It was a week where oil prices rallied but natural gas futures ended lower.
On the news front, Houston-based natural gas company Tellurian Inc. TELL signed an MOU with India’s Petronet to sell 18% stake in its proposed Driftwood LNG terminal and export five million tons of LNG a year from it for 40 years. Meanwhile, Equinor ASA EQNR confirmed a natural gas discovery in the Norwegian Sea.
Overall, it was a mixed week for the sector. While West Texas Intermediate (WTI) crude futures rose 5.9% to close at $58.09 per barrel, natural gas prices moved down 3.1% for the week to finish at 2.534 per million Btu (MMBtu). (See the last ‘Oil & Gas Stock Roundup’ here: Energy Transfer's Acquisition, ExxonMobil's Guyana Oil Find & More)
The U.S. crude benchmark registered a sharp weekly gain – the biggest in months – after attacks on Saudi Arabia’s energy installations shook up the world of oil. On Sep 14, unmanned aerial vehicles struck the state-run Saudi Arabian Oil Company’s (Aramco) Abqaiq plant – a key crude processing facility – and the Khurais complex, which houses the kingdom’s second-largest oilfield.
Such was the extent of damage that it was touted as the ‘single worst sudden disruption ever’ for the oil markets, surpassing the impact of the 1991 Persian Gulf War. WTI crude, the U.S. benchmark, soared nearly 15% on the following Monday, to $62.90 a barrel. This marked the sharpest daily price rise for the domestic benchmark grade since September 2008, putting the ‘black gold’ at a four-month high.
Subsequently, the commodity retreated below $60 a barrel as investors weighed the prospect of an earlier-than-expected recovery in state-run Saudi Aramco’s affected production. Price gains were also capped by rising domestic crude inventories.
Meanwhile, natural gas prices finished down after the weekly inventory release showed a larger-than-expected increase in supplies. The bearish injection, which was also higher than the five-year average, sparked a sell-off.
Recap of the Week’s Most Important Stories
1. A Memorandum of Understanding (MOU) has been signed between Tellurianand Petronet LNG Limited INDIA wherein the latter is said to buy liquefied natural gas from Driftwood LNG, an affiliate of the former.
The agreement is valued at $7.5 billion by dint of which Petronet will invest $2.5 billion for an 18% equity interest in the $28 billion Driftwood LNG terminal and plans to purchase five million tons per annum of liquefied natural gas (LNG) from the same unit. The MOU is expected to be finalized by the end of first-quarter 2020. The agreement update would pave the way for the project’s construction to begin next year.
Earlier this year, an authorization by the U.S. Federal Energy Regulatory Commission was granted to the Driftwood LNG project and its 96-mile pipeline. The pipeline is designed in a way to interlink the LNG terminal with the U.S. natural gas market. (Read more Tellurian and Petronet Sign a MOU Worth $7.5B for LNG)
2. Equinor ASA along with partners AkerBP and Wellesley Petroleum has been successful in finding natural gas in Orn exploration well at its Eagle Prospect in the Norwegian Sea. This new discovery is located southwest of the Marulk Field and is expected to contain nearly 50-88 million barrels of oil equivalent (MMboe).
As Norway is Europe’s second largest supplier of natural gas, the Orn finding signals that there is still room for exploration in the Norwegian continental shelf. Equinor, the Norwegian multinational energy company, has been partnering and operating in several findings and discoveries in the Norwegian Sea since 2017, summing an estimated volume of 200-600 MMboe.
In this Orn discovery, Equinor is expected to hold 40% interest while its partners AkerBP and Wellesley will own 30% stake each. Apart from this discovery, the Norwegian oil and gas energy company together with its partners recently started production from the Utgard gas and condensate field, stretching the Norwegian-UK border into the North Sea. (Read more Equinor Discovers Natural Gas in Orn Exploration Well)
3. Chevron CVX recently announced a waterflood project, aiming to increase production at its St. Malo field in the Gulf of Mexico. The field is situated nearly 280 miles to the South of New Orleans, LA and has a possible production life of 30 years remaining. With this project, California-based Chevron will substantially ramp up the output and boost recovery. The company will further enhance its strategy to maximize the resource potential in the Gulf of Mexico.
