Oil & Gas Stock Roundup: Week's Action Highlighted by Exxon & BP

It was a week when oil and gas prices eked out fresh multiyear highs.

On the news front, U.S. supermajor ExxonMobil XOM issued update on its upcoming Q3 earnings, while London-based peer BP plc BP started oil production at its Thunder Horse South Expansion Phase 2 project in the U.S. Gulf of Mexico.

Overall, it was another good week for the sector. West Texas Intermediate (WTI) crude futures gained 2.6% to close at $75.88 per barrel and natural gas prices climbed more than 8% to reach $5.619 per million British thermal units (MMBtu). Overall, both commodities managed to maintain their forward momentum from the previous five weeks.

Coming back to the week ended Oct 1, oil prices rose despite a bearish report from the Energy Information Administration ("EIA") that showed a build in crude and fuel inventories. Instead, energy investors chose to concentrate on the market’s robust fundamentals and a supportive macro backdrop.

Crude supplies recently fell to their lowest levels since October 2018, with U.S. commercial stockpiles down some 17% since mid-March. There is also a marked improvement in fuel demand on the back of rebounding road and airline travel.

Natural gas climbed too, buoyed by off-season cooling demand, the anticipated pre-winter supply crunch, and surging consumption in Europe and Asia.

Recap of the Week’s Most-Important Stories

1.  ExxonMobil recently expressed optimism over the significantly higher oil and gas prices contributing to its third-quarter 2021 upstream earnings. The integrated energy giant is expecting its upstream business to generate a maximum of $1.5 billion more earnings in the third quarter sequentially. The company also projects a significant sequential improvement in its downstream business – another key operating unit.

The company projects operating results in the third quarter from the oil and liquids businesses to improve $200 million to $600 million compared to the June quarter of 2021, thanks to an uptick in oil prices. The improvement in natural gas prices is likely to have contributed another $500 million to $900 million to upstream business profits, as estimated by the energy major. The rolling out of coronavirus vaccines, which led to expectations of a strong rebound in economies, primarily helped commodity prices to move north in the September quarter of 2021.

ExxonMobil estimates $500 million to $700 million of sequential improvement in earnings from the downstream business in the September quarter, thanks to improved refining margins. However, the company estimates profits to decrease $200 million to $400 million from the chemical business due to an unhealthy chemicals margin. (ExxonMobil Expects Oil & Gas Price Hike to Aid Q3 Earnings)

2.   BP commenced production at its Thunder Horse South Expansion phase 2 project in the deepwater Gulf of Mexico. The Thunder Horse field is one of the largest discoveries of the company in the Gulf of Mexico. BP operates with a 75% working interest in the field, while ExxonMobil owns the rest.

In January 2017, the European energy operator announced the commencement of the Thunder Horse South Expansion project to increase production at the Thunder Horse platform by an estimated 50,000 gross barrels of oil equivalent per day. The platform is placed in more than 6,000 feet of water in the Mississippi Canyon Block 822.

The Thunder Horse facility commenced production in June 2008 and can manage 250,000 gross barrels of oil and 200 million gross cubic feet per day of natural gas. The field's initial two wells will add an average gross production of 25,000 barrels of oil equivalent per day. The company expects to drill eight wells for the field’s complete development. (BP Commences Production At Gulf's Thunder Horse Oil Platform)

3   TotalEnergies TTE reaffirmed its strategy of producing multiple sources of energy, with a primary focus on cutting carbon emissions. TotalEnergies is on course to meet its target of net-zero carbon emission by 2050 and is implementing steps to achieve the same. The Paris-based oil biggie expects to lower scope 1+2+3 net operated oil & gas emissions worldwide by 30% within 2030 from a 2015 base and contribute to lowering greenhouse gas emissions.

The company is making systematic investments in its operations to achieve clean energy transition goals. The company will invest $13-15 billion per year for the 2022-2025 period and allocate 50% of these investments to expand its activities and the rest for maintaining operations. Out of the planned growth investment, 50% will be dedicated to the development of new energies, mainly renewables and electricity, and the other half to natural gas, essentially LNG.

TotalEnergies is aiming to increase LNG production by 30% and substantially improve biogas production by 2025. The company aims to produce 100 GW of renewable electricity by 2030. Increasing the production of clean sources of fuel and electricity will assist it in lowering global emissions. (TotalEnergies Issues Outlook, Focuses on Clean Energy)

4.   Phillips 66 PSX announced that it has set an ambitious goal of reducing greenhouse gas emissions. From its operations, the diversified energy manufacturing and logistics company has set a target of lowering Scope 1 and Scope 2 emissions intensity by 30% by 2030. Over the same time frame, from its energy products, the company has set a goal of lowering Scope 3 emissions intensity by 15%. The comparison is with the 2019-level.

The company has set a high priority on combating climate change and has been supporting the Paris Agreement. While addressing the mounting need for affordable energy, which will aid economic growth, Phillips 66 is also aligning its goal with developing climate change solutions.

Phillips 66 has an in-house research and development group to support the energy transition, which very few companies have in the downstream space. With a motive to develop and commercialize low-carbon technologies, the company’s Energy Research & Innovation group has been working actively. (Phillips 66 Announces Ambitious Plan of Reducing GHG)

5.  Eni SpA E recently commenced production from the Cabaça North development project in deep waters offshore Angola. The project is located in the Eastern area of Block 15/06. The Zacks Rank #1 (Strong Buy) Italian energy major is utilizing the Armada Olombendo Floating Production Storage and Offloading (FPSO) unit at the site.

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

Peak production from the Cabaça North development is expected to touch 15,000 barrels of oil per day (bpd). It is likely to boost and sustain the Armada Olombendo FPSO’s production. The vessel has an overall production capacity of 100,000 bpd, with no discharge and process flaring. Commencing output from the development marks Eni’s drive toward infrastructure-led exploration, creating sustainable opportunities from the existing infrastructure.

The Cabaça North development project marks the second start-up by Eni’s Angola unit this year, following the Cuica field in the same block. It is using the same FPSO vessel for producing hydrocarbons from the Cuica field. It was a milestone for the energy giant as it took only a little more than four months to bring the discovery into production. Within the next few months, the company expects its third project to come online from the Ndungu Early Production in the western part of the block. (Eni Begins Production From Cabaca North Offshore Angola)

Price Performance

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

Company    Last Week    Last 6 Months

XOM                +5.8%                +9.1%
CVX                 +3.7%               +1.3%
COP                +7.8%               +37.4%
OXY                 +10.9%             +29.5%
SLB                 +4.7%                +11%
RIG                  +11.7%              +13.5%
VLO                 +8.9%                -0.4%
MPC                +2.7%                +17.2%

The Energy Select Sector SPDR — a popular way to track energy companies — was up 5.8% last week. The best performer was offshore driller Transocean RIG whose stock climbed 11.7%.

Over the past six months, the sector tracker has increased 12.1%. Upstream biggie ConocoPhillips COP was the major gainer during the period, experiencing a 37.4% price appreciation.

What’s Next in the Energy World?

As the global oil consumption outlook strengthens amid tightening fundamentals, 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 oilfield service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. Finally, news related to coronavirus vaccine approval/rollout/distribution will be of utmost importance.

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