It was a week wherein oil prices finished lower but natural gas futures logged a small gain.
On the news front, Equinor EQNR made a significant oil discovery in the Norwegian North Sea, while independent energy producer Ovintiv OVV divested its Eagle Ford assets for $880 million.
Overall, it was a mixed week for the sector. West Texas Intermediate (WTI) crude futures edged down 0.8% to close at $60.97 per barrel, while natural gas prices inched up 0.9% in the week to end at $2.55 per million British thermal units (MMBtu). In particular, the oil market extended its decline from the previous weeks and fell into correction territory.
Coming back to the week ended Mar 26, oil prices fell, as concerns over the reimposition of lockdowns in Europe and a slow rollout of the AstraZeneca COVID-19 vaccine dented the outlook for the commodity’s demand recovery. Prices were also dragged down by the U.S. government data showing another weekly build in crude, gasoline and distillate supplies. The obstruction of oil traffic along the strategic Suez Canal following the grounding of a massive container ship (which has since been freed) stoked further uncertainty about the market.
Meanwhile, natural gas finished higher on the back of growing liquefied natural gas (LNG) export and robust industrial consumption, which offset bearish weather changes at the onset of mild spring weather.
Recap of the Week’s Most-Important Stories
1. Equinor recently announced the biggest hydrocarbon discovery in the Norwegian continental shelf (NCS) year to date. The discovery at the Blasto prospect was made through exploration wells 31/2-22 S and 31/2-22 A. It is located 3 kilometers southwest of the famous Fram field.
The location of the Blasto discovery is close to Equinor’s existing infrastructure, making it suitable for tied-back options. This means the development of the prospect in Norway will fall in line with the company’s climate ambitions. It intends to decrease emissions from the Equinor operated fields and onshore plants in the country by 40% by the end of this decade.
The new discovery can enable the company to boost production while keeping carbon-intensity low. It plans to become a net-zero greenhouse gas emitter by 2050. The integrated firm’s key strategy is to capitalize on the renewable energy space and align its operations with the Paris Climate Agreement. Thus, to combat climate change, the company is investing actively in renewable energy projects, comprising power generation from solar and wind energy. (Equinor Discovers New Oil in NCS, Offshore Norway)
2. Ovintiv recently inked a deal with Validus Energy for the sale of its Eagle Ford acreage at a deal value of $880 million.
This Zacks Rank #1 (Strong Buy) company’s CEO Doug Suttles believes that this divestment continues its proven record of optimizing non-core asset value. He further added, "Proceeds will significantly accelerate the achievement of our debt reduction target and allow us to pay off near-term debt maturities with cash on hand. Our 2021 outlook is strong and we expect to generate significant free cash flow for the fourth consecutive year."
You can see the complete list of today’s Zacks #1 Rank stocks here.
In the last reported quarter, the company set a target to trim its total debt to $4.5 billion by 2022 end, indicating a 35% reduction from the current levels. Also, the plan included generating $1 billion from asset divestments. However, with the recent divestiture of Eagle Ford asset, the company now expects year-end debt for 2021 to be less than $5 billion, assuming $50 per barrel of crude oil and $2.75 per MMBtu of natural gas for the rest of the year. It also aims to reach its debt decreasing goal of $4.5 billion by the first part of next year rather than the end of 2022 as was previously forecast. (Ovintiv to Sell Eagle Ford Asset to Validus Energy for $880M)
3. Oasis Petroleum OAS reported that it entered a contribution and simplification agreement with Oasis Midstream Partners LP OMP, wherein the latter will purchase all remaining interests of Oasis Petroleum in Bobcat DevCo LLC and Beartooth DevCo LLC. Via simplification, the midstream partnership (formed by Oasis Petroleum) will expand its interest in Bobcat DevCo from 35% to 100% and in Beartooth DevCo from 70% to 100%.
Further, in an effort to simplify its corporate structure, Oasis Petroleum decided that in exchange for around $510 million ($229 million in cash and 14.8 million Oasis Midstream common units), it will withdraw its incentive-distribution rights under the MLP.
Finally, in addition to its previously announced dividend of $1.50 per share annually, Oasis Petroleum announced that its board of directors approved a new $100-million share-repurchase program. The stock repurchase policy will run out on Dec 31, 2022. (Oasis to Sell Its Midstream Assets to Simplify Structure)
4. Eni S.p.A. E recently agreed to acquire FRI-EL Biogas Holding to boost its carbon footprint reduction efforts. Ecofuel, a subsidiary of Eni and FRI-EL Greenpower, an electricity producer from renewables, struck the deal.
The acquiree has 21 biogas-to-electricity plants along with an OFMSW processing facility that processes organic fraction of municipal solid waste. Eni is planning to convert the plants to produce biomethane. Once the process concludes, the facilities are expected to supply more than 50 million cubic meters of biomethane per annum to the network.
Financial details of the deal, which can make Eni a major biomethane producer in Italy, are yet to be disclosed. The move is expected to boost the energy major’s growth in the circular economy, a regenerative concept that focuses on utilizing waste to create final products for consumption. The acquisition of FRI-EL Biogas Holding will be a noteworthy milestone in Eni’s strong focus on a greener future, abiding by the Paris Agreement. The integrated energy player is on track with the plan of full decarbonization of products and processes by 2050. (Can Eni's FRI-EL Biogas Acquisition be a Game Changer?)
5. Schlumberger SLB recently got a contract to drill 96 oil wells in southern Iraq. The contract has been valued at $480 million and the leading oilfield service provider will be working for ExxonMobil XOM and Basra Oil Company — a national Iraqi company. The news is as per Iraq’s cabinet announcement.
Notably, the authorities of the country have not disclosed specifically the site where the operations related to new drilling activities will take place. Importantly, in southern Iraq, this is not the first time that Schlumberger will be operating. In 2018, the company was awarded a contract by ExxonMobil to drill 30 wells at West Qurna-1 oil field, situated in the southern part of Iraq. The integrated drilling services contract was for a span of 42 months.
It is to be noted that the West Qurna-1 oil field, with its 20 billion barrels of expected recoverable reserves, is among the largest oil fields in the world. (Schlumberger Secures Deal to Drill Wells in Southern Iraq)
The following table shows the price movement of some the major oil and gas players over past week and during the last six months.
Company Last Week Last 6 Months
XOM +2.2% +67.2%
CVX +4% +48.5%
COP +4.6% +64%
OXY -1.2% +169.7%
SLB +4.7% +78%
RIG -10.8% +317.3%
VLO -0.8% +65.9%.
MPC +2.3% +82.5%
The Energy Select Sector SPDR — a popular way to track energy companies — was up 2.9% last week. The best performer was oilfield service biggie Schlumberger whose stock rose 4.7%.
Over the past six months, the sector tracker has gained 66.4%. Offshore driller Transocean was the major gainer during the period, experiencing a 317.3% price appreciation.
What’s Next in the Energy World?
As global oil consumption gradually ticks up from the depths of coronavirus amid the OPEC+-led supply cuts, market participants will be closely tracking the regular releases to watch for signs that could further validate a rebound. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that comes out regularly — will be on energy traders' radar. Data on rig count from energy service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. The outcome of this week’s key OPEC+ meeting will also be in the spotlight. Finally, news related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.
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