Through this project, Zacks Rank #3 (Hold) Chevron — a leading producer in the Gulf of Mexico — is working on its first waterflood development in the deepwater Wilcox trend. During the 30-year span, the St. Malo development is expected to produce in excess of 500 million barrels of oil equivalent (boe) inclusive of above 175 million barrels from this waterflood venture.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The fourth phase of the St. Malo development comprises two new production wells, three new injector wells and topsides injection equipment to pump out more oil while helping the company stretch the field’s lifespan. (Read more Chevron Set to Ramp Up Production at Its St. Malo Field)
4. Cheniere Energy, Inc.’s LNG subsidiaries Corpus Christi Liquefaction, LLC and Cheniere Corpus Christi Liquefaction Stage III, LLC have entered into a new multi-year gas supply agreement with EOG Resources, one of the largest independent crude oil and natural gas companies in the United States.
Per the terms of the agreement, EOG Resources will sell natural gas for roughly 15 years to Cheniere Energy starting early next year. Initially, the former plans to supply 140,000 MMBtu of gas per day, which will later be ramped up to 440,000 MMBtu. While the initial 140,000 MMBtu of gas will be sold to Cheniere Energy at a price indexed to Platts Japan Korea Marker, the remaining 300,000 MMBtu will be benchmarked to Henry Hub prices.
Part of the deal is contingent on customary conditions including a favorable final investment decision on Corpus Christi Stage III project. Cheniere Energy, which is the first LNG exporter of the United States, plans to construct seven trains neighboring Corpus Christi Bay across a sprawling terrain of 1,000 acres. The trains are expected to own a combined production capacity of 9.5 mtpa. The first train is estimated to run in 2022. (Read more Cheniere Units Ink New Gas Supply Deal With EOG Resources)
5. Baker Hughes, a GE company BHGE recently announced that it will change its name to Baker Hughes Company. Moreover, the Class A common stock of the oilfield service player will be traded under a new ticker symbol of "BKR." Baker Hughes will eliminate references of General Electric Company from its name as the U.S. industrial conglomerate has lowered its ownership stake in the oilfield service company to 38.4% from 50.4%.
General Electric has closed the secondary offering of 132.25 million shares of BHGE Class A common stocks. Notably, the underwriters have fully exercised their options and purchased an additional 17.25 million Class A common shares. Moreover, in a private transaction, Baker Hughes has completed the repurchase of 11,865,211 shares of BHGE Class B common stock. With the sale of shares of Baker Hughes, General Electric has amassed net proceeds of $3 billion.
Investors should know that the merger of the struggling oil and gas business of General Electric with Baker Hughes was not appreciated by the market. In fact, the new entity — Baker Hughes, a GE company — has witnessed almost a 60% drop in stock price since the completion of the deal in July 2017.(Read more Baker Hughes to Eliminate GE Reference From Ticker & Name)
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
The Energy Select Sector SPDR – a popular way to track energy companies – was up 1.2% last week. The best performer was E&P biggie ConocoPhillips COP whose stock surged 6.1%.
Longer-term, over six months, the sector tracker is down 7.9%. offshore driller Transocean Ltd. RIG was the major loser during this period, experiencing a 38.7% price plunge.
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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Chevron Corporation (CVX) : Free Stock Analysis Report
Transocean Ltd. (RIG) : Free Stock Analysis Report
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
ConocoPhillips (COP) : Free Stock Analysis Report
Magellan Petroleum Corporation (TELL) : Free Stock Analysis Report
Baker Hughes, a GE company (BHGE) : Free Stock Analysis Report
Statoil ASA (EQNR) : Free Stock Analysis Report
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