of 750 MMcf/d. The firm will also take possession of a 1700-kilometer pipeline network and 14% stake in a sulfur plant. The deal is to be funded by cash and the issuance of stocks. Subject to satisfactory closing conditions and regulatory approvals, the transaction is set for closure in third-quarter 2019. (Read more Shell to Divest Alberta Gas Assets to Pieridae for C$190M)

2.   Marathon Oil recently closed the divestment of North Sea operations, marking a complete exit from the United Kingdom. In accordance with the deal that was inked in February 2019, the company jettisoned a 40% operating stake in the Greater Brae Area and 28% stake in BP plc-operated Foinaven oilfield to RockRose Energy for $95 million.

Over the past few years, the Texas-based energy explorer inked several deals to sell non-core assets that do not fit into the company’s long-term growth plan. With the closure of this deal, Marathon Oil bided goodbye to 10 countries since 2013. Markedly, while the Zacks Rank #3 (Hold) company will derive total oil production from the United States, it will retain LNG operations in Equatorial Guinea.

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

The strategic sell-offs not only bolstered its portfolio but also boosted financials of the firm. We believe that Marathon Oil’s high emphasis on exiting the non-core business, focus on strategic acquisitions and strengthening balance sheet will drive growth. The company, which intends to optimize its portfolio with high-return and low-risk investments, wants to deepen focus on prolific U.S. shale plays.(Read more Marathon Oil Bids Adieu to UK to Deepen Focus on US Plays)

3.   W&T Offshore, Inc. WTI recently agreed to acquire Exxon Mobil Corporation’s XOM stakes in hydrocarbon producing assets located offshore Alabama in the U.S. Gulf of Mexico (GoM). The deal, including related onshore processing facilities for properties in the eastern region of the Gulf of Mexico, is valued at $200 million.

The transaction encompasses nine offshore fields and an onshore treating facility. Notably, the properties lie adjoining to the company’s existing assets in the region. Total net proved reserves of the properties are estimated at 74 million barrels of oil equivalent (BOE), of which 22% is predicted to be liquids. Markedly, 99% of the reserves are classified as proved developed producing.

ExxonMobil’s vending of Gulf of Mexico assets is in line with its divestment program of $15 billion. The company is also expected to sell its remaining stakes in Norwegian offshore oil and gas fields. The assets, which include interests in 20 producing fields and several license areas, are estimated to be valued at $3-$4 billion. (Read more W&T Offshore to Acquire $200M GoM Assets From ExxonMobil)

4.   QEP Resources, Inc.’s QEP shares rallied 16% to $7.11 on Jun 26, following reports that Elliot Management Corporation is in advanced talks to acquire the former. While there hasn’t been any formal confirmation from either party yet, the deal could be finalized within weeks, per Bloomberg.

Notably, QEP Resources received an acquisition proposal from shareholder Elliott Management Corp. earlier this year. Elliott expressed plans of taking over all outstanding shares of the upstream energy player for a consideration of $8.75 a share, which was at 44% premium to the stock’s closing price on Jan 4.

After scrapping the deal to divest Williston assets amid falling commodity prices, QEP Resources has been exploring other strategic options like merging with other firms or selling off the company. With the divestment of gas-weighted assets in the Haynesville Shale, Uinta Basin and Pinedale Anticline, QEP Resources has pivoted from a multi-basin strategy to a become a more focused Permian operator. Elliott supports QEP Resources’ move to become a pure-play Permian firm but believes that its constructive efforts are yet to get reflected in the stock price.(Read more QEP Resources' Stock Spikes 16% Yesterday: Here's Why)

5.    In a bid to forge ahead with divestment goals, Petrobras PBR   has commenced the process of offloading four refineries namely Rnest, Rian, Repar and Refap. The move is part of a broader plan of the Brazilian oil giant to jettison eight of its refineries that constitute 50% of refining capacity in the country.

The company’s CEO believes that the divestment of eight refineries could fetch Petrobras as much as $15 billion. It intends to close the sale of one of the refineries by 2019-end. Fuel distribution firms like Raizen, oil explorers in Brazil and trading firms could be potential buyers of the refineries that Petrobras put up for sale.

Notably, in June, the company inked an agreement with the Brazilian antitrust regulator CADE regarding the divestment of eight refining assets to encourage greater competition in the industry by attracting new players to the business. The divestment plans are in sync with Petrobras’ aim of cutting debt levels and streamlining portfolio.(Read more Petrobras to Divest Refinery Assets to Trim Leverage)

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 6 months.

Company

Last Week

Last 6 Months

XOM

-1.4%

+9.9%

CVX

-0.4%

+12.8%

COP

+1.1%

-1.8%

OXY

-0.7%

-19.7%

SLB

+2.2%

+5.7%

RIG

+1.9%

-9.7%

VLO

+4.5%

+11.5%

MPC

+6.1%

-7.6%

The Energy Select Sector SPDR – a popular way to track energy companies – edged up 0.2% last week. The best performer was downstream operator Marathon Petroleum Corporation MPC whose stock surged 6.1%.

Longer-term, over six months, the sector tracker is up 9%. Integrated energy major Chevron was the major gainer during this period, experiencing a 12.8% price increase.

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.

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Petroleo Brasileiro S.A.- Petrobras (PBR) : Free Stock Analysis Report
 
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
W&T Offshore, Inc. (WTI) : Free Stock Analysis Report
 
QEP Resources, Inc. (QEP) : Free Stock Analysis Report
 
Marathon Oil Corporation (MRO) : Free Stock Analysis Report
 
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