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Oil & Gas Stock Roundup: SLB & DVN's Energy Transition Goals, BP GoM Start-Up & More

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It was a week when both oil and natural gas prices settled at multi-year highs.

On the news front, energy biggies Schlumberger SLB and Devon Energy DVN set objectives in reducing greenhouse gas (‘GHG’) emissions. Meanwhile, British integrated firm BP plc BP started production at its Manuel development in the U.S. Gulf of Mexico (GoM).

Overall, it was a good week for the sector. West Texas Intermediate (WTI) crude futures gained 3.9% to close at $74.05 per barrel and natural gas prices moved up 8.7% to end at $3.496 per million British thermal units (MMBtu). In particular, the oil market managed to maintain its forward momentum from the previous four weeks.

Coming back to the week ended Jun 25, oil prices tapped fresh 32-month highs after the latest U.S. government data gave further proof of improving fundamentals in the energy market. Meanwhile oil supplies declined to pre-lockdown levels, with U.S. commercial stockpiles down by nearly 9% since mid-March. Further, taking Cushing as an indicator, the oil market has already tightened considerably. Stocks fell to just 41.7 million barrels at the key storage hub last week, the lowest since March 2020. There was also an improvement in gasoline demand on the back of rebounding road and airline travel.

Natural gas finished up too on the prospect of more weather-related consumption and strong liquefied natural gas (“LNG”) feedgas deliveries.

Recap of the Week’s Most-Important Stories

1.  Schlumberger is the latest energy major that is targeting net-zero GHG emissions by 2050.

The leading oilfield service player is planning on a 30% cut in Scopes 1 and 2 emissions by as early as 2025. Importantly, the company expects to reach the short-term target ahead of schedule. By 2030, the Zacks Rank #2 (Buy) company is eying to cut Scopes 1 and 2 emissions by 50%. By this timeframe, it is also planning to reduce Scope 3 emissions by 30%. Schlumberger boasted becoming the first company in the energy service industry to add Scope 3 emissions ambition in net-zero emission target.

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

The company’s plan for decarbonization is in sync with the Paris climate agreement that intends to limit the increase in global temperature to 1.5 degrees Celsius above pre-industrial levels, helping the world reach climate neutrality by mid-century. (Schlumberger Sets Goal for Net-Zero Emissions by 2050)

2.   Devon Energy announced plans to lower greenhouse gas emission (“GHG”) from the production process and substantially reduce freshwater usage for completion activities.  

Devon will utilize advanced technologies to improve efficiencies across the business, which in turn will assist it in reducing scopes 1 and 2 GHG emissions intensity by 50% by 2030. The company also aims to achieve net zero GHG emission for Scopes 1 and 2 by 2050.

Devon, through its extensive plan, will be able to lower direct emissions from owned or controlled sources and indirect emissions stemming from the generation of purchased energy. The company will also lower methane emission by 65% and eliminate routine flaring by 2030. Moreover, it will aim to use 90% or more non-freshwater for completions activities and minimize freshwater usage. (Devon Reveals Latest Plan, Targets Zero GHG Emission)

3.  BP recently announced the start-up of its high-value Manuel project in the U.S. Gulf of Mexico. The project is among the five major developments that the British energy giant initially shortlisted for starting up in 2021.

At the offshore project, the British energy giant commenced production from two new deepwater wells. Notably, the company has tied a new subsea production system into the Na Kika platform and expects the new wells to lift gross platform production by 20,100 barrels of oil equivalent per day (BoE/D). In the Manuel development, BP is the operator with a 50% interest. The remaining interest is owned by Royal Dutch Shell RDS.A.

Importantly, the systematic investments in the Manuel project will possibly help the integrated energy company reach its goal of adding 900,000 BoE/D of production from new key projects by 2021-end. (BP Announces Start-Up of High-Value Manuel Deepwater Project)

4.  Royal Dutch Shell recently announced its intention to buy BP’s 27.5% interest in the Shearwater gas and condensate hub, thus increasing its holding to 55.5%. The Anglo-Dutch firm is also purchasing a 12.176% stake in BP's Shearwater Elgin Area Line (Seal) and Seal Interconnector Link pipelines. The deal is contingent on regulatory approvals.

This decision highlights Shell's objective of concentrating its upstream operations on fewer, existing holdings to create substantial returns for shareholders and fund the company's transition to a carbon-neutral enterprise.

The Shearwater project is operated by Shell and located in the U.K. North Sea. The field produces 18,000 barrels of oil equivalent per day. The other main partner at Shearwater is ExxonMobil, which currently owns 44.5% of Shearwater but is in the process of selling off its interests in the field to NEO Energy. (Shell to Acquire BP's 27.5% Stake in the Shearwater Hub)

5.  Magellan Midstream Partners MMP together with Enterprise Products Partners EPD recently made an announcement about a new crude oil physical delivery futures contract with Intercontinental Exchange.

The Midland West Texas Intermediate (WTI) American Gulf Coast contract came into being in response to market demand for a Houston-based index with better size, flow certainty and pricing transparency.

The quality standards for the new futures contract will adhere to the WTI crude oil from the Permian Basin with delivery options at the Magellan East Houston (MEH) or Enterprise Crude Houston (ECHO) ports. Once the new contract obtains regulatory clearance and is completed, Magellan Midstream and Enterprise will stop providing delivery services under the current futures contracts deliverable at each port. (Magellan, Enterprise Sign New Futures Contract With ICE)

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                +7.1%               +55.1%
CVX                +4.1%                +25.6%
COP               +6.6%                +55.5%
OXY                +17.6%              +79.6%
SLB                +6.6%                +53.7%
RIG                 +14.4%             +90.9%
VLO                +8%                   +46.8%
MPC               +6.3%                +51.3%

The Energy Select Sector SPDR — a popular way to track energy companies — was up 6.7% last week. The best performer was Houston-TX based biggie Occidental Petroleum OXY whose stock surged 17.6%.

Over the past six months, the sector tracker has surged 44.4%. Offshore driller Transocean Ltd. was the major gainer during the period, experiencing a 90.9% price appreciation.

What’s Next in the Energy World?

As 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.

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BP p.l.c. (BP) : Free Stock Analysis Report
 
Devon Energy Corporation (DVN) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
Magellan Midstream Partners, L.P. (MMP) : Free Stock Analysis Report
 
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